Shares of Nykaa’s parent FSN E-Commerce Ventures can rally up to 50%, brokerages have indicated after the online beauty products seller on February 6 reported its quarterly results. Its consolidated profit nearly doubled year-on-year to ₹16.18 crore for the December 2023 quarter while revenue from operations rose 22.28% to ₹1,788.79 crore.
Following the third quarter results, Nykaa shares traded in the green on February 7 and several analysts expect the stock to rally up to 50%.
According to the company statement, Nykaa’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin expanded to 5.5% for the quarter, marking an annual growth of 26% in EBITDA at ₹98.7 crore, driven by direct and indirect cost efficiencies.
However, global brokerage Jefferies says that Q3 EBITDA missed forecasts as weak demand weighed across line items. It noted the firm’s ad income was lower as beauty and personal care (BPC) brands prioritised discounts over marketing spending.
According to Jefferies, discounts rose on the firm’s label which impacted gross margin. BPC contribution margin compressed to a seven-quarter low, it added.
The brokerage, which has a buy call with a target price of ₹210, also pointed out that Nykaa’s fashion segment surprised positively on growth and profitability. The operating leverage should drive up EBITDA margin, it added.
HSBC too has a buy call on the beauty product seller’s stock with a target price of ₹240, implying an over 49% upside from the previous closing price of February 6.
It highlighted that Q3 saw revenue growth of 22% led by BPC gross merchandise value (GMV) growth of 25% and fashion at 40%. The BPC GMV growth and fashion segment was strong amid a weak demand environment. EBITDA Margin, however, was a tad lower than expected due to lower ad income, ESOPs and Middle East store expenses, it said.
The brokerage believes the company with its scale is formidable in BPC and fashion is on a superior track now.
Morgan Stanley, meanwhile, has given Nykaa an overweight rating with a target price of ₹190. Though the brokerage believes Q3 earnings data was a slight miss, it sees stable growth trends across businesses. It noted that improving profitability in fashion and eB2B segments are positives
The brokerage also highlighted that incremental negative EBITDA margin impact is on the back of ESOP expenses and that it sees international expansion as a negative.
Nykaa shares traded flat at ₹160.80 on BSE at 11:12 am.
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
BJP's Hindi heartland dominance faces test in phase 3 polls
May 2, 2024 9:14 PM
Lok Sabha Election: Re-elections at a Ajmer booth after presiding officer misplaces register of voters
May 2, 2024 4:54 PM