Nykaa advances 6% on healthy Q2 results; brokerages remain divided

Nykaa reports Q2 results with 72 per cent increase in consolidated net profit for the second quarter at Rs 10 crore as compared to Rs 5.85 crore a year ago

FSN E-Commerce Ventures, parent company of Nykaa, shares gained 5.7 per cent in trade on Wednesday, November 13, 2024, and registered an intraday high of Rs 187.85 per share on BSE.  Around 9:46 AM, Nykaa share price was up 1.15 per cent on BSE at Rs 179.7 per share. In comparison the BSE Sensex was down 0.18 per cent at 78,531.2.

 

Nykaa on Tuesday, after market hours, reported a consolidated net profit (attributed to owners) for the second quarter at Rs 10.04 crore as compared to Rs 5.85 crore a year ago, up 72 per cent. On a quarter-on-quarter basis, the net profit was 4 per cent higher.

 

The revenue from operations for the quarter under review stood at Rs 1,874.74 crore as compared to Rs 1,507.02 crore a year ago which implies a rise of 24.2 per cent. 

 

The Earnings before interest, tax, amortisation, and depreciation (Ebitda) for the quarter under review stood at Rs 104 crore, up 29 per cent, as compared to Rs 81 crore. Similarly, Ebitda margins for the quarter stood at 5.5 per cent as compared to 5.4 per cent a year ago.

 

Analysts believe even though the company posted a healthy Q2, some segments did not fare as per expectations.

Here's how brokerages view Nykaa's Q2 performance:

Kotak Institutional Equities: We trim FY2025-27 Ebitda estimates by 6-9 per cent as we assume lower profitability in the beauty and personal care (BPC) business on account of higher marketing spends and selling and distribution (S&D) expenses as well as slightly higher loss run-rate for the electronic business-to-business (eB2B) business. 

 

We also note a potential risk from quick commerce companies, which continue to add brands and stock keeping units (SKUs) and may eventually put pressure on Nykaa’s fulfillment costs. We also align depreciation charge to 1HFY25 run-rate resulting in a sharply higher earnings per share (EPS) cut. 

 

The brokerage has retained a 'Sell' call on Nykaa, while cutting the target price to Rs 170 from Rs 190 per share.

 

JM Financial: In a quarter where consumption names disappointed, Nykaa delivered decent growth numbers with BPC/Fashion delivering 29 per cent/10 per cent year-on-year Y-o-Y growth. Though BPC growth did get a boost from 80 per cent Y-o-Y in eB2B business, core BPC GMV growth came in at a robust 26 per cent. 

 

With customer acquisition remaining prominent, core BPC saw a dip in GMV- net sales value (NSV) conversion while ad expenses also inched up. Overall, the company reported 24.4 per cent Y-o-Y growth in revenue to reach Rs 1,874 crore with Ebitda margin flat sequentially at 5.5 per cent, missing our estimate by 50 bps. Despite the miss, we believe the core BPC Ebitda margin continued to improve with a 20 bps jump Y-o-Y while Fashion losses sustained around Rs 25 crore. 

 

We forecast core BPC to sustain Ebitda margin improvement driven by operating leverage while other segments will see peak losses in FY25. We find downside limited with favourable risk reward making Nykaa the top pick in the internet space. 

 

The brokerage retained ‘Buy’ while maintaining the target price at Rs 250 per share.

 

Nuvama Institutional Equities: Nykaa reported subdued Q2FY25 results with revenue at Rs 1,875 crore, up 24.4 per cent Y-o-Y in line with consensus.

 

Its BPC/Fashion reported NSV growth of 25 per cent/13 per cent Y-o-Y. The Ebitda margin was similar to last quarter at 5.5 per cent as compared to a consensus of 6.1 per cent. The profit after tax (PAT) came in at Rs 13.4 crore, lower than the consensus forecast of Rs 24.7 crore.

 

The growth in the fashion business continued to remain subdued due to the overall slowdown in the industry as well as the shifting of festive purchases to H2 compared with last year. Marketing spending remained elevated to support overall growth although at the cost of margins. We are reducing FY25E/26E/FY27E PAT by 8.2 per cent/8.0 per cent/8.7 per cent. 

 

We reckon an improvement in growth in H2 on the back of higher festive and wedding demand. We continue to forecast an improvement in profitability on the back of operative leverage, although we have moderated our expectations due to

elevated marketing spends.

 

The brokerage retained 'Buy' on Nykaa and raised target price to Rs 205 from Rs 220 per share.