Following the release of the mixed set of quarterly results by the Falguni Nayar-led company, shares of FSN E-Commerce Ventures (Nykaa) fell 5% in Tuesday’s trading. Analysts reported that Nykaa surpassed growth projections, but gross margins fell short as a result of the downturn in the fashion and BPC segments’ gross margins. According to Nuvama Institutional Equities, the revival of growth in the fashion industry, which has been a source of worry for many, is good.
The stock dropped 5.07 percent to a BSE low of Rs 142.05. Even if a few brokerages have lowered their price estimates for the company, their targets of up to Rs 250 still point to a possible upside of up to 76%.”Given the recent market volatility, we bake in a higher cost of capital assumption once more, resulting in a target of Rs 195 (down from Rs 251 before) and maintaining our “BUY” recommendation. Nykaa trades at 5 times FY25E EV/Sales. Growth and profitability must both coexist in order for valuations to rise. Additionally, the management considers the gross margin miss to be an aberration that must be corrected, as any structural impact could negate the gains of marketing and fulfilment “explained Nuvama. When compared to the same quarter last year, Nykaa’s profit fell by 70.67% year over year (YoY), from Rs 27.93 crore to Rs 8.19 crore. In comparison to the same quarter last year, operating revenue increased by 33% to Rs 1,462.82 crore from Rs 1,098.36 crore. According to Nykaa, GMV increased 37% YoY to Rs 2,796.50 crore. According to the report, gross profit increased by 25% YoY to Rs 634.70 crore and Ebitda increased by 13% YoY to Rs 78.20 crore. According to Nykaa, the Ebitda margin for the quarter was 5.3%.
According to Kotak Institutional Equities, Nykaa reported revenue growth of 33% YoY, which was 4% below expectations. This rise was fueled by a 26% YoY increase in BPC GMV and a 50% YoY increase in fashion GMV. The miss, according to the report, was caused by unfavorable seasonality (sales shifting away from Q3) and a little decrease in discretionary spending. According to the report, the lower mix of BPC in total GMV was the cause of the lower-than-anticipated gross margin of 43.4%.
“The majority of these investments will come from BPC business cashflows and will be made in e-B2B, offline shop development, and storage. For FY2024–25E, we increase our projection of the fashion industry’s loss, which reduces Ebitda by 3–4%. We maintain BUY and reduce the FV to Rs 215 from Rs 230 before “It read.
The stock is priced at Rs 200 by Goldman Sachs. It has reduced its revenue forecast for the years FY23 to FY25 by up to 4% and its Ebitda forecast by 14% to 28%. According to JM Financial, operating leverage caused the Ebitda margin to slightly improve sequentially by 37 bps despite a fall in contribution margin. However, the number was far lower than 6.3% street projections.
“Net margins were 0.63 percent due to higher depreciation costs brought on by warehouse and store expenditures and higher borrowing to cover working capital needs. In order to be closer to its clients, the company expanded omni-channel with 153 outlets in 56 cities and 37 fulfilment centres in 15 cities. We maintain our “BUY” recommendation and set a target price of Rs 250 for December, which is 11% below our previous target price because we expect slower growth as the breakeven point for the fashion vertical will now occur in FY27 “It stated.
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