Nykaa share price: Should you buy even as Q3 profit plunges 71%? What brokerages recommend

“FSN E-Commerce Ventures (Nykaa) reported a mixed bag—it met growth expectations, but margins undershot as gross margin for both BPC and Fashion felt the macro as well as down-trading impact. Growth reviving in fashion, a concern for many quarters, is a positive,” said brokerage Nuvama Research.

While the gross merchandise value (GMV) of the company grew 37% year-on-year (YoY) to ₹2,796.5 crore, the average order value (AOV) dipped 0.5% to ₹1,958. Nykaa’s Executive Chairperson, MD, and CEO Falguni Nayar said the company is focussing on improving EBITDA (operational profit) margin.

“Given the recent volatility in the stock, we again bake in a higher cost of capital assumption, which yields a target price of ₹195; maintain ‘BUY’ on Nykaa shares. The confluence of both growth and profitability would be critical for valuations to improve. Besides, the gross margin miss, an aberration as per management, must reverse else as any structural impact could negate benefits in marketing and fulfilment,” the note stated.

“While the contribution margin sustained at 24% (Q3FY22: 22%, Q2FY23: 24%), gross margins were down ~180 bp YoY to 41% due to category mix change, higher brand funded discounts during festive and consumer downgrades. On the outlook ahead, while Q3 is ideally the strongest quarter, Nykaa expects higher marriages and sales events to drive growth in Q4FY23,” Nuvama added.

Global brokerage Goldman Sachs has a Neutral rating with a target price of ₹200. The brokerage said that the profits came below estimates on lower gross margin and above expected spends on eB2B vertical. Further, the positive surprise was acceleration in fashion growth while BPC segment surprised negatively.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.