Nykaa’s positive show in Q2 earns favourable brokerage calls; stock rises 4%

Beauty and wellness e-commerce company Nykaa’s Q2 FY24 net profit jumped 50 percent on-year, and despite missing estimates, earned bullish calls from foreign brokerages, which suggest to ‘buy’ the stock given robust merchandising and user growth.

Nykaa share price rose nearly 4 percent in early trade on November 7. At 9:15 am, Nykaa stock was trading at Rs 152.55 on NSE.

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Nykaa stock call: Brokerages say ‘buy’; check target prices

Morgan Stanley has given the Nykaa stock an ‘Overweight’ rating with a target price of Rs 173 per share in a post results report. The report said that in the second quarter, Nykaa’s EBITDA margin was ‘slightly lower’.

However, there are some bright spots, such as improving growth and contribution margins in the fashion segment. The Beauty and Personal Care (BPC) segment saw a 23 percent increase in Gross Merchandise Value (GMV), and the contribution margin remained steady at 26.4 percent. There’s an expectation that shifting the festive season to the third quarter will drive growth.

Discounts weigh on Nykaa margins

Jefferies has assigned a ‘Buy’ rating on Nykaa stock with a target price of Rs 200 per share. The firm said that in the second quarter, Nykaa’s EBITDA (earnings before interest, taxes, depreciation, and amortization) didn’t meet the expected numbers because of lower gross margin (GM).

The company’s management explained that this was due to offering higher discounts in the Beauty and Personal Care (BPC) products. The reason for the increased discounts was higher competition, a drop in advertising income, and changes in the mix of products. Despite this, Nykaa’s revenue growth remained strong, primarily because of a significant increase in the number of users in both key segments.

Beauty and Personal Care business growth shines bright on Nykaa

CITI has issued a ‘buy’ call on Nykaa with a target price of Rs 170 per share in a recent research report. The report said: “In the second quarter, Nykaa’s Beauty and Personal Care (BPC) business maintained stable growth, although it saw a slight dip in year-over-year growth from 23 percent in Q1 to 20 percent in Q2, primarily due to a shift in the festive season to Q3.”

Also Read: Nykaa Q2 Results: Net profit jumps 50% to Rs 7.8 crore, revenue grows 22%

FSN E-Commerce Ventures, which operates beauty and personal care (BPC) company Nykaa, reported its net profit increase by 50 percent to Rs 7.8 crore in Q2FY24 from Rs 5.2 crore in Q2FY23 , led largely by its beauty and personal care (BPC) business, which witnessed a strong demand during the quarter. Nykaa’s BPC unit saw strong demand during the flagship sale event in July which also provided a boost to the bottom line.

The festive season is crucial for e-commerce companies such as Nykaa and others, which typically run a series of sales before Diwali. Last year, most of the sales had begun in Q2, but this year, the sales were delayed by a few weeks. “This shift has a base impact on the Q2 FY24 growth to some extent,” Nykaa had said in an exchange filing last month.

Also Read: Cost of a delayed festive season: 300 basis points taken off from growth, says Nykaa’s Falguni Nayar

The 50-percent growth in net profit was coupled with a 22 percent increase in revenue from operations which stood at Rs 1,507 crore in the quarter, up from Rs 1,230.8 crore in the same period last year. The company’s earnings before interest, taxes, depreciation and amortization (EBITDA) margin improved from 5 percent in Q2FY23 to 5.4 percent in Q2FY24.

Nykaa stock performance

The FSN E-Commerce Ventures stock has given a return of 14.30 percent over the last six months. The benchmark NSE Nifty 50 index has given a return of 6.28 percent over the same duration.

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