Nykaa jumps 5% on robust Q3 results: Should you buy, hold, or sell the stock?

Shares of FSN E-Commerce Ventures, which operates Nykaa, gained 5 percent at the open on February 7 after the company reported stellar earnings for the quarter ended December 2023.

Its net profit surged 106 percent on-year to Rs 17.5 crore, driven by strong demand during the festival and wedding seasons, while its revenue was up 22 percent to Rs 1,788.8 crore.

The results are largely in line with what Nykaa had forecast last month. The beauty and personal care (BPC) company’s gross merchandise value (GMV) grew 29 percent on-year to Rs 3,619.4 crore, with all divisions contributing to the company’s growth.

At 9:16 am, Nykaa shares were trading 5.3 percent higher at Rs 168.95 on the National Stock Exchange.

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Nykaa’s own label impacted gross margins, leading to compressed contribution margins in the beauty and personal care segment. However, the fashion segment surprised with its growth and profitability in the quarter under review. Despite these challenges, growth remains a priority, which may keep contribution margins range-bound in the short term, noted Jefferies.

Stock Call: Should you buy, hold or sell Nykaa shares?

According to Morgan Stanley, the improving profitability in the fashion and eB2B segments of Nykaa is a positive development. The brokerage has given Nykaa an ‘overweight’ rating with a target price of Rs 190 per share.

Nykaa’s operating leverage is expected to drive up the company’s EBITDA margin in the future, Jefferies said as it retained the ‘buy’ call on Nykaa with a target price of Rs 210 per share.

Nykaa’s EBITDA margin was slightly lower than expected in the December FY24 quarter due to lower ad income and ESOPs, as well as Middle East store expenses.

Despite these challenges, HSBC believes that Nykaa’s scale makes it formidable in the BPC sector, and its fashion segment is on a superior growth trajectory. The international brokerage maintained a ‘buy’ rating on Nykaa with a target price of Rs 240 per share.

Also Read | Nykaa Q3 results: Net profit more than doubles to Rs 17.5 crore, revenue up 22%

In the previous session, the Nykaa shares fell half a percent to close at Rs 160.50 on the National Stock Exchange (NSE). The stock has rallied around 15 percent in the last one year, underperforming benchmark Nifty which has risen 21 percent during this period.

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