Nykaa opens higher on hopes of sales growth but pares gains soon

Macquarie has an ‘underperform’ rating on Nykaa’s stock whereas Morgan Stanley has an ‘overweight’ recommendation.

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Shares of FSN E-Commerce Ventures Ltd (Nykaa) gained around 2 percent in opening trade on July 10 but slipped into the red within the initial minutes of the bell.

In its business update for Q1FY24, the online clothing and cosmetics retailer said that it expects its consolidated revenue for the first quarter of fiscal 2024 to grow in the mid-twenties on a year-on-year (YoY) basis, cheering the market which led the stock to open marginally higher.

However, at 9:28 am, shares of Nykaa were trading 0.2 percent lower at Rs 140.5 on the BSE.

Despite less spending, Beauty and Personal Care (BPC) products are still seeing good sales. Nykaa’s BPC categories continued to witness strong growth because of the success of its flagship sale event–Pink Summer Sale–this quarter. The BPC business is expected to have a significant increase in net sales value as compared to the same time last year, thanks to strong demand in cities, the company said.

Coming to the fashion business, Nykaa saw a gradual increase in the number of orders and consistent average order value compared to the previous year. Nykaa expected net sales value in the fashion business to grow by a low to mid-teens percentage compared to the same time last year.

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“We expect discretionary spending to improve with the revival of seasonal demand,” said the Indian e-commerce company founded by Falguni Nayar.

Brokerage firm Macquarie is of the view that the Q1 business update is broadly in-line with its expectations. It believes the company will clock a 25 percent growth in sales in the quarter ended June. Nykaa’s beauty contribution margin should drive improvement in operating margin to 5 percent.

Macquarie has an ‘underperform’ rating on the stock with a target price of Rs 115 whereas Morgan Stanley has an ‘overweight’ call on the beauty product company’s stock with a target price of Rs 184.

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