Nykaa shares plunge 5% after mixed Q3 results. Stock can still rally up to 50%, suggest analyst price targets

By admin On Feb 14, 2023

Shares of FSN E-Commerce Ventures (Nykaa) plunged 5 per cent in Tuesday’s trade after the Falguni Nayar-led company reported a mixed set of quarterly results. Analysts said Nykaa met growth expectations, but margins undershot as gross margin for both BPC and Fashion segments felt the macro and down-trading impact. Growth reviving in fashion, a concern for many quarters, is a positive, said Nuvama Institutional Equities.

The scrip fell 5.07 per cent to hit a low of Rs 142.05 on BSE. Analysts still have price targets of up to Rs 215, which suggest up to 50 per cent potential upside from the prevailing price.

“Given the recent volatility in the stock, we again bake in a higher cost of capital assumption, which yields a target of Rs 195 (Rs 251 earlier); maintain ‘BUY’. Nykaa is trading at FY25E EV/sales of 5 times. 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,” Nuvama said.

Nykaa reported a 70.67 per cent year-on-year (YoY) drop in profit at Rs 8.19 crore for the December quarter compared with Rs 27.93 crore in the same quarter last year. Revenue from operations rose 33 per cent to Rs 1,462.82 crore compared with Rs 1,098.36 crore in the year-ago quarter. Nykaa said GMV grew 37 per cent YoY to Rs 2,796.50 crore. Gross Profit, it said, rose 25 per cent YoY to Rs 634.70 crore while Ebitda was up 13 per cent YoY at Rs 78.20 crore. Ebitda margins for the quarter came in at 5.3 per cent, Nykaa said.

Kotak Institutional Equities said Nykaa posted 4 per cent lower-than-expected revenue growth of 33 per cent YoY, aided by 26 per cent yoy growth in BPC GMV and 50 per cent YoY growth in fashion GMV. The miss, it said, was on account of weak seasonality (shift of sales away from Q3) and some slowdown in discretionary consumption.

The lower-than-expected gross margin of 43.4 per cent was on account of the lower mix of BPC in overall GMV, it said.

“Investments in e-B2B, offline store expansion and warehousing will continue; most of this will be from BPC business cashflows. We increase estimate of loss from the fashion business, which results in a 3-4 per cent Ebitda cut for FY2024-25E. We retain BUY with a revised FV of Rs 215 from Rs 230 earlier,” it said.

Goldman Sachs has a target of Rs 200 on the stock. It has lowered its FY23-25 revenue estimate by up to 4 per cent while slashing Ebitda estimates by 14-28 per cent.

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