11% Drop In 1 Day: Nykaa Shares Fall After Q1 Numbers; Brokerage Recommend Buy, Expects 57% Upside

Online fashion and beauty products manufacturer, FSN E-Commerce Ventures aka Nykaa share price witnessed a bloodbath on Monday to nosedive by 11.11% at least on BSE. Investors mood soured despite the company posting a stable Q1 earnings. It would be the slower-than-expected GMV which has dampened sentiment in Nykaa shares. Also, brokerage JM Financial has lowered its GMV estimates for Nykaa, however, it recommended buying the stock. Nykaa shares have the potential to rise by nearly 57% ahead.

On BSE, Nkyaa shares ended at Rs 134.05 apiece down by Rs 12.20 or 8.34%. The stock fell as much as 11.11% overall in the day with an intraday low of Rs 130 apiece.

At the current market cap, Nykaa's valuation stood at nearly Rs 38,250 crore.

During the June 2023 quarter, Nykaa shares garnered 8% growth in consolidated net profit to Rs 5.4 crore as against Rs 5 crore a year ago same quarter. However, the PAT attributable to shareholders declined by 27% YoY to Rs 3.3 crore. Consolidated revenue from operations climbed by 24% YoY to Rs 1,422 crore in the quarter. EBITDA jumped 60% YoY to Rs 73.5 crore, while EBITDA margins expanded at 5.2%.

In the quarter, the overall BPC GMV grew at 24%, with strong performance across its verticals, while overall fashion GMV grew at 12% for Q1 FY24, slower than the long-term trajectory. The Others Business Vertical, of which Superstore By Nykaa, constitutes a significant share, witnessed a strong 92% GMV growth this quarter.

Should you buy Nykaa shares?

In a research note, analysts at JM Financial said, "With Nykaa having already shared revenue update earlier, the focus in earnings release was largely on operating metrics and profitability. The company reported ~24%YoY GMV growth with BPC/Fashion/Others growing at 24%/12%/92%, respectively. Management did admit that Fashion growth was lower than desired and exuded confidence on the ability to ramp it up."

According to the brokerage, while 24% YoY GMV growth is certainly respectable and suggests stable market share, we are getting more circumspect on growth momentum considering another quarter of decline in net customer addition at just 0.3mn (0.6mn in Q1FY23). The quality of transactions and customer cohorts have improved, indicated by an increase in AOV to Rs 1,849 (Rs 1,780 in Q1FY23) and existing customers contributing to 79% of GMV (74% in Q1FY23).

Nykaa's management expects similar growth trends in Q2FY24, along with a steep rise in the seasonally strong Q3. Brokerge added, "Global FMCGs as well as luxury brands are beginning to view India as an emerging growth and investment opportunity and Nykaa, with its dominant market share will prove to be a meaningful partner for the same."

On the valuation, the brokerage said, "Considering the lower than expected rise in annual transacting users in BPC, we have tweaked estimates with GMV declining by 2-3% over FY24-27E. The resulting change in business mix causes EBITDA margins to decline by 20-30bps. However, we now anticipate Fashion segment to breakeven in H2FY26 compared to H2FY27 earlier. We reiterate Nykaa's 'BUY' rating with Sep'24 TP of Rs 210. Key Risks: Ramp-up in aggression from competition."