Nykaa vs Mamaearth: Which e-commerce stock should you pick for long term?

E-commerce stocks, many of which had a shaky start in the stock market, have shown signs of recovery over the past year, with improvements in both stock performance and earnings. Amid this rebound, the question arises: between FSN E-Commerce Ventures (Nykaa) and Honasa Consumer (Mamaearth), which offers better long-term investment opportunities?

Stock Price Trend

Nykaa has outperformed Honasa so far this year, rising over 30 percent year-to-date in 2024, while the latter has added over 7 percent during the same period.

However, both Nykaa and Honasa have delivered positive returns in five of the eight months this year.

Nykaa experienced a 16 percent rise in August, extending gains for the third straight month. It added 9.4 percent in July and a 7.5 percent gain in June. Before this, the stock faced a downturn, dropping 7 percent in May after a 9 percent surge in April, and 3.2 percent in March. Earlier in the year, Nykaa saw a 3.9 percent fall in February and 6 percent decline in January.

In contrast, Honasa is up 1 percent in August following a 7.5 percent jump in July. Before that, the stock lost 2 percent in June after 2 months of gains, advancing 2.4 percent in May, 7.2 percent in April. In February and March as well, the stock corrected a bit, down 2.8 11.5 percent in Feb and 2.8 percent in March. Meanwhile, the stock rose over 6 percent in January.

Over the past year, Nykaa has risen 56 percent, while Honasa is yet to complete its 1-year mark. But from its IPO price of ₹324, Honasa has jumped 46 percent. The IPO was open between October 31, 2023 and November 2, 2023.

Driven by strong market sentiment and investor confidence, Nykaa reached its 52-week high last week. It hit a year high of ₹228.50 on August 21, 2024, and a 52-week low of ₹131.70 on August 28, 2023. Currently trading at ₹226.70, Nykaa has surged over 72 percent from its yearly low.

Meanwhile, Honasa reached its record high of ₹510.75 on January 23, 2024. Now trading at ₹472.20, the stock is just 7.5 percent away from that peak. However, it has rallied over 84 percent from its 52-week low of ₹256.10, hit on November 10, 2023.

Nykaa vs. Mamaearth: A Comparative Look at Q1 FY25 Earnings

FSN E-Commerce Ventures, the parent company of beauty and personal care giant Nykaa, delivered a robust performance in the quarter ended June 30, 2024, with a net profit of ₹13.6 crore. This marks an impressive 152 percent increase from ₹5.4 crore in the same period last year. The Falguni Nayar-led company also reported an operating revenue of ₹1,746 crore, reflecting a 23 percent year-on-year growth from ₹1,422 crore in the corresponding quarter of the previous year.

Sequentially, Nykaa’s profit after tax (PAT) grew by 50 percent from the ₹9.07 crore reported in Q4 FY24, while its revenue from operations increased by 4.6 percent from ₹1,668 crore in the January-March quarter. The company’s gross merchandising value (GMV) for the April-June quarter stood at ₹3,321 crore, registering a 25 percent year-on-year growth. Additionally, Nykaa's EBITDA grew by 31 percent year-on-year to ₹96 crore, with an EBITDA margin improvement of 34 basis points to 5.5 percent.

On the other hand, Honasa Consumer, the parent company of Mamaearth, also reported strong financial results for the quarter ended June 30, 2024. The company posted a consolidated net profit of ₹40 crore, representing a 63 percent year-on-year increase from ₹24 crore in the same period last year. Honasa’s revenue from operations grew by 19 percent to ₹554 crore, up from ₹464 crore in the year-ago quarter.

Honasa Consumer also registered a product business growth of 20.3 percent, driven by an underlying volume growth (UVG) of 25.2 percent. The company's EBITDA margin expanded by 201 basis points year-on-year to 8.3 percent, resulting in an EBITDA of ₹46 crore. Mamaearth attributed its strong performance to improved gross profit margins and efficiencies achieved through scaling.

Between Nykaa and Mamaearth, which stock should you pick for long term?

Investors are often faced with the challenging decision of choosing the right stocks for long-term gains, especially in the fast-evolving digital economy. Two prominent players in the beauty and personal care industry, Nykaa and Mamaearth, have been under the spotlight for their potential to deliver substantial returns. Experts have weighed in on this debate, with a strong preference for Nykaa as a long-term investment.

Dr. Ravi Singh, SVP - Retail Research, Religare Broking has picked Nykaa over Mamaearth for long term.

After making an average, lackluster debut as new-age internet stocks, some are now building strong comebacks as multibagger returns; and the trend is likely to continue with increased confidence in the growth potential for these digital-first companies by investors. Of the key players, Nykaa emerges as the top pick for long-term investment.

What has kept Nykaa ahead in the e-commerce space for beauty and fashion, with its strong omni-channel presence, definitely places the company well for long-term growth. It is its ability to deliver a very personalized buying experience, coupled with strategic partnerships that global brands have made, that further consolidates its market leadership.

Even as Honasa Consumer has been promising, too—because of its naturals and sustainability products — Nykaa's established brand name and wider product portfolio give it a more convincing investor bet riding on the growth potential in the digital economy. Nykaa, with its resilience and growth potential, is thus a solid bet for long-term gains.

Pravesh Gour, senior analyst at Swastika Investmart also prefers Nykaa for long term.

Nykaa against Honasa Consumer. Both businesses are positioned to profit from the fast growth in the beauty and personal care industries. It is imperative to take into account several elements, including but not limited to evolving customer tastes, economic situations, and competitive pressures. Honasa Consumer may present a better opportunity for expansion. Nykaa, however, might be a better option if you'd rather make an investment in something more reputable and steady. The Mamaearth brand is expected to reach a mature stage and see a moderate growth rate of 14 prcent throughout the FY24–FY26 period.

On the other hand, Nykaa Q1 net profit jumps to ₹14 crore, revenue up 23 percent, and the company is also set to acquire additional stakes in Dot & Key and Earth Rhythm. The company and its subsidiaries were expected to post a revenue growth of around 22–23 percent on a year-on-year (YoY) basis during Q1 FY25. Nykaa's longer track record might make it a more suitable option for long-term investors, while Honasa Consumer could be a good choice for those seeking higher growth potential over a shorter time frame.

Technical View

Technically, Nykaa is also placed in a better position than Honasa. Nykaa has witnessed a breakout of a long consolidation and closed above 200 on the longer timeframe with strong volume. The overall structure of the counter also looks lucrative for long-term investment, as it is trading above its all important moving averages. However, momentum indicators such as the RSI (Relative Strength Index) and MACD (moving Average Convergence Divergence) are currently in a negative position. On the upside, Rs. 260 is a significant psychological resistance level. If it surpasses this level, we can anticipate a move towards the 320+ levels in the near term. On the downside, Rs. 190 serves as the support level.

While in Honasa, it is forming higher highs and higher lows formation. However, 500-520 is the resistance zone on the upside. For long-term investors, it is advised to take positions only above the 520 level with a stop-loss of 440 for the target of Rs. 600/740.

However, Apurva Sheth, Head of market Pespectives and Research, SAMCO Securities has advised avoiding both the stocks.

Honasa Consumer has reported losses in 4 out of last 6 financial years. Nykaa reported wafer thin profits of ₹48 crore on sales of ₹6,710 crore on TTM basis. The profits of both these companies are abysmal compared to the mighty valuations they are currently trading at. I would prefer to avoid both these fancy internet stocks and instead look for traditional businesses with much better valuations, distribution channels and profitability.

Conclusion

In the debate between Nykaa and Mamaearth, Nykaa emerges as the stronger candidate for long-term investment. Its established market presence, strategic partnerships, and robust financial performance make it a more reliable choice. However, for those willing to take on more risk for potentially higher rewards, Mamaearth offers an intriguing opportunity. Investors should carefully consider their risk tolerance and investment goals before making a decision, with some experts suggesting a cautious approach to both stocks in light of their high valuations and the evolving market landscape.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.