Nykaa share price jumps nearly 6% after Q3 results; Should you buy the stock?

Nykaa share price jumped nearly 6% in early trade on Wednesday after the company reported strong Q3 results with net profit nearly doubling. Nykaa shares rallied as much as 5.95% to ₹170.05 apiece on the BSE.

FSN E-Commerce Ventures, the parent company of beauty and fashion retailer Nykaa, on Tuesday reported a net profit of ₹16.2 crore in the quarter ended December 2023, a rise of 98% from ₹8.2 crore in the year-ago period, driven by strong demand during the festival and wedding seasons. 

The company’s revenue from operations in Q3FY24 rose 22% to ₹1,789 crore, compared to ₹1,462 crore, YoY.

The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) during the December quarter rose 26.4% to ₹99 crore from ₹78 crore, while EBITDA margin increased to 5.5% from 5.3%, YoY, led by direct and indirect cost efficiencies.

Read here: Nykaa Q3 Results: Net profit up 106% to ₹17.5 crore, revenue up 22% YoY; 5 key highlights

Nykaa’s gross merchandise value (GMV) grew 29% YoY to ₹3,619.4 crore in the three months to December, with all divisions contributing to the company’s growth.

The consolidated Beauty & Personal Care (BPC) GMV witnessed a growth of 25% YoY, while fashion GMV grew 40% YoY led by strong growth across all metrics.

Here's what brokerages have to say on Nykaa's Q3 results and Nykaa share price:

Nuvama Institutional Equities

According to Nuvama Institutional Equities, Nykaa reported a stable quarter with growth sustaining after Q2FY24 with BPC/Fashion reporting NSV growth of 20%/31%. 

Nykaa’s top line came in line with estimates, overall EBITDA margins were in line at 5.5% and saw a 20 bps YoY improvement. There was an impact of 60 bp from ESOP and GCC expansion, which shall continue. Nykaa highlighted that focus remains on accelerating growth, the brokerage firm noted.

It retained a ‘Buy’ rating on Nykaa and raised the target price to ₹189 per share from ₹187 earlier. 

“Rising competition, increasing debt and visibility on margin improvement are potential reasons for missing the recent re-rating versus other platform peers. We and consensus for now build a 200 bps margin improvement for FY25 that is key to watch,” Nuvama Equities said.

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JM Financial

While there have been murmurs of rising competition for Nykaa BPC, the company seems to have retained its market share, if not increased it as well. Consolidated GMV for Q3FY24 was at ₹36.2 billion with ₹17.9 billion in revenue. This becomes particularly impressive in light of the tough discretionary environment as evidenced by FMCG results, JM Financial said. 

Considering the tougher demand environment and lower than anticipated ad income, JM Financial reduced GMV and revenue estimates for Nykaa by 0.6 - 1.1% and 0.9 - 1.4% over FY25-28E, respectively. Though BPC marketing expense would normalise, it still expects it to sustain at relatively higher levels and hence lower EBITDA margin by 40-55 bps over FY25-28E. 

It reiterated its ‘Buy’ rating and target price of ₹210 per share and expects the company to be a strong beneficiary of improving discretionary spends. 

At 9:35 am, Nykaa shares were trading 3.80% higher at ₹166.60 apiece on the BSE. 

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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.