scorecardNykaa’s stock plunges 4.2% after its Q3 net profit slips 70%
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Nykaa’s stock plunges 4.2% after its Q3 net profit slips 70%

Nykaa’s stock plunges 4.2% after its Q3 net profit slips 70%
Business4 min read
Falguni Nayar, executive chairperson, managing director and CEO, Nykaa    BCCL
  • Nykaa reported a 70% year-on-year decline in its net profit to ₹8.2 crore in Q3.
  • Its margins came under stress as the company expanded its retail presence.
  • It added 17 new stores in Q3 and expanded its presence to three new cities.
The stock of FSN E-Commerce, operator of the beauty and fashion e-tailer Nykaa, plunged 4.2% in the first hour of trade on Tuesday.

On Monday, it reported a 70% year-on-year decline in its net profit to ₹8.2 crore in Q3, missing analyst expectations. On a sequential basis, however, its net profit doubled from ₹4.1 crore in Q2.

Its topline grew 33% on a YoY basis, surging to ₹1,463 crore. On a sequential basis, the revenue grew 18.8%.

“The business has delivered consistent strong gross merchandise value (GMV) and revenue growth at 37% YoY and 33% YoY respectively. Especially heartening is the rebound of Nykaa Fashion, which has delivered a GMV and revenue growth of 50% YoY and 43% YoY respectively,” said Falguni Nayar, executive chairperson, managing director and CEO, Nykaa.

She added that although inflationary pressures were present, it wasn’t that big of an issue for many of Nykaa’s customers. “I think many of Nykaa’s customers are at the higher end of consumption where inflation has not been such a big issue,” Nayar said during a post-earnings conference call.

‘Investment for the future’ is stressing Nykaa’s margins

During the December quarter, Nykaa expanded its offline presence to 141 stores and 56 cities, from 124 stores and 53 cities in Q2. The company’s store count stood at 96 in Q3 FY22, with presence in 45 cities.

While the company registered a 13.3% YoY growth in its earnings before interest, taxes, depreciation and amortisation (EBITDA) to ₹7.8 crore, its EBITDA margins came under pressure and fell to 5.3% in Q3, as against 6.3% in the same period last year.

Rapid rise in its physical stores has also resulted in an increase in its finance, interest and lease costs.

Nayar, however, said it is an “investment for the future” and that offline presence is crucial for the company. “The performance has been especially good given the backdrop of eight fewer festive days in Q3 FY23, compared to Q3 FY22,” she added.

Nayar said ecommerce remains the dominant channel, contributing to 90% of its overall sales, while offline retail’s contribution stood at just 10%. She said that the company has plans to open 50 more stores going forward.

FSN E-Commerce’ (Nykaa) Q3 in numbers:

ParticularsQ3 FY23Q2 FY23Q3 FY22
Revenue₹1,463 crore₹1,231 crore₹1,098 crore
Net profit₹8.2 crore₹4.1 crore₹27.9 crore
Net margin0.6%0.3%2.5%

Source: Company reports

Beauty and personal care segments flourish

The beauty and personal care (BPC) segment, which is Nykaa’s bread and butter, registered a healthy growth during the December quarter. It reported a 26% YoY increase in the gross merchandise value (GMV) to ₹1,901 crore, with existing customers contributing to 76% of the GMV during the quarter.

Nykaa registered a 22% YoY growth in its monthly average unique visitors to 24.2 million, while annual transacting users grew 27% YoY to 9.6 million. Annual transacting users refers to those users who have transacted in the last one year.

Overall, the company said the BPC segment registered a 26% YoY growth in orders to 9.5 million during the December quarter, with order conversion coming in at 3.8%.

Efficiency in terms of marketing and fulfilment expenses helped the BPC segment deliver a 186-basis point improvement in the BPC segment’s contribution margin.

Nykaa’s fledgling fashion segment registered a 50% YoY growth in its GMV to ₹724 crore, with orders growing 31% YoY to 1.7 million. However, order conversion significantly lagged that of the BPC segment’s at just 1.2%.

The company said the fashion segment’s contribution margin was positive during the quarter, but did not specify what the exact margin was.

$NYKAA.NSE daily chart. If we see it with the relation to it's 50 Exponential Moving Average, we can see that it has been acting as a stiff resistance since a long time. Now once again it has touched it and made a bearish candle too. Not a good sign till we are trading below 165 levels. Any bullishness only above that level.

— (@TraderHarneet) February 14, 2023