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Brokerages have maintained their ratings and target prices on FSN E-Commerce Ventures, the parent company of Nykaa, after the fashion and beauty online retailer posted in-line numbers during the October-December quarter (Q3) of financial year 2023-24 (FY24).
They have, however, cut earnings before interest, tax, depreciation, and amortisation (Ebitda) estimates after weak demand weighed across line items in Q3.
“While revenue growth was healthy at 22 per cent year-on-year (Y-o-Y), gross margins declined 90 basis points (bps), weighed by higher discounting in own brands and lower ad income.
"Contribution margin saw a sharper 320 bps Y-o-Y decline due to higher marketing spends, given the muted demand environment. However, operating leverage somewhat helped and Ebitda margins remained flattish Y-o-Y.
"Ebitda grew 26 per cent but was sharply below estimates,” noted analysts at Jefferies.
At the bourses, shares of the company rallied 5.8 per cent intraday before erasing gains to end 2.4 per cent lower at Rs 156.6 a piece.
By comparison, the benchmark Sensex ended 34 points lower at 72,152.
Here's a lowdown of what key brokerages said after Nykaa's Q3 results:
Jefferies ' Buy 'Target price: Rs 210
Q3FY24 Ebitda missed forecasts as weak demand weighed across line items.
Ad income was lower as beauty and personal care (BPC) brands prioritised discounts over marketing spends while discounts rose on our own label, impacting gross margins.
BPC contribution margin compressed to a seven-quarter low. Fashion, however, surprised positively on growth and profitability.
We cut our FY24-25 Ebitda estimates by 3-8 per cent as we lower our contribution margin estimates for BPC.
ICICI Securities ' Buy ' Target price: Rs 185
PC-owned brands continued to outperform with 40 per cent Y-o-Y gross merchandise value (GMV) growth while fashion-owned brands grew their GMV by 29.3 per cent.
Order conversion continues to improve as average order value (AOV) for BPC and fashion businesses stands at Rs 2,024 (up 3 per cent Y-o-Y) and Rs 4,681 (up 18 per cent), respectively.
The fashion segment’s contribution margin improved 510 bps Y-o-Y in Q3FY24 compared to 210 bps decline in the BPC segment.
Nykaa is also replacing some loans to the fashion vertical with equity, which should result in optically-higher margins for the fashion vertical henceforth.
JM Financial ' Buy ' Target price: Rs 210
While there have been murmurs of rising competition for Nykaa BPC, the company seems to have retained its market share, if not raise it.
The segment delivered 25 per cent/20 per cent GMV/net sales value (NSV) Y-o-Y growth.
Considering the tougher demand environment and lower than anticipated ad income, we reduce GMV and revenue by 0.6-1.1 per cent / 0.9-1.4 per cent over FY25-28, respectively.
Though BPC marketing expenses would normalise, we still expect it to sustain at relatively higher levels.
Hence, lower Ebitda margin by 40-55 bps is seen over FY25-28.
Nuvama Institutional Equities ' Buy ' Target price: Rs 187
The BPC segment exhibits decent traction with annual unique transacting customers (AUTC) rising 16 per cent Y-o-Y to 11.1 million.
Contribution from own brands, under the fashion category, improved 30 per cent, taking the share in GMV to 12 per cent.
Gross margins for the fashion segment improved to 77 per cent.
Rising competition, increasing debt, and visibility on margin improvement are potential reasons for missing the recent re-rating versus other platform peers.
Kotak Institutional Equities ' Add ' Target price: Rs 165
Discretionary consumption in FY24 has been lacklustre at best and we expect some revival in FY25.
We trim consolidated Ebitda estimates by 13.3 per cent/5.2 per cent/1.9 per cent for FY24/FY25/FY26, respectively. This is due to a 2.5 per cent cut in FY25/26 BPC Ebitda and higher loss assumption in fashion.
It is also partly offset by lower losses in others (eB2B, Nykaa Man and others).
We cut earnings per share (EPS) estimates by 41 per cent for FY24, 8.8 per cent for FY25, and 3.1 per cent for FY26.
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