Q3FY24 Review: Nykaa: BPC margins impacted while fashion surprises

7 Feb 2024 , 11:15 AM

Nykaa’s revenue grew by 22.3% YoY which was broad based across segments, with a benefit of festive season in this quarter. Ebitda margin of 5.5% (+18bps YoY) was ~50bps below our estimates as there was an additional impact of ESOP cost and GCC business expense, considering this impact margins were in line . BPC contribution margins were below IIFLe impacted by lower service income and higher discounting, however fashion margins surprised positively. Analysts of IIFL Capital Services cut their FY24-26 Ebitda estimates by 2-7% between some moderation in BPC margins and expansion in Fashion margins. Analysts of IIFL Capital Services believe company has high-growth prospects in medium to long-term given under-penetration of e-commerce in India. Maintain BUY with TP of ₹195 (22% upside). 

Ebitda below estimates: 

Revenue grew by 22.3% YoY on the back of decent performance across segments. BPC segment grew 19% YoY driven by better growth in premium brands whereas Fashion segment grew by 20% YoY driven by higher annual unique transacting customer and strong 18% YoY AOV growth. Ebitda margin of 5.5% during the quarter (+18bps YoY) was below IIFLe of 6%. The Ebitda margin were impacted due to 1) lower gross margins considering higher discounting 2) increased ESOP cost and GCC business expenses which were partially set off by lower selling and distribution and other expenses. 

BPC margins impacted, Fashion strong: 

BPC segment continued its growth momentum however margins declined 210bps YoY and 260 bps QoQ as gross margins were impacted due to higher discounting in mass brands, which was largely industry led and some increase in fulfilment expenses. However, analysts of IIFL Capital Services believe going forward the margins should more or less stabilise at current levels driven by operating leverage. Fashion contribution margin improved 510bps YoY and 130bps QoQ, due to reduced marketing spends and selling and distribution expenses. 

2-7% Ebitda downgrade:

Analysts of IIFL Capital Services cut their FY24-26 Ebitda estimates between some moderation in BPC margins and expansion in Fashion margins. They forecast 19% Ebitda Cagr for BPC business FY24-42 which is reasonable given the nascent BPC market. With BPC segment continuing its profitable journey, peak losses in Fashion business seem to be a history, which gives them confidence on the strong long term prospects of the company. Maintain BUY