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Synopsis: Nuvama Institutional Equities has raised its target price for Nykaa shares to Rs220, up from Rs203, following the company’s Q1 FY25 results. Nykaa reported a 152% year-on-year (YoY) surge in net profit, though it slightly missed market expectations. The company's revenue grew by 22.8%, in line with forecasts. Nuvama noted that the focus on profitable growth would keep sales and marketing expenses stable, with operating leverage becoming a crucial factor in margin improvement. The Beauty & Personal Care (BPC) segment showed strong growth, while the Fashion segment underperformed due to a market slowdown.
Nykaa's Financial Highlights:
Nykaa's parent company, FSN E-Commerce Ltd, has showcased a robust 152% YoY increase in net profit for Q1 FY25. This performance, although impressive, fell slightly short of analyst expectations. Revenue growth, clocking in at 22.8%, met consensus estimates.
Nuvama Institutional Equities, responding to these figures, has adjusted its projections for Nykaa, rolling over its Discounted Cash Flow (DCF) valuation to March 2026 and raising the target price for Nykaa shares to Rs220, compared to the previous target of Rs203. This upward revision comes as the brokerage foresees continued profitability driven by stable sales and marketing expenses, alongside improvements in operating leverage.
Segment-Wise Performance:
Beauty & Personal Care (BPC): The BPC segment, a major contributor to Nykaa's success, recorded a 28% YoY increase in Gross Merchandise Value (GMV) and a 21% rise in Net Sales Value (NSV). This growth was fueled by a 25% surge in orders, showcasing the strong consumer demand in this category. Despite a flat Average Order Value (AOV) at Rs1,924, the segment’s performance was bolstered by a 47% YoY increase in GMV from owned brands, with their contribution to the BPC segment's GMV rising by 180 basis points to 13.4%.
Fashion Segment: The Fashion segment, however, lagged behind, posting a modest 15% YoY GMV growth and a 17% YoY increase in NSV. This slower growth was attributed to a weaker performance in the Indian wear category, which faced challenges due to the absence of major festivals in Q1. Despite this, the segment's gross margin improved to 81% from 78% in Q4 FY24, while the contribution margin also saw an improvement, rising to 17% from 14% in the previous quarter.
Strategic Moves:
Nykaa has also been active in expanding its portfolio, acquiring an additional 39% stake in Dot and Key for Rs265 crore, bringing its total stake to 90%. Additionally, the company increased its stake in Earth Rhythm, making it a subsidiary with an investment of up to Rs44.5 crore. These acquisitions are expected to strengthen Nykaa's position in the competitive beauty and personal care market.
Market Reaction and Outlook:
Nykaa's shares have risen by 40% over the past year, reflecting investor confidence in the company's growth trajectory. Nuvama’s revised target price of Rs220 is based on the expectation that Nykaa will continue to leverage its operating efficiency to drive profitability. The brokerage anticipates that Nykaa’s focus on cost control, particularly in sales and marketing, will be crucial in maintaining its margins while the company navigates the challenges in its Fashion segment.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Please consult your financial advisor before making investment decisions.
