Nykaa’s Strong Q2 Performance Earns Bullish Brokerage Calls and a 4% Stock Rise

Introduction

In the ever-evolving world of e-commerce, Nykaa, the beauty and wellness platform, has made a remarkable stride during Q2 FY24. Despite missing some estimates, Nykaa’s performance in the second quarter left investors, experts, and foreign brokerages optimistic, resulting in a 4% increase in the company’s stock price. Here, we will delve into Nykaa’s positive Q2 show, the reasons behind the favorable brokerage calls, and the impact on its stock performance.

Nykaa’s Q2 FY24 Financial Highlights

Bullish Calls from Foreign Brokerages

Despite Nykaa’s performance slightly falling short of expectations, foreign brokerages remain bullish on the company’s stock. The primary reason for their optimism is the robust merchandising and user growth that Nykaa exhibited during the quarter.

Morgan Stanley’s ‘Overweight’ Rating

The Beauty and Personal Care (BPC) segment experienced a 23% increase in Gross Merchandise Value (GMV), with the contribution margin remaining steady at 26.4%. Analysts anticipate that shifting the festive season to the third quarter will further drive growth.

Discounts and Margin Challenges

Jefferies, a renowned brokerage firm, assigned a ‘Buy’ rating to Nykaa’s stock with a target price of Rs 200 per share. However, they noted that Nykaa’s EBITDA didn’t meet expectations in the second quarter due to lower gross margins. The company explained that this was a result of offering higher discounts in the BPC products. Increased competition, a drop in advertising income, and changes in the product mix contributed to the need for these discounts. Nevertheless, Nykaa’s revenue growth remained strong, thanks to a significant increase in the number of users in its key segments.

Stable Growth in the BPC Segment

CITI has issued a ‘buy’ call on Nykaa with a target price of Rs 170 per share. Despite a slight dip in year-over-year growth from 23% in Q1 to 20% in Q2, primarily due to a shift in the festive season to Q3, Nykaa’s Beauty and Personal Care (BPC) business maintained stable growth.

Festive Season Impact

Nykaa’s Stock Performance

Nykaa’s stock, operated by FSN E-Commerce Ventures, has delivered a notable return of 14.30% over the last six months. In comparison, the benchmark NSE Nifty 50 index provided a return of 6.28% over the same duration.

Conclusion

Nykaa’s strong Q2 performance, characterized by significant growth in net profit and revenue, has garnered favorable brokerage calls, including ‘Buy’ recommendations and target prices. Despite margin challenges due to higher discounts, the company’s steady growth in its BPC segment and a promising festive season in Q3 suggest that Nykaa’s upward trajectory is set to continue. As evidenced by the 4% rise in the stock price, Nykaa’s success story in Q2 is resonating well with investors and experts alike.

FAQ

1. What is Nykaa, and why is its Q2 performance noteworthy?
   • Nykaa is a leading beauty and wellness e-commerce platform. Its Q2 performance stands out due to a remarkable 50% year-on-year growth in net profit and a 22% increase in revenue from operations, despite some missed estimates.
2. Why are foreign brokerages optimistic about Nykaa’s stock?
   • Foreign brokerages remain optimistic about Nykaa’s stock due to the company’s robust merchandising and user growth during the second quarter, which has earned ‘Buy’ recommendations and target price boosts.
3. What is Morgan Stanley’s rating and target price for Nykaa’s stock, and what did their report highlight?
   • Morgan Stanley has given Nykaa’s stock an ‘Overweight’ rating with a target price of Rs 173 per share. Their report acknowledged a slightly lower EBITDA margin in the second quarter but also pointed out promising growth and contribution margins in the fashion segment.
4. What challenges did Nykaa face regarding margins in Q2?
   • Nykaa faced margin challenges in Q2 due to the need to offer higher discounts in Beauty and Personal Care (BPC) products. This was a result of increased competition, a drop in advertising income, and changes in the product mix.
5. How did Nykaa’s Beauty and Personal Care (BPC) segment perform in Q2?
   • Despite a slight dip in year-over-year growth from 23% in Q1 to 20% in Q2, Nykaa’s BPC segment maintained stable growth. It was also a significant contributor to the company’s 50% growth in net profit.
6. Why is the festive season crucial for Nykaa, and how did it impact Q2 FY24?
   • The festive season is vital for Nykaa and other e-commerce companies. In Q2 FY24, the festive season was shifted to Q3, which had a base impact on the Q2 growth to some extent. Despite this, Nykaa’s performance remained strong.
7. How has Nykaa’s stock performed in the market recently?
   • Nykaa’s stock, operated by FSN E-Commerce Ventures, has delivered a notable return of 14.30% over the last six months. In comparison, the benchmark NSE Nifty 50 index provided a return of 6.28% over the same duration.
8. What were the key financial highlights of Nykaa’s Q2 FY24 results?
   • Nykaa’s Q2 FY24 results showcased a 50% year-on-year growth in net profit, along with a 22% increase in revenue from operations, reaching Rs 1,507 crore.
9. What are the key factors driving Nykaa’s Q2 success?
   • Nykaa’s Q2 success can be attributed to robust merchandising, user growth, and the stable performance of the Beauty and Personal Care (BPC) segment, despite margin challenges.
10. Why should investors pay attention to Nykaa’s stock and performance in the coming quarters? Nykaa’s strong Q2 performance and optimistic brokerage calls suggest that the company is on a growth trajectory. Investors may want to monitor its performance, particularly during the festive season, to gauge its continued success in the market.