Nykaa’s fashion biz to add glitter in Dec quarter
FSN E-Commerce Ventures Ltd’s wardrobe is seeing an upgrade. The fashion business of the parent company of Nykaa is likely to put on a better-than-expected show for the second consecutive time in the December quarter (Q3FY24).
The Q3 business update released by the company says that the industry level consumption in fashion remained muted. Even so, Nykaa’s fashion vertical saw strong growth and as such, the gross merchandise value (GMV) is expected to rise at around 40% year-on-year in Q3. This measure had increased by about 12% and 27% in Q1 and Q2, respectively.
Investors are pleased. Nykaa’s shares hit a new 52-week high of ₹191.60 apiece on Tuesday and were up by 8% since the update was released.
However, the performance of Nykaa’s mainstay beauty and personal care (BPC) segment is likely to be unexciting. The BPC vertical’s GMV growth was already moderating and the picture in Q3 does not seem any different despite Nykaa’s Hot Pink sale. Nykaa expects to clock GMV growth in mid-twenties, which is roughly in line with Q1 and Q2. Moreover, discounting in the mass categories would weigh on the net sales value.
Now that the demand trends are subdued in the industry, naturally there is a risk to earnings estimates. “Given the weak industry growth trends, there can be some risk to our 26% year-on-year (net sales value) growth estimate for FY24,” said Nomura Financial Advisory and Securities (India) in a report on 8 January.
However, it is encouraging that the growth in Nykaa’s BPC is ahead of the industry’s.
But the competition is intensifying. “There has been a slight negative impact on growth rates of the online BPC segment, as per our analysis, given the competition from Tira, and quick commerce platforms,” said analysts at Elara Securities (India) in a Q3 preview report. Tira is an omnichannel beauty retail platform under Reliance Industries Ltd.
Coming to profitability, Nykaa’s Ebitda (earnings before interest, tax, depreciation and amortization) margin is expected to see an increase from the Q2 levels of over 5% but here the quantum needs to be seen. While there are not many levers for expansion in the BPC segment’s margin, the fashion vertical may see a drop in losses.
In fact, the fashion segment’s path to profitability is one key factor that would aid investor sentiment. Besides margin, one needs to keep an eye on discretionary demand, which is yet to pick up pace. In the past year, Nykaa’s shares have gained over 28%.
