The expiry of the one-year lock-in period for pre-initial public offering (IPO) investors has been an overhang for stocks of new-age companies. Investors in the shares of Nykaa’s parent FSN E-Commerce Ventures Ltd are cautious. Nykaa’s pre-IPO shareholders’ lock-in is set to expire on November 10. Recall that the shares of Zomato Ltd had fallen significantly in July after the end of the one-year lock-in period.
Shares of Nykaa are down nearly 9% in the past month. However, in general also, rising interest rates have wreaked havoc on technology-led stocks and this has affected Nykaa as well. The stock has lost up to 45% so far in 2022. According to media reports, Founder and CEO Falguni Nair believes that the company’s share price reflects the underlying performance over the long term. Nykaa’s management remains focused on the future and is stepping up its efforts to strengthen the company, the report added.
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The company did well in the September quarter (Q2FY23) but could not move the needle in a big way. The fashion business continued to be sluggish and failed to tick many boxes in the last quarter. The monthly average unique visitors, over the past five quarters, has remained steady at 16 million. In addition, Gross Merchandise Value (GMV), which is the value of orders, grew only 3% sequentially in Q2 and net sales value increased by just 1.1%.
“Despite the fashion business being in an early stage, low single-digit quarter-on-quarter (GMV) growth is disappointing, while it continues to focus on measured growth rather than adopting an aggressive stance of pursuing growth at any cost.” does.” Jefferies India analysts said in a November 2 report.
The weak performance in Nykaa’s fashion vertical weighed on the overall GMV to revenue conversion. Consolidated operating revenue in Q2 was 1,231 crore, which is 52% of the total GMV, which is less than the 66% seen in Q1FY21.
However, Nykaa’s mainstay beauty and personal care (BPC) business continues to add to its glamour. BPC GMV up 9% sequentially 1,630 crores. Analysts at JM Financial Institutional Securities said, “We find BPC growth to be highly impressive, especially in light of increased competitive intensity from Amazon and Myntra, which have both allocated increased real estate to BPC on their platforms and in marketing communications. are doing.” 2 November report
The BPC vertical is expected to drive growth, but the monthly average unique visitors appears to be stabilizing. This metric stood at 22 million in Q2, which was flat sequentially. Nonetheless, the third quarter is a seasonally strong quarter due to the wedding and holiday season. It remains to be seen whether this adds up to the growth of visitors across all segments.
Meanwhile, other segments of Nykaa, including NykaaMan, Superstore by Nykaa, International Brands, Little Black Book and Nudge, remain in the red at the contribution profit level. The losses widened sequentially in the second quarter.
“We have revised the estimates, with revenue declining by around 11%, while EBITDA margins have improved marginally by 10-100 basis points compared to FY 2013-27E. We have significantly reduced our forecasts in fashion to take into account the flat performance of unique visitors and users making only 0.1 million incremental transactions.” One basis point is 0.01%.
“We see Nykaa shifting its focus to the BPC vertical and BPC is expected to drive significant value,” analysts said. The one year target price of the broking firm is 1,680. Closed on Nykaa’s stock on Wednesday 1,153.
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