Lower advertising income in Nykaa’s mainstay beauty and personal care (BPC) business also weighed on gross margin. Ebitda margin fell sequentially as well, but rose year-on-year. However, not everyone is impressed. As analysts from Kotak Institutional Equities say, “Despite better management of fulfilment costs and targeting of quality customers, Ebitda margin print came in at 5.2% declining 26 bps qoq.”
Meanwhile, Nykaa gained share in the fashion vertical, but the quarter was soft. The gross merchandize value (GMV) of the fashion segment grew by 12% year-on-year, which isn’t particularly exciting. The management said it was a tough quarter for the fashion industry as a whole and that it almost felt like customers were missing. Also, some weakness was owing to a trend of customer preference for going back into the stores. The good news is that July has been better, although the management remains cautious as further trends for the entire September quarter need to be seen.
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Nykaa’s BPC segment fared relatively better, clocking 24% year-on-year GMV growth last quarter. Overall, Nykaa’s GMV increased by 24% in Q1, but this was lower than the 41% growth seen in FY23. Further, revenue growth stood at 24% to ₹1,422 crore in Q1.
After results, Kotak has cut FY24-26 estimated earnings per share by 17-29% on the back of a weak Q1, prolonged breakeven of eB2B business, fine-tuning growth, and margins of fashion/BPC businesses 17-19%.
So far in 2023, Nykaa’s shares have dropped by 13%. The fashion business trajectory remains paramount hereon. Overall, the festival season may bring some cheer in the coming months. “While the company did deliver robust average order values (AOVs) and improvement in ordering frequency, net addition of just 0.3mn/0.1mn customers in BPC/Fashion makes us lower our GMV estimates,” said analysts from JM Financial Institutional Securities Ltd in a report on 12 August. “However, we expect sustained higher AOVs to drive margin improvements,” they added.
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Updated: 15 Aug 2023, 01:34 AM IST