Nykaa, a leading player in the beauty and fashion e-commerce space, released its September quarter earnings, revealing a revenue growth of 24.4% year-over-year (YoY). While the numbers align with analyst expectations, the company faced challenges in its Fashion segment, impacting overall profitability.
Revenue Growth Steady but Profit Misses Expectations
Nykaa’s consolidated revenue for the quarter stood at ₹XX crore, marking a 24.4% increase compared to the same period last year. This growth was primarily driven by robust performance in the Beauty Personal Care (BPC) segment, which saw a 25% YoY increase in net sales value (NSV). However, the Fashion segment lagged behind, reporting a 13% YoY growth, attributed to a general industry slowdown and deferred festive purchases to the second half of the year.
Despite the healthy revenue numbers, Nykaa’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin remained flat at 5.5%, slightly below the consensus estimate of 6.1%. The company’s profit after tax (PAT) also fell short, recording ₹13.40 crore against the expected ₹24.70 crore, according to brokerage firm Nuvama.
Challenges in the Fashion Segment
The Fashion segment’s subdued performance was a significant factor in Nykaa’s overall results. Nuvama highlighted that the slowdown was due to both industry-wide challenges and a strategic shift in festive purchasing patterns. Marketing expenditures remained high to support growth, which, while boosting sales, adversely affected profit margins.
- Marketing Spend: Elevated to sustain growth
- Festive Purchases: Shifted to H2, impacting Q3 performance
Nykaa’s strategy to invest heavily in marketing indicates a focus on long-term growth, but it has short-term implications for profitability. The brokerage firm has adjusted its future PAT estimates downward by 8.2%, 8%, and 8.7% for FY25, FY26, and FY27, respectively. Despite the lower forecasts, Nuvama maintained a ‘Buy’ rating on Nykaa’s stock, adjusting the target price from ₹220 to ₹205 based on discounted cash flow (DCF) analysis.
Gross Merchandise Value (GMV) Insights
Nykaa reported a GMV growth of 24% YoY, with the Beauty segment leading the charge at 29% YoY. In contrast, the Fashion segment’s GMV increased by only 10% YoY. This disparity highlights the varying performance dynamics within Nykaa’s business units.
| Segment | GMV Growth YoY | Revenue Growth YoY |
|---|---|---|
| Beauty | 29% | 24% |
| Fashion | 10% | 22% |
| Total | 24% | 24% |
The Beauty-owned brands saw a substantial GMV surge of 48% YoY, while the contribution from other online marketplaces increased from 13% in FY24 to 21% in Q2FY25. This shift underscores Nykaa’s expanding footprint beyond its proprietary brands, tapping into broader market opportunities.
Customer Metrics and Order Trends
Nykaa’s BPC business demonstrated strong customer engagement, with Annual Unique Transacting Customers (AUTC) rising by 21% YoY to 13.7 million. The number of orders grew by 24% YoY, and the Average Order Value (AOV) saw a modest increase of 2% to ₹2,038. These metrics indicate a healthy demand and repeat purchase behavior among customers.
In contrast, the Fashion segment experienced a more muted growth in customer metrics. The AUTC grew by 7% YoY, but the number of orders remained flat at 1.8 million YoY. However, the AOV in Fashion surged by 10% YoY to ₹4,464, reflecting a shift towards higher-value purchases despite the lower volume.
EBITDA and Profitability Adjustments
Nykaa’s EBITDA margin saw a slight improvement of 10 basis points YoY, reaching 5.5%. The adjusted EBITDA margin, after accounting for Employee Stock Ownership Plan (ESOP) expenses, Global Capability Center (GCC) costs, and organizational restructuring, stood at 6.2%, up by 70 basis points YoY. This improvement signals better operational efficiency despite the challenges faced in the Fashion segment.
“We reckon an improvement in growth in H2 on the back of higher festive and wedding demand. We continue to forecast an improvement in profitability on the back of operative leverage, although we have moderated our expectations due to elevated marketing spends,” Nuvama commented. This outlook suggests that Nykaa is optimistic about the second half of the fiscal year, expecting seasonal demand to bolster sales and operational efficiencies to enhance profitability.
Strategic Moves and Future Outlook
Nykaa’s strategy moving forward involves balancing aggressive marketing to drive growth while managing costs to improve margins. The company is likely to continue expanding its marketplace model, leveraging third-party sellers to diversify its product offerings and reduce inventory risks.
Additionally, Nykaa is focusing on enhancing customer experience through personalized marketing, expanding its loyalty programs, and investing in technology to streamline operations. These initiatives are aimed at fostering customer loyalty and driving repeat purchases, which are crucial for sustained growth.
Key Strategic Initiatives:
- Expansion of marketplace model
- Personalized marketing campaigns
- Enhanced loyalty programs
- Investment in operational technology
Nykaa’s ability to navigate these strategic initiatives amidst a challenging market environment will be pivotal in determining its future performance. The company’s commitment to innovation and customer-centric approaches positions it well to capitalize on emerging opportunities in the beauty and fashion e-commerce landscape.
