Business

Nykaa Shares in Spotlight as Nykaa Fashion CEO Steps Down

Shares of FSN E-Commerce Ventures Ltd (Nykaa) gained attention on Friday morning following the resignation of Nihir Parikh, CEO

Nykaa Shares in Spotlight as Nykaa Fashion CEO Steps Down

Shares of FSN E-Commerce Ventures Ltd (Nykaa) gained attention on Friday morning following the resignation of Nihir Parikh, CEO of Nykaa Fashion, a business unit under the company’s wholly-owned subsidiary. Parikh cited personal commitments as the reason for stepping down. His resignation became effective at the close of business hours on December 5.

Over the past month, Nykaa’s shares have declined by 7.6%, in contrast to a 1% rise in the BSE 500 index, reflecting investor concerns amid broader market trends and company-specific developments.

Performance Highlights: Q2 Challenges and Opportunities

Nykaa Fashion reported muted growth in Gross Merchandise Value (GMV) and Net Sales Value (NSV) in the September quarter, increasing by 10% and 14% year-on-year (YoY), respectively. A challenging demand environment, coupled with fewer wedding dates and festivities in Q2, impacted the segment’s growth.

Despite these challenges, the company saw a revenue boost, driven by strong performance in marketing income from LBB and higher service-related income. Revenue grew 22% YoY, aided by better GMV-to-revenue conversion.

Margins and Financial Insights

Nykaa achieved a notable improvement in gross margins, which rose by 567 basis points (bps) YoY to 49.7%. While fulfillment expenses declined, increased marketing costs offset these savings, leading to a contribution margin improvement of 440 bps YoY to 9.4% of NSV, according to a report by JM Financial.

Optimistic Outlook for the Fashion Segment

The Nykaa management expressed optimism for the fashion business in the second half of the fiscal year. October showed signs of recovery, and the upcoming festive and wedding seasons are expected to drive demand. However, subdued growth persists due to a slowdown in the industry and the shifting of festive purchases to H2, noted Nuvama in its post-Q2 analysis.

To support growth, Nykaa has maintained elevated marketing spending, though this has come at the cost of margins. Nuvama has adjusted its profit estimates for FY25, FY26, and FY27, reducing them by 8.2%, 8%, and 8.7%, respectively. Despite this, it retained a ‘Buy’ rating on the stock, revising its target price to Rs 205 from Rs 220.

Broker Recommendations

JM Financial has set a higher target price of Rs 250, reflecting confidence in Nykaa’s long-term potential despite short-term challenges. As the company navigates the leadership change and evolving market dynamics, investors will keenly monitor its performance in the upcoming quarters.

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