FSN E-Commerce Ventures (Nykaa) released its revenue update for Q2FY24. The Q2 performance update indicates robust progress in the beauty & personal care (BPC) category, despite the delayed start to the festive season. Additionally, there has been a remarkable recovery in the Fashion category.
BPC: Net sales value (NSV) for BPC is expected to achieve approximately 20% y-o-y growth supported by the flagship event ‘Hot Pink Sale’ held in July. Growth has seen some impact as the festive season this year starts later this year (in October instead of September, as in 2022) impacting the base to some extent.
Fashion: Fashion witnessed strong momentum during 2QFY24, in contrast to the sluggish demand seen in the overall apparel industry during the same quarter. Nykaa managed to optimise the core category mix and increase order volumes, resulting in an expected y-o-y growth rate of low 30s percentage in Fashion NSV. This is a good improvement compared to the 14% y/y growth in 1QFY24.
Overall: At the consolidated level, Nykaa anticipates overall NSV to grow in the mid-20s percentage range and revenue to grow in the low-20s percentage range y-o-y in 2QFY24. The performance in the first half of FY24 bodes well for the seasonally stronger 2HFY24.
In the BPC segment, we are factoring in a robust 20% y-o-y growth in NSV for 2QFY24F, which follows a strong 23% y-o-y growth in 1QFY24F. We anticipate this positive momentum to persist into FY25/26F, with an estimated 24% y-o-y growth.
In Fashion, we expect an impressive NSV growth of 31% y-o-y in 2QFY24F, a notable improvement from the 14% y-o-y growth observed in 1QFY24. This outlook suggests potential upside risk compared to our earlier 15% y-o-y NSV growth estimate for FY24F. However, it’s essential to note that the Fashion segment may continue to impact the company’s overall profitability.
Overall for 2QFY24F, we expect consolidated revenue growth of approximately 23% y-o-y, with an Ebitda margin of 5.8%, reflecting a q-o-q increase of 60 bps. Looking ahead to FY24F, there is the potential for some upside risk in revenue growth, estimated at 22% y-o-y. However, achieving our Ebitda margin estimate of 6.6% for FY24F will require stronger improvements in the second half of FY24F. Our TP of Rs 163 is derived from a discounted cash flow analysis, considering a 16% revenue CAGR for FY25-40F, with Ebitda margin stabilising at approximately 15.5%. We maintain a Neutral rating on the stock.