In a recent report on Nykaa, Jefferies has opted to trim earnings per share (EPS) while maintaining a “BUY” recommendation, albeit with a slightly adjusted target price of Rs 210.
Jefferies has revised down EBITDA estimates for fiscal years 2024-2025 by 3-8%, citing a reduction in contribution margin projections for Beauty and Personal Care (BPC). The third-quarter EBITDA fell short of expectations due to subdued demand affecting various aspects of the business.
Jefferies notes that advertising income suffered a decline as BPC brands prioritized discounts over marketing expenditures. Concurrently, discounts on Nykaa’s own label rose, impacting gross margins.
The contribution margin for BPC reached a seven-quarter low, although the Fashion segment outperformed expectations in both growth and profitability.
The report highlights growth as a strategic priority for Nykaa, which may maintain contribution margin within a narrow range in the short term. However, operational leverage is anticipated to bolster EBITDA margin over time.