Why Nykaa stock is up despite 70% fall in Q4 profit

Shares of Nykaa (listed as FSN E-Commerce Ventures) gained over 2% in intraday trade on Thursday, in an otherwise weak broader market, even after the Falguni Nayar-led company reported 70% decline in its profit after tax (PAT) for the fourth quarter ended March 31, 2023. The sentiment, however, was lifted by robust growth in profit before tax and revenue from operations, which rose 48% and 34% YoY, respectively, during the quarter under review, supported by a sales campaign that convinced customers to buy despite inflationary pressures.

Early today, Nykaa shares opened lower at ₹124.40 against the previous closing price of ₹125.05 on the BSE. In the early trade, the stock fell 2.4% to hit an intraday low of ₹122.05. However, the beauty e-retailer made smart recovery and rose 2.2% to touch an intraday high of ₹127.80. The counter has jumped 4.7% from day’s low during the session so far on the back of strong volume. As many as 14.5 lakh shares changed hands over the counter as compared to two-week average volume of 3.87 lakh stocks. The market capitalisation stood at ₹36,041 crore at the time of reporting.

Nykaa, which made its market debut in November 2021, currently trades 50% lower than its 52-week high of ₹257.66 touched on June 1, 2022. The counter has risen nearly 12% from its 52-week low of ₹114.30 touched on April 26, 2023. In the last one year, the stock has fallen 44%, while it has lost 28% in six months. In the past one month, it has added 8%, while it has gained over 1% in a week.

For Q4FY23, the beauty and personal care startup registered a 70% year-on-year (YoY) decline in net profit to ₹2.3 crore from ₹7.6 crore in the same quarter last year, on the back of higher raw materials prices and tax expenses. Tax expense increased to ₹4.4 crore versus ₹1.8 crore in Q4FY22.

The revenue from operations, however, increased by around 34% to ₹1,301.7 crore as compared to ₹973.3 crore in the year ago period.

The fashion e-retailer in its earnings report said over the last two financial years, and further to the IPO, its revenue from operations grew from ₹2,440 crore in FY21 to ₹5,143 crore in FY23 and EBITDA expanded from ₹156 crore to ₹256 crore in the same period. “We have balanced business growth and profitability by focusing on the right drivers,” it said.

In FY23, Nykaa’s gross margin expanded by 73 basis points, while EBITDA margins rose 65 bps, which was aided by rationalisation of fulfilment expenses (164 bps) and marketing optimisation (129 bps).

Falguni Nayar, Executive Chairperson, MD, and CEO, Nykaa said: “With steady improvements of over 40% and 60% 2-year growth in beauty and fashion platform conversions, our investments towards building the right technology stack as well as customer-first shopping experiences are paying off. This strong step-function growth also comes on the back of improvements across personalisation capabilities, breadth and depth of product portfolio, UI UX enhancements, marketing optimisations and quality of in-bound visit traffic.”

“This metric is reflective of a successful experience right from one downloading the app till they open their delivery package. On a visitor conversion level, this number is even higher as customers tend to browse and explore the platform and its wide offerings before finalizing a purchase,” she said.

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