Nykaa's shares open 4% lower as Q3 profit slides 71% YoY

Beauty retailer Nykaa's shares opened more than 4% lower at Rs 144.75 apiece on Tuesday as the company posted a steep 71% slide in Q3 net profit compared to the year-ago period, hurt by heavy discounts and lower discretionary spending in the quarter.

The Mumbai-based ecommerce firm's expenses rose 36% year on year to Rs 1,456 crore. Higher employee benefits costs and other expenses dragged Nykaa's EBITDA margin down to 5.3% from 6.3% a year earlier.

On Monday, Nykaa's shares fell 2.68% to close at Rs 150.55 apiece ahead of the results announcement. The stock has been down 7.43% since the beginning of the year.

When FSN E-Commerce Ventures, the parent company of Nykaa, debuted on the bourses on November 10, 2021, it touched the day's high of Rs 2,248.1 on the BSE. This was 99.8% higher than the IPO price of Rs 1,125 apiece.

And 315 trading days later, at Rs 142.05 (the low price until 10.10 am on February 14), the stock is down 62% compared to the listing day high price adjusted for the 5:1 bonus last November.

"The confluence of both growth and profitability would be critical for valuations to improve. Besides the gross margin miss, an aberration as per management, must reverse, else any structural impact could negate benefits in marketing and fulfilment," said Nihal M Jham, Vice President, Nuvama Institutional Equities, told YourStory.

"In a quarter rampaged by a tougher macroeconomic environment, Nykaa reported substantial growth in Q3 FY23 numbers, driven by an increase in GMV in BPC (beauty and personal care), fashion, and other segments," said JM Financial, in a note.

"We continue to see increased strength of the dominant positioning in BPC vertical while the newcomer, fashion vertical, has gained market share at the cost of a sharp dip in contribution margin."

(The copy was updated with details on FSN E-Commerce Ventures' performance on the bourses.)