On Wednesday, Citi revised its stance on FSN Ecommerce Ventures (NYKAA:IN), commonly known as Nykaa, by reducing the price target to INR165 from INR170 while keeping a Sell rating on the stock. The adjustment follows Nykaa's first-quarter EBITDA, which fell short of expectations, with margins slightly improving year-over-year to 5.5% of revenues from Citi's projection of 5.9%.
The company's growth in Contribution Profits and EBITDA was reported at 18% and 31% year-over-year, respectively. This was in line with projections for Contribution Profits but fell 6% below estimates for EBITDA. The beauty segment saw a decline in Contribution and EBITDA margins by 150 basis points and 20 basis points year-over-year, respectively.
This was attributed to an increased share of eB2B, higher marketing expenses, and fulfillment costs associated with faster deliveries. These costs were partially offset by a 47% year-over-year increase in ad-monetization.
In the fashion department, growth was reported at 21% year-over-year, which is considered weak against medium-term guidance. This was due to fewer wedding days impacting ethnic wear sales and weak third-party channels affecting owned brands.
However, contribution margins in fashion were positively surprising, showing a quarter-over-quarter increase of 180 basis points to 10% of Net Sales Value (NSV), thanks to higher advertising and fees, as well as a favorable product mix.
Citi has revised its estimates downward, anticipating overall EBITDA margins of 6.2% and 7.9% for fiscal years 2025 and 2026, respectively, compared to previous estimates of 6.4% and 8.2%. Additionally, Nykaa plans to increase its stake in two of its owned brands, Dot & Key and Earth Rhythm, with a cash consideration of approximately INR 3 billion.
InvestingPro Insights
FSN Ecommerce Ventures, known as Nykaa, has been a subject of discussion following Citi's recent price target revision. While the company's EBITDA margins have been under scrutiny, it's important to note that Nykaa is expected to see net income growth this year, according to InvestingPro Tips. This reflects a potential for improved profitability despite the current margin pressures.
From a valuation perspective, Nykaa is trading at a high earnings multiple, indicating that investors may expect higher future earnings growth to justify the current stock price. This aligns with the company's position as a prominent player in the Specialty Retail industry. Moreover, Nykaa operates with a moderate level of debt, which may provide some financial flexibility as it plans to increase its stake in owned brands.
Looking at the real-time metrics from InvestingPro Data, Nykaa's market cap stands at $6.38 billion, with a notable revenue growth of 23.87% in the last twelve months as of Q1 2025. The company's gross profit margin during the same period was 42.88%, which is significant and may offer some cushion against the higher marketing and fulfillment costs highlighted in the article.
For readers interested in deeper analysis and additional metrics, InvestingPro offers more tips on Nykaa's financial health and future prospects. Currently, there are 11 additional InvestingPro Tips available, which can be accessed to gain a comprehensive understanding of the company's investment potential.
As Nykaa navigates through its growth strategy and margin improvements, these insights can be valuable for investors looking to make informed decisions. The InvestingPro platform provides a detailed analysis that could further enrich the understanding of Nykaa's financial position and market valuation.
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