Shares of FSN E-commerce Ventures, which operates omnichannel beauty and fashion retailer Nykaa on Wednesday jumped 6% in the early trade and hit the day’s high of Rs 170 reacting to a near-double uptick in the net profit for the December quarter. Amid the company’s strong focus on growth and the BPC segment’s potential, several top brokerages remain optimistic about the prospects notwithstanding a margin miss for the reporting quarter.

Jefferies, Nuvama and JM Financial have reiterated their buy views on the Nykaa shares while Kotak Institutional Equities has suggested an ‘Add’ rating. Meanwhile, Japanese brokerage Nomura has maintained a neutral stance on the counter.

FSN E-commerce reported a consolidated net profit of Rs 16.2 crore (attributable to equity shareholders) for the quarter ended December on Tuesday, which was up 97% year-on-year (YoY) from Rs 8.2 crore in the same quarter last year. Revenue from operations jumped 22% YoY to Rs 1,789 crore in the reporting third quarter as against Rs 1463 crore in the corresponding quarter of the previous year.

Read More: Nykaa Q3 Results: Profit nearly doubles to Rs 16 crore; revenue up 22% YoY

Here’s what brokerages recommended:

Jefferies: Buy | Target: Rs 210

Jefferies has maintained a buy view on Nykaa estimating a 30% upside in the stock and has put a price target of Rs 210. In its post-earnings stock review, Jefferies said that the company’s Q3 growth was at the cost of margin in the BPC (beauty & personal care) segment. The 3Q EBITDA missed forecasts as weak demand weighed across line items.Ad income was lower as BPC brands prioritised discounts over marketing spending while discounts rose on their own label, impacting gross margins, it said. BPC’s contribution margin compressed to a seven-quarter low. Fashion however surprised positively on the growth and profitability front. The US brokerage has trimmed EPS but retained its ‘Buy’ view.Jefferies builds in strong order CAGR of 25% for Nykaa BPC over FY23-26E, led by new customer additions. Order frequency is expected to see gradual growth as customer cohorts mature.

Nomura: Neutral | Target: Rs 176

3Q was weaker as the BPC segment drove margin miss, Nomura said, expect ahead-of-industry growth to continue for Nykaa albeit slower margin expansion.It has maintained a “Neutral’ stance for a price target of Rs 176.

“We expect the company to continue outperforming industry growth in both the BPC and Fashion segments. However, margin expansion has lagged our estimates given the tough environment. This could face more risk going ahead as lower-margin segments are growing faster,” Nomura said.

Nuvama: Buy | Target: Rs 187

Rolling its DCF-based target price to December 2024 yields Nuvama’s revised target price of Rs 189 from Rs 187, earlier. It retained ‘Buy’ amid the company’s focus on accelerating growth.

Rising competition, increasing debt and visibility on margin improvement are potential reasons for missing the recent re-rating versus other platform peers, Nuvama said. FSN E-Commerce (Nykaa) reported a stable showing with growth sustaining after Q2FY24 with BPC/Fashion reporting NSV growth of 20%/31%, brokerage added.

JM Financial: Buy | Target: Rs 210

JM reiterated a ‘Buy’ rating on the stock with an unchanged target price of Rs 210 which is a 31% upside as we roll forward to March 2025.

“While there have been murmurs of rising competition for Nykaa BPC, the company seems to have retained its market share, if not increased it as well,” JM said in a review note.

As reflected by 210 bps YoY drop in contribution margin (CM), it did require the company to invest heavily, JM said.

The fashion business delivered another strong quarter along with 510 bps improvement in CM on YoY basis. Growth on transacting customers as well as ordering frequency was a bit subdued with AOVs sustaining at high levels.

Kotak Equities: Add | Target: Rs 165

Kotak’s roll-forward to March 2026 leads to a revised DCF-based fair value of Rs 165 from an earlier target of Rs 170 earlier as it maintained an ‘Add’ rating.

3QFY24 saw decent revenue growth which was in line with its estimates but sluggish margins were a dampener, this broekrage said. “The FY2024 EPS cut is sharp, though the FY 2025-26 EPS cut is lower, as we expect loss reduction in eB2B,” the brokerage note said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

(You can now subscribe to our ETMarkets WhatsApp channel)


Source link