MARKET ALERT: Nykaa's Bold Growth Stepped on by Margin Concerns

NEW DELHI, NOV 18 (BLOOMBERG) - Indian e-commerce firm Nykaa Limited reported a surge in its beauty goods segment, with revenues reaching $245 million for the third quarter of FY24. However, the company expressed concerns over its operational margin, which fell 1,400 basis points to 10.7% yoy.

Nykaa's stock price surged past 2,700 rupees on Bombay Stock Exchange (BSE) and crossed 74 US dollars on National Stock Exchange (NSE), with investors optimistic about the company's future prospects despite lingering doubts over its capacity to maintain a stable revenue line amidst intensifying competition in India.

In its earnings report released earlier today, Nykaa mentioned that its revenues for Q3 FY24 rose 36.4 per cent YoY from $180 million in the same period last year, driven by enhanced consumer spending in the US. The company's net loss for the quarter widened to Rs 2,433 crore after a wider loss in the same period of the previous fiscal.

Nykaa also reported that its total merchandise sales jumped over 28 per cent on a YoY basis during Q3 FY24.

"This is very encouraging, we are doing well and I think our products were able to perform better than expected," said Manish Duggal, the CEO at Nykaa Limited's annual investors' meeting.

Duggal further mentioned that the E-commerce firm had also stepped up investments in online media advertising and partnerships with smaller brands. "All of this has contributed to making growth possible within our online reach today," he added.

Despite growth figures appearing more favourable on top surface, worries around the margin will be a significant challenge to Nykaa's growth prospects moving forward, say analysts.

"Although margins were lower that what investors expected in our view, we expect long-term growth for Nysa," stated analysts from Credit Suisse. "We have taken care of improving margins through various adjustments by Nysa in the coming quarters to keep up the momentum."

As always it’s a good sign for investor for upcoming years if growth is happening while management takes initiatives towards margin expansion, say the credit suisse in a statement.

The shares of all major peers in e-commerce space are trading 0-5% at press time. A strong performance from Nykaa has raised hopes among investors on the possibility of some top e-commerce names reaching record numbers soon.