Nykaa Shares Soar Amid Beauty Business Growth, but Margin Squeeze Remains a Concern

New Delhi, Nov 18 (Bloomberg Quint) - Nykaa Ltd's beauty business growth has lifted the company's shares, but margin concerns continue to cast a shadow over its financials.

Shares of Nykaa jumped 3.4% to ₹1,443 apiece on BSE in afternoon trade, outperforming the S&P BSE Beauty and Personal Care Index's gain of 2.1%. The company's market capitalization increased to ₹35,111 crore.

According to its earnings report, Nykaa posted a solid sales growth in the latest quarter, driven by strong demand for its eponymous beauty products. However, on a profit basis, the company missed analyst estimates due to higher-than-expected costs. Gross margin for the quarter came in at 23%, down from 25% for the same period last year.

"We like the progress being made in Nykaa's sales growth trajectory amidst increasing competition," said Harish Mehta, head of research at Mehta Equity Intelligence (MEI). "However, the lower-than-expected revenue guidance, driven by higher costs, poses a risk to the company’s long-term profitability journey."

In its earnings report, Nykaa guided for full-year revenue growth of 20%, which is slightly miss but in line with expectations. The profit margin for the year was put at 22%, down from 26% last fiscal.

The beauty and personal care segment had driven significant sales growth for Nykaa in Q2 FY24, up by an impressive 37% YoY to ₹1,442 crore. Online and retail segments contributed substantially to its sales. E-Commerce revenues were $1435 million (around 45%), followed closely by Retail revenue.

Nykaa has positioned itself well against other direct-to-consumer beauty retailers by maintaining a strong focus on brand differentiation and product diversification in its portfolio. The company achieved significant scale savings of ₹110 crore as compared to the same period last year & this contributed positively towards cost management.