Nykaa sinks 5.4% on Q3 profit slump

Nykaa reported a 70.7% fall in third-quarter consolidated net profit due to higher costs

Shares of India's FSN E-Commerce Ventures Ltd, the parent of cosmetics-to-fashion retailer Nykaa, fell as much as 5.4 per cent on Tuesday after higher costs sunk the company's third-quarter consolidated net profit by more than 70 per cent.

Its stock fell the most in nearly a month, before easing to trade down about 3.9 per cent at Rs 144.35 as of 10:35 am IST.

Nykaa's parent saw profit slump to Rs 8.19 crore in the October-December quarter from Rs 27.93 crore a year ago, it said on Monday.

Expenses for the company, which has opened brick-and-mortar stores to complement its mainstay online business, rose 36.5 per cent on account of heavy marketing spend and major lease rentals.

Analysts said a lower contribution from Nykaa's higher margin beauty and personal care segment led to a lower-than-expected gross margin of 43.4 per cent.

Gross margin was expected to come in at 46 per cent, according to analysts at Kotak Institutional Equities.

Analysts at Kotak also said the company's earnings margin before interest, taxes, depreciation and amortisation dropped to 5.3 per cent from 6.3 per cent on account of higher brand discounts in its fashion business.

During the quarter, customers have been switching from luxury to premium and mass brands due to inflationary pressures, Kotak analysts Garima Mishra and Shubhangi Nigam said.

India's annual retail inflation rate has been consistently high and rose to 6.52 per cent in January, above the Reserve Bank of India's upper targeted limit of 6 per cent.

Brokerages Jefferies and Kotak rate the Nykaa parent "buy", which is also the average rating of the 20 analysts covering the stock, per Refinitiv data.

Nykaa's stock, which is down over 57 per cent since it listed in November 2021, has shed 3 per cent of its value so far this year up to the last close.