Why Shares of Nykaa Are Rising: Record High Volume Since Listing Day

Shares of FSN E-Commerce Ventures Ltd., the parent company of Nykaa, experienced a significant surge on Wednesday, rising as much as 19% to reach an intraday high of Rs 228.30. This marked the stock’s highest single-day volume since its listing day, and the most substantial intraday gain since November 2022. This blog delves into the factors contributing to this remarkable rise in Nykaa’s stock, which has also reversed a two-day losing streak and turned positive on a month-to-date basis.

Nykaa’s Impressive Stock Performance in August

The recent surge in Nykaa’s stock price has led to a 12.5% gain in August alone, marking the company’s best monthly performance so far in 2024. This follows a 9.4% increase in July and a 7.5% rise in June, bringing Nykaa’s total gain for the year to 27%. The upward trajectory reflects investor confidence in the company’s robust financial performance and strategic initiatives.

Financial Performance: A Key Driver

Nykaa’s recent financial results have played a crucial role in boosting investor sentiment. The company reported strong growth across key metrics in the quarter ended June, 2024:

• Gross Merchandise Value (GMV): Nykaa’s GMV for the quarter reached Rs 3,321 crore, marking a 25% year-on-year increase. This growth is a testament to the company’s ability to expand its market share and attract more customers.
• Revenue Growth: Revenue from operations rose by 23% year-on-year to Rs 1,746 crore, showcasing the company’s ability to convert GMV growth into top-line revenue. This increase in revenue was accompanied by a 31% rise in gross profit, which reached ₹756 crore.
• EBITDA Growth: Nykaa’s EBITDA grew by 31% to Rs 96 crore, with an EBITDA margin of 5.5%. When adjusted for the inclusion of the GCC business and restructuring expenses, the adjusted EBITDA stood at Rs 109 crore, representing a 44% year-on-year growth and an improved adjusted EBITDA margin of 6.2%.
• Profit Before Tax (PBT) and Profit After Tax (PAT): PBT surged by 127% year-on-year to Rs 22 crore, with a PBT margin of 1.3%. PAT also saw a remarkable 150% increase, reaching Rs 13.6 crore. These figures highlight Nykaa’s successful efforts in restructuring and risk mitigation, translating top-line growth into substantial bottom-line improvement.

Segment-Wise Performance: Beauty and Fashion

Nykaa’s strong financial performance was driven by its key business segments, particularly Beauty and Fashion:

• Beauty Segment: The Beauty segment experienced a 28% year-on-year GMV growth, with a corresponding 23% increase in net revenue. This growth is particularly impressive given the industry’s heightened discounting pressures, which temporarily caused a divergence between GMV and net revenue growth. As market conditions stabilize, these metrics are expected to align more closely.
• Fashion Segment: The Fashion segment also performed well, with a 15% year-on-year GMV growth, outpaced by a 21% increase in net revenue, totaling Rs 149 crore. This growth reflects Nykaa’s improved management of shrinkage and other operational efficiencies.

Expanding Customer Base and Brand Partnerships

One of the standout achievements of the quarter is Nykaa’s expanding customer base, which now totals 35 million, representing a 33% year-on-year growth. The company has also significantly expanded its brand partnerships, now working with over 6,700 global and domestic brands, including 1,500 new additions in the past year alone. This expansion has strengthened Nykaa’s position in the market, contributing to its robust financial performance.

Growing Physical Retail Footprint and Logistics Network

Nykaa continues to expand its physical retail footprint, with its beauty store network now comprising 200 stores, making it one of the largest in the country. The company also operates 44 warehouses that cover 98% of India’s pincodes, with ongoing investments aimed at enhancing delivery speeds in top cities. This extensive logistics network has been instrumental in supporting Nykaa’s growth and ensuring customer satisfaction.

Innovative Content Creation and Customer Engagement

Content creation remains a strong focus for Nykaa, with its content reaching over 1 billion individuals through various platforms. Innovative initiatives like Nykaa Play and Stepification are driving category creation and customer engagement, further solidifying Nykaa’s position as a market leader.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.