FSN E-Commerce Ventures (Nykaa) hosted its first-ever Investor & Analyst Day. Key highlights: i) BPC: Personal care and Beauty have related margins—combine change is not going to be margin-dilutive. ii) Fulfilment: Regional fulfilment focus will assist management this value to lower than 10% of income. iii) Fashion: Masstige and Premium are focus areas. Aiming for a ten% share by CY25 (our estimate: 5%). iv) Superstore: Nykaa highlighted that working capital funding can be minimal. This enterprise has GMV potential of $3–4 bn with 4–6% Ebitda margin.
Overall, profitability scale-up in BPC has been spectacular. Inventory enhance (regional fulfilment pushed) and losses from Superstore stay key variables. Maintain ‘Buy’ with a DCF-based TP of Rs 1,845.
Key takeaways
BPC: Make-up and Skin account for a one–third of GMV every. Launched the ‘Watch & Buy’ function six–eight months in the past. Margins in private care are just like Beauty after contemplating promoting. Despite normalisation of transport phrases, AOV has not fallen under Rs 1,800. Also, bodily retailer parameters are spectacular.
Fulfilment value: The firm desires to transition from a nationwide to regional-driven provide chain. Ideally, the corporate desires to carry the order-to-shipment ratio to 1.1–1.15. It shouldn’t be too removed from it.
Fashion: Brands/SKUs have grown ~4x/86x over final two years with the share of recent segments additionally rising. It is aiming for a ten% on-line share by 2025/CY26. It goals to be current throughout classes with a concentrate on Masstige and Premium.
eB2B/Superstore: Presently, this section has gross margins increased than 5–6% for business. In a steady state, it could obtain 4–6% Ebitda margin.
Outlook: Asset-light scalability
We stay constructive on Nykaa given the expansion potential and moats in place. We consider the profitability scale-up in core BPC is spectacular with the section touching 10% Ebitda margin in Q4FY22.
However, we might be careful for the next from the current initiatives:
i) While Nykaa talked about that stock ought to normalise, any structural enhance in stock due to the regional warehouse technique might negate the profit from decrease fulfilment prices. ii) The Superstore enterprise, whereas not demanding on working capital, is a low-margin enterprise that will obtain profitability solely at a major scale. Watch out for losses within the enterprise.
Source: www.financialexpress.com”