Nykaa net profit in Q3 plunges 71% on higher investments

Online beauty and personal care retailer Nykaa’s consolidated net profit plunged more than 71% as investment into lease rentals for stores, office space and warehouses ate up its margins. 

The company reported a profit of ₹8.5 crore during the quarter-ended December 2022 compared to ₹29 crore in the same quarter previous fiscal, according to the documents it filed with the exchange. 

“All of our investments are happening in a manner that we continue to stay in a positive zone as far as our profitability goes,” said Falguni Nayar, chief executive of Nykaa. “We would be wrong if we give up on investing in long-term growth.”

Going forward, the company expects these costs to come down, having already made the majority of the intended investments in its office spaces and warehouses. “A large part of the investment is behind us, on the warehouse side,” said Nayar.

“On the store (side), the momentum will continue. We intend to roll out another 50 stores in the year ahead.” 

Shares of FSN E-Commerce, which operated Nykaa, fell 3.26% at ₹149.65 on the BSE. In comparison, the benchmark Sensex was down 0.41%. 

 Nykaa’s revenue from operations grew 33% to ₹1462.8 crore during the quarter, traditionally one its strongest quarters, when it hosts its flagship Pink Friday sale. The sale, held in November 2022, achieved a 40% growth in yearly gross merchandise value (GMV) over the previous year’s sale. 

The online retailer’s overall GMV during the quarter rose by 37% to ₹2796.5 crore during the quarter. 

Nayar is optimistic on macro factors affecting the business. “The worst of inflation, especially for India, is behind us, and global supply chain costs should start coming down.”

On the operational front, Nykaa’s Ebitda (earnings before interest, taxation, depreciation and amortization) grew by 13% to ₹78.2 crore compared to the same period last year on the back of scaling efficiency. 

Segmentally, Nykaa’s beauty and personal care (BPC) segment saw a margin expansion of 186 basis points during the third quarter along with a 26% growth in GMV y-o-y to ₹1901.4 crore. 

The fashion vertical’s GMV grew by 50% to ₹724.4 crore during the quarter. 

While majority shareholding in the company lies with the Sanjay Nayar and Falguni Nayar family offices, Nykaa also counts Kravis Investment Partners, Fidelity, Lighthouse, TPG and Steadview Capital as its investors. 

On the issue of Nykaa's bonus share issuance in November 2022, Nayar said the company made a mistake in estimating the timeline by when investors could start trading the shares.

“Bonus shares are aimed at creating value and not really take away the value,” Nayar said. “It was cleared by all shareholders (who) were voting. It was very much supported by all shareholders.

The company's lock-in period post the IPO ended on November 10 and the bonus shares got allotted only couple of days after. This didn't go well with investors, as they could sell their bonus shares at a fair price.

“I think where we went wrong was that we had assumed that upon the voting completing, within five days, it can start trading. But, we were told that there had to be a pooling-off period because of which it cannot trading for few days.” 

Nykaa on Monday also said it has appointed Sujeet Jain as Company Secretary and Compliance Officer in addition to his role as Chief Legal and Regulatory Officer.