Shares of India’s FSN E-Commerce Ventures Ltd, the parent of cosmetics-to-fashion retailer Nykaa, fell as much as 5.4% on Tuesday after higher costs sunk the company’s third-quarter consolidated net profit by more than 70%.
Its stock fell the most in nearly a month, before easing to trade down about 3.9% at 144.35 rupees as of 10:35 a.m. IST.
Nykaa’s parent saw profit slump to 81.9 million rupees in the October-December quarter from 279.3 million rupees 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% 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%.
Gross margin was expected to come in at 46%, according to analysts at Kotak Institutional Equities.
Analysts at Kotak also said the company’s earnings margin before interest, taxes, depreciation and amortization dropped to 5.3% from 6.3% 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% in January, above the Reserve Bank of India’s upper targeted limit of 6%.
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% since it listed in November 2021, has shed 3% of its value so far this year up to the last close.
Reuters