Nykaa’s ex-date for bonus issuance in a 5:1 ratio is set for November 10. Should you buy the stock?

FSN E-Commerce Ventures aka Nykaa will be the focus of this week’s trading session as the stock goes ex-bonus on November 10 ahead of the record date. Last week, Nykaa received board approval to issue free shares in a 5:1 ratio. The company announced its Q2FY23 results, under which it recorded strong growth in profitability and revenue. JM Financial offered to buy Nykaa shares with a target price of 1,680 each. Currently, Nykaa shares are around 1,100 levels on Dalal Street.

Last week, the lifestyle retailer received shareholder approval for the show free shares in the proportion of 5 fully paid-up capital shares for 1 capital share with a nominal value of 1 Re each to its shareholders.

In its November 3 regulatory filing, Nykaa said, the company received an overwhelming response from its shareholders and witnessed 100% of the votes in favor of the bonus resolution.

Nykaa believes that free shares encourage participation from long-term retail investors, as well as broader share ownership. Additionally, the company aims to attract and retain the right talent pool and put in place long-term incentive structures.

The record date for determining the shareholders eligible for the bonus issue is 11 November. That being said, the action will become ex-bonus on November 10th.

On BSE, Nykaa stock closed at 1,104.70 each on Friday down 2.05%. The company’s market capitalization is exceeded 52,441 crore.

During Q2FY23, Nykaa recorded a consolidated net profit of 5.2 crore — up 330% from 1 crore in the prior year quarter. Operating revenue jumped 39% to 1,230 crores of 885 crores in the corresponding quarter of the previous financial year.

In Q2FY23, Nykaa said it continued to show strong GMV growth with improved gross margin, execution efficiencies and marketing costs, driving an improvement in EBITDA margin of year on year (YoY).

As of September 30, 2022, the company has increased its own number of physical stores to 124 stores, including two new fashion stores, with a total area of ​​1.2 square feet Lakes in 53 cities.

Should you buy Nykaa shares?

JM Financial analysts said in a report, “Nykaa reported Q2FY23 figures that demonstrated increased strength for dominant positioning in the BPC vertical while newcomer Fashion vertical struggles to gain market share. QoQ GMV growth of 9% was driven by 8%/3%/37% GMV increase in

BPC/Mode/Other with only vertical BPC exhibiting sequential improvement in contribution margin. Consolidated GMV for Q2FY23 reached 23.5 billion with 12 billion in NSV and 12.3 billion revenue. In addition, the company also reported a 92/96 bps improvement in gross margin/EBITDA to 45.3%/5.0%, driven by BPC’s gross margin improvement of 173 bps. base.”

In addition, analysts said capital investments related to warehousing and expansion of the company’s stores are driving higher depreciation expense, causing PAT to remain the same as last quarter at 57 million, despite the improvement in turnover and EBITDA margin. Omnichannel expansion continued with 123 stores (2 for fashion) in 53 cities as well as 31 distribution centers in 14 cities, bringing Nykaa closer to its customers.

Looking ahead, the analyst note said, “We have revised estimates with revenue down approximately 11% while EBITDA margins improved slightly by 10 to 100 basis points over the course of the year. “Fiscal 23-27E. We’ve significantly reduced our fashion forecast to account for flat unique visitors. And only 0.1M more users transacting.”

They said that the company’s international foray with a product listing on 4 portals in GCC countries and 2 portals in the US looks exciting and further penetration could bring added value.

“We continue to see Nykaa dominate its BPC vertical concentration and expect significant value from BPC in an implied SoTP valuation. Accordingly, our September 23 TP sits at 1,680 revised at the margin,” the analysts’ note added.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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Sallie R. Loera