 "HDFC Securities bearish on Nykaa, sees limited core BPC operating gains")
Nykaa’s sharper focus on customer acquisition, particularly in its core beauty and personal care (BPC) vertical in FY26, is a step in the right direction and is likely to support Q3 performance, aided by the Pink Friday sale, according to HDFC Securities. However, the brokerage believes the medium-term growth expectations from BPC remain demanding and sees limited operating leverage in the core platform.
The brokerage has maintained its ‘Sell’ rating on FSN E-Commerce Ventures (Nykaa) with a target price of ₹200 per share. Fashion remains a “work in progress”, it said.
Core BPC growth sub-20 per cent after stripping own brands, eB2B
As per HDFC Securities estimates for H1FY26, if own-brand sales and eB2B are stripped out, Nykaa’s core BPC business is estimated to have grown at below 20 per cent. While this adjustment can be debated, the brokerage argues it is important for two reasons.
First, growth is heavily skewed towards a single private label, Dot & Key, which on an FY26 run-rate of about ₹1,500 crore is estimated to contribute nearly one-third of Nykaa’s private-label gross merchandise value (GMV). “How much can one brand scale? Odds are there might be a natural cap here,” the brokerage noted.
Second, the reliance of Nykaa’s own BPC brands on off-platform channels is rising, which the brokerage views as “not exactly a confidence booster” for the health of Nykaa’s own marketplace. In H1FY26, own BPC brands grew about 72 per cent year-on-year, but sales through Nykaa’s own platform for these brands grew a lower 51 per cent. CATCH STOCK MARKET LIVE UPDATES TODAY
Margins aided by mix, not core platform leverage
Nykaa has seen only a marginal 40-basis-point (bps) improvement in overall margins in H1FY26, which HDFC Securities attributes largely to the higher salience of its own brands and improving margins in its eB2B business, which expanded by over 450 bps in H1FY26.
The brokerage remains unconvinced that the core BPC platform is delivering operating leverage. It highlights two headwinds: advertising income as a percentage of net sales value naturally dips as own-brand salience rises, and the company needs to keep investing aggressively in rapid-fulfilment options, which weigh on profitability.
“We suspect core BPC platform margins do not offer leverage benefits, given the imperative to invest more in rapid fulfilment options,” the brokerage said.
Fashion: Growth–profit trade-off still unresolved
In fashion, Nykaa has, in analysts' view, done a “commendable” job in H1FY26 balancing growth and losses. Nykaa Fashion grew 18 per cent while improving its Earnings before interest, tax, depreciation and amortisation (Ebitda) margin from -9.1 per cent to -4.7 per cent.
However, most of this margin improvement has come from cutting back on marketing spends and employee/other expenses below the contribution margin (CM) level. Fulfilment costs — which are more structural — continue to rise, both as a percentage of NSV and on a per-order basis.
“Given that there is only so much one can do below the CM level, we suspect the path to sustainable profits is not yet clear, though achieving breakeven is plausible,” the brokerage cautioned.
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