Margin expansion remains the key trigger for Nykaa despite strong growth

Nykaa posted its fastest revenue growth in 13 quarters, led by strong fashion sales, but analysts believe sustained margin expansion will be the key driver for the stock

Aided by faster growth in its fashion segment, FSN E-Commerce Ventures (Nykaa) posted nearly 30 per cent revenue growth in the first quarter (April-June/Q1) of 2026-27 (FY27) on a year-on-year (Y-o-Y) basis. This, coupled with steady growth in the beauty business, helped the company log its highest revenue growth in the past 13 quarters. The gains on the top-line front and operating leverage are expected to reflect in higher profitability and earnings.

 

While long-term growth drivers remain in place, higher competition and investments in market expansion may weigh on profitability going ahead. At the current price, the stock is trading at over 100x its 2027-28 (FY28) price-to-earnings ratio. Given the sharp 21 per cent gain over the past month, the upside from the current levels may be limited.

 

For Q1FY27, the management expects consolidated gross merchandise value (GMV) and net sales value (NSV) growth to accelerate to the early 30s, which is better than analysts’ estimates. With GMV and NSV expected to grow by about 32 per cent each and revenue growth pegged at 29 per cent, this marks a sequential uptick from the 28-31 per cent growth reported in the year-ago quarter across the top-line metrics.

 

Within its key categories, the fashion segment is expected to post NSV growth in the mid-50s, with revenue growth close to 50 per cent, led by an expanding brand assortment, marketing investments, and a reduction in leakages from GMV to NSV. In comparison, NSV growth stood at 42 per cent in the fourth quarter (January-March/Q4) of 2025-26 (FY26) and 29 per cent in FY26, while revenue growth for the same periods was 20 per cent and 23 per cent, respectively.

 

The company indicated that its Nike partnership has delivered encouraging early results, while major fashion categories also posted strong performance across women’s, men’s, and children’s segments.

 

The beauty and personal care category is expected to deliver NSV and revenue growth in the late 20s, broadly in line with estimates, compared with 27 per cent recorded in Q4FY26. The company’s physical retail network added 11 new stores during the quarter, taking the total to 324. Retail performance improved further, with mid-teen like-for-like growth.

 

Overall, if the strong revenue growth momentum can be sustained, it could provide upside risk to the estimates of 29 per cent and 25 per cent Y-o-Y growth for FY27 and FY28, respectively, according to analysts at Nomura Research, led by Kapil Singh. While inflation is unlikely to have a major impact on demand, consistent improvement in the operating profit margin — from 7.5 per cent in FY26 to 8.9 per cent in FY27 and 10 per cent in FY28 — will be the key catalyst for the stock, they added. The brokerage has a ‘buy’ rating with a target price of ₹317 and believes the stock is attractively valued at 5.5x its FY28 enterprise value-to-sales multiple.

 

JM Financial believes the strong quarter was supported by robust customer acquisition across both verticals, sustained traction in House of Nykaa brands, and improving GMV-to-NSV conversion in fashion. With both businesses continuing to scale well, the brokerage expects operating leverage to remain favourable, supporting another quarter of healthy earnings delivery. It has maintained a ‘buy’ rating with a target price of ₹360.