Nykaa's revival rests on more than just growth, focus shifts to margins

Sustained margin expansion will shape the durability of its comeback

Strong performance in the beauty and personal care (BPC) segment, margin gains, and expectations of a breakeven in the fashion business lifted sentiment for FSN E-Commerce Ventures (Nykaa). The consumer technology platform’s stock rose 7.5 per cent on Friday, extending gains over the past week to more than 17 per cent. Most brokerages have upgraded the stock following its third-quarter (October-December/Q3) performance and higher profit expectations ahead. 

The company reported overall year-on-year (Y-o-Y) growth of 27 per cent, while sequential growth stood at 22 per cent. Gross merchandise value (GMV) in the BPC segment rose 27 per cent, driven by a 21 per cent increase in orders and a 2 per cent rise in average order value. 

Morgan Stanley Research observes that the BPC segment has now posted GMV growth of over 25 per cent for 13 consecutive quarters. Fashion GMV grew a robust 31 per cent, compared with growth of over 25 per cent reported for the first nine months of 2025-26 (FY26). Net sales value (NSV) in the BPC vertical rose 29 per cent, the strongest showing in six quarters. This was supported by strong e-commerce traction, store expansion, and momentum in owned brands. Fashion GMV also jumped 31 per cent, led by a 39 per cent rise in orders over the year-ago quarter. 

Morgan Stanley has an ‘overweight’ rating on the stock. Analysts at the brokerage, led by Sheela Rathi, say consistent growth and profitability have been the theme for Nykaa in FY26. Q3 delivery lined up with that trend, with a positive margin surprise. 

Over the next three years, they expect the company to maintain strong growth momentum in the beauty category. 

The company highlighted tailwinds for beauty e-commerce from a shift in channel mix towards online platforms and improved marketing outcomes aided by artificial intelligence. 

Margin expansion was another key positive in Q3, led by higher gross margins and cost leverage. Operating profit margin expanded 180 basis points (bps) Y-o-Y to 8 per cent. Margins in the beauty business improved to 10.1 per cent, 

up 135 bps Y-o-Y, driven by a 140 bps improvement in gross margins and supported by higher advertising income, better category and brand mix, and seasonality benefits. 

Losses in the fashion business narrowed, with margins improving to -2 per cent of NSV from -5.4 per cent in Q3 of 2024-25 and -3.5 per cent in the second quarter (July-September/Q2) of FY26. This improvement came from higher operating leverage in marketing and other expenses. 

Given the healthy growth trajectory and improving margins, most brokerages have upgraded their estimates and ratings. Analysts Garima Mishra and Ishani Swain of Kotak Institutional Equities say Nykaa’s performance remains resilient, driven by strong secular growth in BPC and a turnaround in fashion. They have raised near-term earnings estimates, factoring in higher operating profit in fashion and increased medium-term growth assumptions. 

Motilal Oswal has a ‘neutral’ rating, citing the sharp run-up in the stock price and a balanced near-term risk-reward profile. The brokerage expects net profit margins of 3.4 per cent in 2026-27 and 4.4 per cent in 2027-28 (FY28). Analysts led by Abhishek Pathak ex­pect the beauty business to deliver steady growth and improving unit economics, supported by owned brands and advertising monetisation, while fashion is showing early signs of recovery with breakeven visibility emerging. 

Elara Securities also believes the stock is trading at premium valuations, with further upside dependent on BPC GMV growth of over 25 per cent and margin accretion. Fashion GMV momentum remains healthy, losses are narrowing, and the segment is on track to achieve breakeven by FY26, say analysts Karan Taurani and Harshad Gadekar. At the consolidated level, they have factored in a 200-bp margin expansion over FY26-28.