Nykaa sees stable BPC, improved fashion growth; eyes 7.5% EBITDA margin

With growth steady in beauty and improving in fashion, Nykaa targets stronger margins, offline expansion, and breakeven in fashion by FY26, say analysts

The business update from Nykaa (FSN E-Commerce Ventures) suggests that growth in revenue and gross merchandise value (GMV) is stable in the beauty & personal care (BPC) segment and has improved in fashion.

 

Revenue growth in BPC is around 25-26 per cent year-on-year (Y-o-Y) with GMV growing slightly faster. In the first quarter of the financial year 2025 (Q1FY25) GMV growth stood at 27.7 per cent, while it was 30.8 per cent in Q4FY25.

 

The owned House of Nykaa brands are growing at a higher pace.

 

In fashion, net revenue growth was 15-16 per cent with growth of fashion GMV at mid- twenties Y-o-Y (Q1FY25 and Q4FY25 GMV growth was at 14.5 per cent and 18.4 per cent respectively). The revenue growth was a strong improvement.

 

Overall, net revenue growth improved sequentially (Q-o-Q) to mid-teens (Q1FY25 and Q4FY25 Q-o-Q revenue growth was at 21.3 per cent and 10.7 per cent respectively) and Y-o-Y revenue growth would be 23-24 per cent.

 

GMV is growing faster. Based on the update, analysts estimate the Ebitda margin may reach 7.5 per cent. The stock trades at around 5 times of consensus FY26 Enterprise Value/Sales. 

 

Management expects BPC to scale at mid-20s compounded annual growth rate (CAGR) during FY25-30 (including B2B + B2C) with stable margins. Fashion target is Ebitda breakeven by FY26 (minus 8 per cent margin in FY25). The eB2B Superstore business will scale, Ebitda breakeven at 4 times of current levels. BPC customer acquisition picked up in FY25. The targeted BPC GMV growth in the mid-20s has been achieved so far. Offline plans aim to take store count to 500 by FY30 from 237 in FY25.

 

In BPC, the CAGR target for FY25-30 period seems possible, if ambitious. In fashion, the targets are steep. Nykaa aims to scale Fashion Net Sales Value (NSV) to 3-4 times FY25 levels by FY30 and achieve mid-to-high single-digit Ebitda margin by FY28 with breakeven in FY26. This implies 25-32 per cent NSV CAGR during FY25-30 and margin improvement.

 

The BPC supply chain includes the new offering of Nykaa Now (30-120 minutes delivery running in 40 stores in seven cities). While this could raise fulfilment costs and cut margins, Nykaa’s focus on scaling House of Nykaa brands may offset margin compression.

 

 

In Fashion, Ebitda breakeven by FY26 from negative 8.3 per cent in FY25 is a big swing. Earning more ad income will be useful but lower marketing spends are the hardest ask. In FY25, advertising to shipping income stabilised at 9 per cent after three years of consistent declines. But the aim is to reduce marketing spends to 15-20 per cent of NSV by FY30 (from 29.4 per cent in FY25). Doing this while increasing Annual Unique Transacting Customers (AUTC) will be hard.

 

The B2B Superstore serves 276,000 retailers (vs 112,000 in FY23 and 195,000 in FY24) across 1,100 cities.

 

Growth is expected to continue with Tier III+ towns contributing two-thirds of GMV. Owned brands in BPC grew 55 per cent to ₹1,700 crore and the target is ₹6,000 crore by FY30 (assuming 30 per cent CAGR during FY25-30).

 

BPC holds 30 per cent market-share online. As fashion margins improve, the return on capital employed (RoCE) would improve from 5.2 per cent in FY25 to around 17.1 per cent by FY27. Competition is still not very strong in ecommerce but if that changes, marketing spends would be forced upwards.

 

The top 10 per cent of customers on Nykaa spend $395 in BPC every year. The strategy must include further premiumisation and expanding the networks into Gen-Z and Tier II/III markets. The targets are on the high side, and the growth prospects may be baked into the price.

 

The stock has risen about 6 per cent to ₹210 levels post the business update announced on July 6. According to Bloomberg, while 5 out of the 9 analysts polled in July are bullish, two each are neutral and bearish on the stock. Their average one-year target price is ₹209.