Nykaa's growth prospects are adequately captured in its stock price

Nykaa posted strong BPC performance in Q4 FY25, but regulatory risks and intense competition may slow margin expansion, with analysts seeing limited upside in its stock

FSN E-Commerce Ventures’ (Nykaa’s) revenue for the January-March quarter Q4FY25 at ₹2,060 crore, up 23.6 per cent year-on-year (Y-o-Y), was in line with consensus estimates. The beauty and personal care (BPC) (₹1,895 crore) and fashion (₹161 crore) segments reported net sales value (NSV) growth of 25 per cent and 13 per cent Y-o-Y, respectively. The earnings before interest, taxes, depreciation, and amortization (Ebitda) margin expanded 80 bps Y-o-Y to 6.5 per cent. Profit after tax (PAT) came in at ₹19.1 crore, lower than consensus with higher tax rates leading to a miss. The operating cash flow was ₹470 crore with the return on capital employed (ROCE) at 11.3 per cent, up from 7.5 per cent in FY24.

 

The growth recovery pattern was encouraging. Gross merchandise value (GMV) was up 27 per cent Y-o-Y, while BPC maintained focus on customer acquisition, with the annual unique transacting customers (AUTC) up by 27.4 per cent Y-o-Y to 15.8 million. Gross margin expanded 151 bps Y-o-Y to 44.1 per cent, driven by higher share of owned and premium brands and higher ad income in BPC. The e-B2B losses reduced.

 

BPC reported 31 per cent Y-o-Y growth in GMV and revenue growth of 25 per cent Y-o-Y. Fashion reported 18 per cent Y-o-Y growth in GMV and a lower 11 per cent Y-o-Y revenue growth. BPC’s contribution margin expanded 120 bps Y-o-Y and 190 bps Q-o-Q, while the same for Fashion declined by 880 bps Y-o-Y as the company reinvested in growth.

 

Nykaa reported an overall contribution margin of 20 per cent, as a percentage of revenues (versus 18.9 per cent in Q3FY25 and 19.5 per cent in Q4FY24). The Ebitda margin at 6.5 per cent was 20 bps ahead of estimates and increased 90 bps Y-o-Y. The strength of the BPC segment offset a decline in Fashion’s contribution margin to 5.6 per cent (versus 14.4 per cent in Q4FY24). Fashion’s contribution margin contracted 880 bps Y-o-Y on higher marketing expenses. The management claims the focus on customer acquisition and better unit economics. 

 

The offline expansion went to 237 stores across 79 cities, as of March 31, 2025. The company is adding brands, using innovative methods such as OTT content to drive BPC demand and outpace the industry. Nykaa’s strategy to step up customer acquisition and platform assortment comes while coping with high competitive intensity. It may slow margin improvement in BPC as operating surplus will be reinvested into marketing. In Fashion, a focus on improving profitability is probably the right way to go. Fashion is a highly contested market and getting even small shares of the online fashion market is a big challenge and may require substantial investment.

 

Management says BPC’s strong growth was across segments, with same store sales growing at 15 per cent Y-o-Y, and added 50 stores. Nykaa partnered with brands like Chanel and SuperGoop with products to be available in FY26. There are plans to enter the Wellness category. Marketing spends will continue to be high and leverage benefits are visible in lower fulfilment costs, etc. There is a lot of scope for margin improvement. In Fashion, the company plans to focus on its own platforms and brands (lingerie, western wear) and has made structural improvements in profitability.

 

The onboarding of new global brands, expanding stores and overall product curation should drive strong revenue growth in BPC. But while revenue growth is welcome, margin improvement is a key monitorable for investors and this may be slower than hoped for.

 

Broadly, any slowdown in overall ecommerce penetration could result in slower growth. Another key risk is regulatory risk around private labels vide draft e-commerce regulations (June 2021) which proposed to limit ‘flash sales’, limit private-labels contribution to e-commerce companies, and scrutinise relationships between online marketplaces and vendors. Final regulations are under review and this could be a key risk to growth.

 

The stock has fallen by almost 3.5 per cent post results on May 30 evening, from ₹203.45 to ₹196 on the BSE. While the majority of analysts are bullish, the upside may be limited. On June 3, the stock closed at ₹195.4.

 

According to Bloomberg, 11 out of 20 analysts polled since May 30 are bullish, six are bearish and three are neutral. Their average one-year target price is ₹206.