Valuation upgrades for Nykaa hinge on sustained margin expansion

Analysts remain positive on Nykaa's growth plans in beauty and fashion, but believe sustained margin expansion will be critical for further valuation rerating

Analysts responded positively to the briefing on Nykaa’s Investor Day. The management outlined plans to scale the beauty business by 2.5–3 times and fashion by 3–3.5 times within FY30.

 

The drivers will be premiumisation, rising online penetration, and increasing discretionary spending.

 

India's beauty and personal care (BPC) market is expected to grow from $23 billion to $42 billion by FY31, while premium online fashion could triple over the next five years.

 

Nykaa is poised to benefit from secular growth trends, given leadership in beauty, growing omnichannel presence, customers with deeper pockets and higher contribution from owned brands.

 

House of Brands (in-house brands) is expected to contribute more revenues and profits and fashion achieved earnings before interest, taxes, depreciation and amortisation (Ebitda) break-even in Q4FY26 and targets Ebitda margins of over 10 per cent by FY30.

 

In BPC, the national market is expected to expand at an annual rate of 12 per cent for the next five years. Online BPC is expected to grow faster, as online penetration increases from 25 per cent currently to over 34 per cent by FY31. Premium beauty categories are outpacing the broader market, supported by rising incomes, higher female workforce participation, and higher discretionary spending. Nykaa’s focus on premium should enable it to grow faster.

 

Female workforce participation may rise from 28 per cent currently to 40 per cent by FY31, while beauty spending per capita could have a big upside, if current penetration is compared to historical trends in other markets.

 

Nykaa operates over 240 stores across formats and the omnichannel beauty segment is gaining share within the overall portfolio. Nykaa hopes to scale beauty by 2.5-3 times by FY30 while hitting double-digit Ebitda margins.

 

 In premium online fashion, Nykaa is targeting 3-3.5 times growth by FY30. The management says premium online fashion may triple over the next five years. Rising affluence, increasing discretionary spending, and stronger digital adoption are drivers. Nykaa Fashion is targeting the ₹3,500-10,000 price band.

 

More than 40 per cent of new customers now come from Tier-1 cities, while over 50 per cent of acquired customers use either iOS or premium Android devices. Gen Z and Millennials (20-35 years) remain the largest cohorts.

 

Average order value (AOV) is around ₹4,600, which is 60 per cent higher than its peers. The platform is strong in full-price and new-season merchandise, and the management claims it has an advantage versus peers. The platform offers over 300,000 styles, 1,200 international brands, 400 Indian brands, and 150+ footwear brands.

 

International western wear is growing at 50 per cent Y-o-Y and contributes 20 per cent of western wear sales.

 

Nykaa’s owned brands span skincare, cosmetics, lingerie, activewear, and apparel. Owned brands in beauty are the largest contributors. Dot & Key (D2C skincare brand) crossed ₹1,000 crore net sales value or NSV in FY26 and is the fastest-growing digital-first skincare brand. The brand has grown 128 per cent Y-o-Y, aggregating to 27 times over the last five years.

 

In fashion, owned brands are hitting scale. Nykd has reached a gross merchandise value or GMV run rate of ₹150 crore while KICA benefits from growth in active-wear and wellness-led apparel. 20 Dresses is gaining traction in occasion-led western wear.

 

Nykaa's platform indicates customer discovery happens through content, personalisation, and creator-led commerce.

 

Given higher gross margins, stronger pricing control, and less contribution from third-party brands, the fashion segment is also witnessing higher margins.

 

It hit Ebitda breakeven in Q4FY26 and margin expanded by nearly 600 basis points (bps), rising from minus 8.3 per cent in Q4FY25 to break-even during Q4FY26 with an average Ebitda margin of minus 2.6 per cent in FY26.

 

The company hopes for 700 bps of margin expansion in the next few years with Ebitda margins above 10 per cent by FY30.

 

Marketing productivity is improving. Spend declined from 31 per cent of net sales value (NSV) to 26 per cent in FY26 and to 23 per cent in Q4FY26.

 

A key question is the impact of quick-commerce and faster-delivery on profitability.

 

Overall, Nykaa may be able to sustain growth while delivering mid-teens consolidated Ebitda margin by FY30 or FY31. The 5-year highway to growth is ambitious but credible, given macro-trends. Valuations could upgrade if the improving margin guidance holds. 

The writer is a  New Delhi-based

independent journalist