Nykaa's premium bet: A beautiful strategy if it delivers
FSN E-Commerce Ventures Ltd's analysts meeting last week highlighted that the Nykaa parent is laying the groundwork to scale profitably even as it navigates India's patchy discretionary demand.
After a 30% rise in FY25 GMV, Nykaa is now targeting mid-20% growth in its beauty and personal care (BPC) business over the next five years. It aims to drive penetration, catalyze premiumization and deliver convenience. The plan involves scaling physical reach across tier 2 and tier 3 markets. Store count is to rise from 237 to over 500 by FY30. Nykaa is also leaning on regional influencer marketing, tapping over 28,000 influencers to boost brand discovery.
Premiumization is key. Nykaa's premium users spend nearly nine times the platform average, with the top 10% spending nearing $395 annually, comparable to developed markets. It is strengthening this segment with a broader product portfolio, high-end sub-brands and immersive digital and in-store experiences.
For faster delivery, its two-hour fulfilment model 'Nykaa Now' is live across seven metros. This complements an expansive network of 44 warehouses and 40+ rapid hubs, enabling same- or next-day delivery in key cities.
Yet, fashion, the historically weak link, needs close monitoring. Management reiterated its FY26 Ebitda breakeven and mid-to-high single-digit margins by FY28 target, stabilising at around 10% thereafter. Fashion net sales value is expected to grow 3–4x in the next five years, helped by higher own-brand contribution, better repeat behaviour and falling acquisition costs.
Nykaa's fashion average order values are already twice the industry average, skewed towards Gen Z and millennial users. Still, fashion remains a highly competitive and discount-driven space where sustaining margin improvement will depend on sharp execution and continued customer stickiness.
The GMV of in-house brands is expected to rise from ₹1,700 crore in FY25 to ₹6,000 crore by FY30 in beauty alone. These offer stronger contribution margins and greater customer ownership. Flagships like Dot & Key, Kay Beauty, and Nykaa Cosmetics are expanding overseas.
Also read | Nykaa to expand rapid delivery service to more metros as quick commerce takes off
Nykaa's FY25 revenue rose 25% with Ebitda margin expanding 60 bps to 6%, aided by operating leverage and a richer product mix. But scale brings challenges, from managing a wider retail footprint to sustaining growth across verticals.
While peak investment in warehouse and office infrastructure is behind Nykaa, balancing growth with efficiency would have a bearing on near-term profitability. Plus, when demand is muted, even a minor execution error could dampen investor sentiment. Steady delivery is crucial for the stock that is up around 25% so far in 2025, making valuations pricier to that extent.
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