Shares of FSN E-Commerce Ventures Ltd have advanced 33% so far in 2025 as Nykaa’s parent company proved to be resilient amid increased competition from quick commerce companies and slowing urban consumption.
Nykaa has scale, brand salience and a beauty segment that continues to report strong growth even as the fashion segment’s losses are a sore spot. The beauty segment’s annual unique transacting customers grew 26% year-on-year in the June quarter (Q1), while average order values improved 4%.
More buyers increasing spending per purchase powered a 26% growth in beauty gross merchandise value (GMV).
Nykaa has two key growth engines: premiumization and penetration. Premiumization is being pushed through campaigns like ‘Luxe Weekender,’ which aims to lock Nykaa as the first stop for high-end brands.
Penetration is being deepened via ‘Nykaa Now,’ the quick delivery offering in seven cities that delivers beauty products in two hours. The offline push helps as it embeds itself physically into the retail fabric. It has over 250 stores across 82 cities.
In-house brands added margin heft and offered Nykaa tighter control over customer experience. Dot & Key’s Q1 GMV more than doubled year-on-year with an operating margin in the high-teens and the management guiding an expansion towards 20%. Kay Beauty is eyeing a UK debut.
Scale benefits are kicking in. The consolidated Ebitda margin rose 102 basis points year-on-year to 6.5% in Q1. However, marketing expenses were elevated in a bid to attract more customers, which may cap near-term margin expansion.
Fashion bleeding
The fashion segment underlines this tension. GMV grew 25% in Q1 and losses narrowed, but the segment still bleeds with a negative 6.2% Ebitda margin. The management is confident of breakeven by FY26, a timeline that has been extended earlier. Most analysts are upbeat, though.
“Despite an unfavourable demand environment, Nykaa has delivered against the odds to improve margins while delivering industry-leading growth across segments,” said JM Financial Institutional Securities.
Nykaa’s Q1 consolidated GMV rose 26% year-on-year, aiding 23% revenue growth. The company’s positioning helps in a sector where rivals are still willing to burn cash, especially in fashion. But investors’ patience will be tested as earnings growth needs to catch up adequately, given the stock’s sharp rally this year.
“The stock is expensive, and we await a better entry point,” said Kotak Institutional Equities.
Unless profit starts improving in line with customer growth, it risks being seen as another high-growth, low-profit internet play. In short, it is a beauty battling the beast of expectations.
