Nykaa’s Growth Plans Get Thumbs Up From Brokerages, ICICI Securities Raises PT To INR 195

Beauty and fashion ecommerce major Nykaa’s growth plans for its various verticals, disclosed during the company’s annual investor day last week, have received a thumbs up from various brokerages.

ICICI Securities has upgraded the stock’s rating to ‘Add’ from ‘Hold’. The brokerage highlighted that Nykaa is now focusing on growth in the core beauty and personal care (BPC) segment and will reinvest savings from scale efficiencies to usher higher growth. Hence, medium-term BPC contribution/EBITDA margins will likely stay flattish, it said.

“Although short of Street’s expectations, the sharp profit improvement outlook in fashion/eB2B segments is a positive surprise. Also, the rapid scale up of its global store and some of its owned brands – ‘Dot & Key’ and ‘Nykd’ – were definite bright spots in Nykaa’s operating performance. We reckon while material re-rating of Nykaa is contingent on the execution of its ambitions, clarity on growth/margin outlook should benefit the stock,” the brokerage added.

It has also revised its price target (PT) for the stock to INR 195 from INR 175 earlier.

Meanwhile, Kotak Institutional Equities has retained its ‘Add’ rating on the stock with an unchanged fair value of INR 195.

“We now incorporate the GCC business into our projections, resulting in a 24-1% EPS cut for FY2025-27. We are broadly aligned with the company’s guidance on BPC business growth (we model a 20% GMV CAGR for FY2025-27) as well as fashion (we model EBITDA break-even by FY2026), though we believe the superstore B2B business can attract investments higher than $25 Mn projected by the company. Overall, Nykaa has weathered the high competitive intensity environment well in FY2024,” the brokerage said.

Last week, Jefferies said that Nykaa has been able to carve out a niche for itself through its focus on BPC, which differentiates it from horizontals such as Flipkart and Amazon.

The recent years have seen a surge in transacting customers for the company. Nykaa should benefit from the increasing order frequencies and basket values, as the newer customer cohorts mature, Jefferies said.

It expects the company to remain in a hypergrowth phase in the medium term as online BPC and fashion penetration ramps up, the brokerage said in a research note dated June 12.

During its investor day on Friday (June 14), Nykaa said it expects its beauty business to grow at a compounded annual growth rate (CAGR) of mid-to-late 20s% till FY28.

As the online BPC player with over 30% market share in India, Nykaa’s growth strategy in the vertical includes robust customer acquisition, increasing category width and depth, premiumisation of purchasing behaviour, and delivering exceptional on-ground experiences, the company said.

The company also expects its fashion business, Nykaa Fashion, to turn EBITDA positive by the end of the financial year 2025-26 (FY26).

Over the last few quarters, Nykaa Fashion has been seeing higher growth than its BPC business. In FY24, Nykaa’s BPC business’ GMV grew 25% year-on-year (YoY) to INR 8,340.9 Cr. On the other hand, the GMV for fashion business grew 27% YoY to INR 3,270 Cr.

Meanwhile, on the global expansion front, Nykaa aims to extend its Nysaa brand in the Gulf Cooperation Council (GCC) market with a total of 70 stores in the next five years. The company aims to achieve a 7% share in the GCC prestige beauty market in this period.

Besides, Nykaa Global Store aims to increase its total number of brands to 80-100 by FY28 from 39 as of FY24. This segment has grown 5X over the last four years, the company said.

Nykaa posted an 80% YoY jump in its net profit to INR 69 Cr in FY24, while operating revenue grew 24% to INR 6,385.6 Cr.

Shares of Nykaa ended today’s trading session 2.4% higher at INR 175.10 on the BSE.

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