Nykaa’s faster growth keeps Street bullish, but valuations rich too

The July-September quarter (Q2) business update on revenue by FSN E-Commerce Ventures (Nykaa) was well received by most investors and the share price surged over 6 per cent, driven by one block deal.

IMAGE: Nykaa Founder Falguni Nayyar. Photograph: Eventfaqs/X

Even after Wednesday’s minor dip, it was still higher at Rs 257.50 as compared to Monday’s close of Rs 255.55.

The key highlights from the quarterly update are as follows.

In Beauty & Personal Care (BPC), net revenue growth is estimated at mid-twenties (25-26 per cent year-on-year (Y-o-Y) versus Q1FY26 at 23.9 per cent).

The Y-o-Y growth of net merchandise value (NSV) for BPC is in mid-twenties (Q1FY26 at 24.8 per cent).

This indicates sustained growth for more than ten consecutive quarters.

Management also claims House of Nykaa brands witnessed rapid growth including the strong performance of acquired brands like Dot & Key as well as home-grown brands.

In Fashion, net revenue growth is estimated at low twenties (21-22 per cent Y-o-Y versus Q1FY26 at 15.1 per cent).

Fashion NSV growth will be in the higher mid-twenties in Q2FY26 (Q1FY26 at 20 per cent) with traction in the core platform business.

Net revenue growth will be lower than NSV growth due to lag in advertising and marketing income.

Overall net revenue growth estimated at low-to-mid-twenties (23-26 per cent versus Q1FY26 at 23.4 per cent) with momentum also coming from an early festive season.

The GMV growth in Q2FY26 will be higher at nearly 30 per cent (Q1FY26 at 25.9 per cent).

The GST 2.0 should release disposable income and drive long-term growth.

This update is close to consensus full year estimates.

But advertisement income as a per cent of sales might be lower leading to steady Ebitda margins at 6.7 per cent (up 20 bps quarter-on-quarter or Q-o-Q) in Q2FY26 with full year earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin expectations at 7.2-7.5 per cent, which implies margin improvement is necessary for H2FY26.

The Fashion segment Ebitda margin rose by 467 bps Y-o-Y, as fixed costs were controlled and revenue growth accelerated considerably.

The fact that growth accelerated over Q1FY26 and is expected to accelerate further in H2FY26 made investors more bullish.

Maintaining growth in the face of quick commerce (QC) competition has been commendable.

Nykaa Now, which offers express delivery in 7 metro cities, with 50+ rapid stores is one way of responding to QC but market-watchers also theorise that Nykaa is shielded to some extent because QC actually solves for use cases that are less applicable in BPC and Fashion.

Nykaa Fashion may have gained market share even if growth has been slower than in BPC. Core BPC growth is strong indicating strong momentum across e-commerce platforms, retail stores, owned brands and eB2B distribution.

The moat for Nykaa may be better discovery-led experience for consumers with content around product usage and reviews.

Fashion is potentially a higher-margin business than BPC but the  barriers are higher.

The guidance at Q1FY26 was for Ebitda breakeven in  the segment by end FY26, this will be a key monitorable.

The management focus has been on customer acquisition and better unit economics and that has likely continued.

When the Q2FY26 results are reported, investors will be looking for movement in other key metrics such as the growth rate in annual unique transacting users and the rate at which Nykaa continues to roll out its offline store network and where it was at 250 stores across 82 cities, by June 30, 2025.

The company’s strategy of adding brands will also be noted.

Valuations remain rich though Nykaa has done well so far given competition from QC and weak discretionary spending.

According to Bloomberg, five of the seven analysts polled in October are bullish, while one each is either bearish or neutral. Their average one-year target price of Rs 226.78 is below the current price of Rs 257.50.

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