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Growth with margin expansion

FSN E-Commerce Ventures’ (NYKAA IN) Q4 was in-line. BPC/Fashion GMV grew 30.8%/18.4% YoY in Q4. EBITDA margin in Q4 rose 88bps, supported by BPC, and could have been better but for lower losses in the Fashion segment. NYKAA seeks to build on the current momentum with focus on margin expansion. Despite competition, growth in both verticals was healthy. Factoring in losses in the Fashion segment, we cut our EPS estimates 5-12% for FY26E-27E. As we introduce FY28E, we raise our SoTP-TP to INR 215 from INR 195. Maintain Accumulate.

BPC – User addition supports growth: GMV growth was robust at 30.8% YoY, led by strong traction in transacting customers (up 35.0% YoY) and 4.2% growth in average order value even as order frequency dropped ~10% YoY in Q4. Alongside, the store network continued to expand to 237 stores in FY25 (up by 50), delivering a 31% YoY GMV growth. NYKAA launched Chanel and Armani Beauty on its platform in Q4. Take rates show sequential progress, up 119bps to 62.0%. Despite robust gain in contribution margin (192bps QoQ), EBITDA gain was curtailed to 90bps (8.9%) given higher costs. Largest BPC categories and wider SKUs on single platform augur well. We expect BPC GMV growth to continue with 28.4% CAGR in FY25-28E.

Fashion – Mix bag: GMV growth in Fashion accelerated, up by 18.4% YoY (10.7% average for 9M), backed by improved performance in owned brands and reduced fulfilment leakages. The management expects to build on the current momentum in FY26 led by 800+ brand launches in FY25 and green shoots in demand in Q1. We expect 20% GMV CAGR in FY25-28E. modest growth in private labels and end-of-season sale hit profitability, as take rates dropped by 107bps YoY. Accelerated A&P spends weighed on contribution margin, resulting in broadly steady EBIDTA losses (INR 0.3bn) in Q4. In FY25, EBITDA losses reduced by 7% YoY. NYKAA plans to arrest losses via aggressive cost cutting. We expect losses to drop 74% in FY26E.

Good show on margin: Q4 EBITDA margin came in at 6.5%, up 88bps YoY, driven by better BPC margin and lower losses in other segments. Curtailing losses in the Fashion segment, scale-up in ad revenue in BPC and calibrated A&P spends are key levers for margin. In FY25, margin gain was healthy at 6.0% (up 60bps YoY), despite competition from quick commerce and peers. Going ahead, benefitting from operating leverage on higher scale, expect EBITDA margin to be 7.5%/8.8% in FY26E and FY27E.

Maintain Accumulate; TP raised to INR 215: BPC GMV growth was healthy (30.8% YoY) despite competitive intensity (quick commerce, TIRA etc.) NYKAA outperformed the online BPC industry. Growth in Fashion GMV is also scripting a come-back. NYKAA aims to elevate its margin led by: a) higher share of own brands, b) stronger advertising revenue, and c) onboarding of premium brands. We expect BPC/Fashion verticals to print revenue CAGR of 29.7%/24.9% in FY25-28E. Losses in Fashion are likely hitting trough and recovery to be key monitorable. We cut our EPS estimates by 5-12% for FY26E-27E to reflect Fashion segment losses in Q4. BPC is trading at 42x/73x Jun-28E EV/EBITDA, P/E respectively which may cap upside – Maintain Accumulate. We raise our TP to INR 215 from INR 195 as we introduce FY28E and value BPC at 45x EV/EBIDTA, and Fashion at 4x price-to-sales.

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