Buy FSN E-Commerce Ventures Ltd For Target Rs. 250 By JM Financial Services
BPC margins surprise positively; Fashion breakeven extended
Nykaa BPC segment is going from strength to strength, delivering 31% GMV growth YoY along with 25% revenue growth. Furthermore, the segment reported 80bps QoQ EBITDAM improvement (as % of NSV), despite seasonality-driven operating deleverage. While Fashion GMV growth gained momentum (18% YoY), margins disappointed due to marketing investments. We have now pushed Fashion segment breakeven to FY27. Nykaa also reported strong working capital enhancement that ensured first year (since COVID) of positive cashflow post lease liabilities and capital expenditure. Overall, the company reported 24% YoY growth in revenue to reach INR 20.6bn with EBITDA margin reaching 6.5%. We believe core BPC will benefit from repeat purchases from customers acquired this year, resulting in sharper margin improvement in the coming years. Nykaa’s ability to deliver robust growth in a tepid demand environment along with margin enhancement demonstrates its differentiated market positioning. Reiterate ‘BUY’ with Mar’26 TP of INR 250
* BPC growth momentum continues with margin improvement chugging along: Nykaa BPC segment has seen 31% YoY GMV growth in 4QFY25, on the back of investments in customer acquisition over the past several quarters leading to robust order volume growth. Offline retail performance was also strong supported by 15% SSSG growth as well as accelerated expansion of store network with 19 stores rolled out in Q4FY25. Company has expanded its retail footprint to 237 stores across 79 cities with 0.25mn sq. ft. of retail space. The segment delivered 26% YoY NSV growth. However, our triangulation suggests that core BPC (excluding eB2B and Nykaa Man) was at 29% / 23% GMV/NSV growth, suggesting sustained strength despite the poor macro environment. Core BPC gross margin improved 230bps YoY due to rising owned brands salience and lower brand discounts. With contribution margin also rising 110bps, core BPC EBITDA margin improved 60bps YoY. We expect the segment to sustain revenue growth along with margin improvement driven by sharper expansion in House of Brands and Physical store margin along with c.50bps expansion in online platform margin.
* Nykaa Fashion GMV gains momentum but margins disappoint: Nykaa Fashion reported GMV/NSV growth of 18%/13% YoY in 4QFY25 indicating some green shoots of recovery. Revenue growth however was lower at 11% YoY due to muted performance of Nykaa Fashion owned brands and lower LBB mix. Gross margin dipped 40bps YoY and increase in marketing expenses by 470bps resulted in contribution margin (as % of NSV) dipping sharply by 500bps YoY to reach 3.4%. Though controlled indirect expenses ensured EBITDAM hit was lower at 140bps, we now find breakeven in FY26 to get pushed to FY27. Management noted that margin expansion is structural in nature and will continue to improve as the business scales. Nykaa Fashion launched 800+ marquee brands including Victoria’s Secret, Rare Rabbit, Hopscotch, across categories such as Womenwear, Menswear, Kidswear, Home and Accessories etc.
* Reiterate ‘BUY’, Mar’26 TP rises to INR 250: Despite unfavourable demand environment, Nykaa has delivered against the odds to improve margins while delivering industry-leading growth across segments. Furthermore, our channel checks suggest that the company continues to gain market share in both online BPC and Fashion. At c. INR 2.7bn, we believe the investment-phase segments’ loss has peaked in FY25. We reiterate BUY with Mar’26 TP of INR 25 (INR 240 earlier) as Nykaa remains one of the highest compounding consumption plays in India.
* Superstore growth remains robust but profitability will be gradual: Nykaa’s eB2B platform, ‘SuperStore’ (which is part of BPC from 1QFY25 onwards) continues to see strong GMV growth of 53% YoY, growing ~3x in FY23-25 with the company reaching 276k retailers in 1,100 cities. Superstore now contributes ~8% to BPC GMV. Gross margin improved 244bps YoY (driven by increasing share of House of Nykaa brands, premium brands and higher service income) while contribution margin improved sharply with 509bps YoY (-12.6% in FY25) improvement as company is moving from third party warehouses to owned warehouses leading to reduction of fulfilment costs. We expect Superstore business to turn contribution profitable in FY27 with EBITDA profitability only anticipated in FY29.
* Owned brands remain strong with Fashion owned brands focused solely on Nykaa platform: Beauty owned brands have shown strong GMV growth of 72% YoY to reach INR 5.3bn in 4QFY25 driven by strong growth in Dot & key (FY25 GMV of INR 9.1bn), Nykaa Cosmetics (FY25 GMV of INR 3.5bn) and Kay Beauty (FY25 GMV of INR 2.4bn). Meanwhile, Fashion owned brands GMV grew 5% YoY to reach INR 1.1bn in 4QFY25. In Fashion, Nykd / Twenty Dresses have reached INR 1.6bn+ / 1bn+ respectively in FY25. In Fashion, company will be refining assortment with focus on only select brands. As 3P fashion marketplaces have struggled for growth, company has revamped its channel strategy by driving higher mix from Nykaa Fashion platform (+38% YoY). Overall, Nykaa’s house of brands portfolio has crossed INR 21bn GMV mark.
* Content and education: Nykaa leveraged its affiliate program with 28,000+ creators producing 500K+ content pieces, including 15,000+ shoppable videos on Nykaa Play. Social media reach touched 1bn+ impressions (17mn+ social media followers) through various thought leadership initiatives such as ‘Nykaa Wali Shaadi’, ‘Step by step with Nykaa’ etc. The company is investing in beauty tech, deploying AI-based tools like virtual try-ons and skin consultations to enhance in-store experience. This commitment to “phygital” (physical + digital) retail has allowed Nykaa to offer a differentiated, education-led shopping journey, especially for high-involvement beauty categories.
* Nykaa Now: ‘Nykaa Now’ is Nykaa’s rapid delivery initiative which offers deliveries within 60 minutes, with a broader promise of under 2-hour fulfilment. Currently active in key metro cities, the service has shown strong initial traction, contributing meaningfully to order fulfilment in those regions. What differentiates ‘Nykaa Now’ is its extensive assortment which other QC platforms lack and with BPC customers being extremely SKUspecific, this moat is expected to stand strong. The initiative is now well beyond the pilot stage and is already integrated into Nykaa’s core operations in metros. Nykaa plans to expand the service to additional metros over the next few months, reinforcing its omnichannel strategy and competitive edge.
* BPC EBITDA Margin expansion back on track with Q4 EBITDA touching 12.1%: With the management investing into new customer acquisition, there has been significant reinvestment in order to broaden the customer funnel. Hence, core BPC contribution margin has improved 250bps sequentially to 26.7% of NSV. With CM dip now in check and revenue growing in mid-twenties, Nykaa BPC segment is expected to deliver sustained EBITDA margin expansion to reach 13% in FY27 from 11.2% in FY25. Our triangulation of BPC mix across eB2B, Physical Stores, Private Labels and Online Platform suggests that Nykaa’s online is currently around 14% EBITDAM with 50bps annual expansion likely. However, other parts of BPC are expected to deliver a much sharper margin enhancement to drive mix-related margin accretion.
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