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Premiumization picking up; Fashion now accelerating

* FSN E-commerce Ventures (NYKAA) reported a 1QFY27 net revenue of INR27.8b, up 29% YoY vs. our estimate of 27% YoY growth.

* BPC vertical’s NSV grew 29% YoY to INR23.7b, supported by acceleration in both growth and profitability vs. our estimate of 28% YoY growth in 1QFY27. BPC vertical’s EBITDA margin was 10.3% in 1QFY27 vs. our estimate of 9.7%.

* The Fashion vertical’s NSV grew 54% YoY to INR4.5b vs. our estimate of 31% YoY growth in 1QFY27. The vertical reported a contribution margin of 11.4% vs. our estimate of 12.1% in 1QFY27. The EBITDA margin for the Fashion business stood at 0.1% vs. our estimates of 0.7%.

* Consolidated adj. PAT came in at INR797m (up 226% YoY) vs. our estimate of INR858m. For 1QFY27, NYKAA’s revenue/EBITDA/adj. PAT grew 29.1%/ 67.8%/3.25x YoY. For 2QFY27, we expect its revenue/EBITDA/adj. PAT to grow 35.6%/87.3%/3.7x YoY.

* We value NYKAA on an SoTP basis to arrive at our TP of INR370. Valuations remain a key deterrent, and we await a better risk-reward profile to turn constructive on the stock. Reiterate Neutral.

Our view: Fashion margins should drive the next leg of earnings

* Premiumization in beauty is playing out more intensely, visible in improving AOVs (up 5% YoY). Management continues to focus on both penetration and premiumization, while marquee launches such as Rare Beauty, SK-II, and K18 strengthen the premium portfolio. As premiumization picks up further, we expect it to drive an improving NOV growth rate. We expect an NSV growth CAGR of 27.9% over FY26-30.

* Nykaa Fashion is growing stronger. Fashion continues to surprise us, and we believe it is now accelerating, with GMV/NSV growth of ~53%/~54% YoY and the business remaining EBITDA positive (~0.1% margin) for the second consecutive quarter. On a relatively benign base, we expect Fashion to grow at ~40% CAGR over FY26-30, led by NYKAA's flywheel as it continues to add premium brands and keeps acquiring discerning, profitable consumers.

* Nykaa is on track to deliver ~5x consolidated EBITDA by FY30E, led by Fashion’s EBITDA margin, which is likely to improve to 10.1% from ~0% currently, as well as BPC margin, which is on an improving trajectory. Improving ROCE (~26.8%) and disciplined working capital continue to reflect financial discipline.

* We continue to view Nykaa's deep moat in Beauty and Personal Care as difficult to displace, supported by 10,000+ brands, 324 stores across 105 cities, strong owned brands, and deep brand partnerships. At the same time, we view the company as building an assortment-intelligence-led Fashion vertical, with marquee partnerships such as Nike, H&M Move, and Birkenstock strengthening its long-term positioning.

Valuation and view

* We believe BPC should continue to deliver mid-to-high 20% NSV growth, supported by premiumization, improving AOVs, owned brands, and healthy customer additions, while margins should gradually improve despite continued reinvestment. Fashion is also showing structural improvement, with stronger growth and sustained EBITDA breakeven. We now expect NYKAA to report a PAT margin of 3.7%/4.8% in FY27/28E. We raise our estimates by ~14.8%/17.8% for FY27/FY28, driven by stronger Fashion growth and better margin expectations across both Beauty and Fashion.

* For the BPC business, we assign a 50x EV/EBITDA multiple, reflecting its category leadership, deep competitive moat, and relatively superior margins versus horizontal platforms, implying a per-share value of INR286. We value the Fashion business using a DCF approach, implying a per-share value of INR87. Adjusting for net debt, we arrive at our TP of INR370.

* However, valuations remain a key deterrent, and we await a better risk-reward profile to turn constructive. We reiterate our Neutral rating on the stock.

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