Target: ₹205
CMP: ₹239.00
Nykaa’s FY26 customer acquisition drive, especially in BPC (priced-in), is certainly encouraging. However, we suspect that in the medium term, the ask from BPC growth remains high. In 9MFY26 (HSIE estimates), if one strips out own brands’ sales and eB2B, core BPC is estimated to have grown at sub-20 per cent.
While own brands (BPC) grew about 69 per cent year on year in 9MFY26, own channel sales grew 47 per cent. On BPC margins, we suspect a lion’s share of the 80-bp BPC margin is courtesy higher own brands salience and improving eB2B margins (about 500 bps in 9MFY26). Core BPC margins do not offer operating levers as ad income (as percentage of NSV) naturally drops with increase in own brand salience and rise in investments in rapid fulfilment options.
In 9MFY26, Nykaa Fashion has done a commendable job of balancing growth and cutting back its burn (improved EBITDAM). Most of these gains have come from cutting back on marketing spends and employee/other expenses (below CM-level expenses). The stickier fulfilment costs continue to rise (as percentage of NSV and per order). Getting to positive unit economics from here may have to be done cutting down on customer acquisition spends, which could, in turn, have growth implications.
Nykaa remains an efficient online business, especially for BPC. Fashion remains a WIP. Valuations at about 66x EV/EBITDA remain heady. We maintain our FY27/28 EBITDA estimates and our SELL rating with a TP of ₹205/share (implying 58x FY28 pre-IND AS EV/EBITDA).