FSN E-Commerce Ventures Ltd. share price target

FSN E-Commerce Ventures (Nykaa) is a leading specialty platform for beauty and personal care (BPC) products, bringing brands, consumers and discovery together in one focused ecosystem.

*over or under performance to benchmark index Nykaa reported a robust Q4FY25 performance, with steady growth in gross merchandise value across all segments. It is poised for strong growth in the beauty segment, driven by strategic initiatives such as introducing new international brands, expanding its retail presence, and curating a wider range of products. Meanwhile, the fashion business is expected to regain momentum in Q1FY26 as...

Nykaa grew BPC GMV 30% YoY in Q4FY24 aided by ‘Pink Love Sale’. As a result, BPC gross margin declined by 150bps YoY.

Cost-control initiatives yielded a 130bps YoY contribution margin (CM) improvement in BPC despite a 60bps YoY gross margin decline as :1) ad-income from D2C brands was soft as brands increased profit focus (in-line with our expectations), 2) a new ad platform resulted in transition challenges for smaller brands and 3) channel mix worsened.

We note that management on the call emphasised on profitable growth. In the fashion segment, it endeavours to improve contribution margins materially. We think this should help allay investor concerns around cash burn.

Q3FY23 GMV growth in BPC segment (+26%YoY/+17%QoQ) though lower than 9MFY23 trend was still higher than the growth in most other e-commerce sub segments. Fashion segment GMV growth rebounded to 50% YoY and 21% QoQ after a comparatively weak showing in Q2FY23.

We had always liked Nykaa's business model. That said, post its listing on the Indian bourses, we've been staying on the sidelines due to valuations beyond our ability to comprehend (at peak stock price, revenue CAGR requirement over the next 20 years was 23%). Post ~70% correction from peak, in SoTP, BPC (beauty & personal care) business now accounts for ~77% of current price, assuming it's a defensible and high growth business in medium term.

Nykaa had a mixed quarter. Overall GMV grew by 9% QoQ (39% YoY) while Fashion business GMV grew by just 3% QoQ (flattish MAUV for last 5 quarters) despite a) some benefits of festive season in 2QFY23 and b) small size in a larger market (compared to BPC).

Nykaa’s 1Q revenue print was above expectation. It continues to (1) invest in growing new businesses along with (2) have resilient unit economics of BPC and fashion vertical driven by focus towards driving higher conversion and quality traffic.

Nykaa’s Q4FY22 revenue performance was in line with our estimate. We like the higher investments in growing new businesses with resilient BPC margins. Regionalisation of warehousing to drive better consumer experience (reduce delivery time) was much required given that horizontal players are already providing better consumer experience.

As the festive season kicks off, a wave of internet startups are hitting the markets. Following the success of Zomato, FSN E-Commerce Ventures, the company behind the cosmetics e-commerce retailer Nykaa is set to launch its initial public offering (IPO) on October 28.

Incorporated in 2012, FSN E-Commerce Ventures, more commonly known as Nykaa, is a consumer technology platform, delivering a content-led, lifestyle retail experience to consumers through its diverse portfolio of beauty, personal care & fashion products including their own brand products.

Nykaa is a consumer technology platform, delivering a content-led, lifestyle retail experience to consumers. The company has a diverse portfolio of beauty, personal care, and fashion products, including their own brand products manufactured by them. The company has an Omnichannel experience, online and offline with an endeavor to cater to the consumers' preferences and convenience.

IPO Note