Analysts are bullish on Nykaa's beauty and personal care business prospects | Stock Market Today

Domestic capex peaked in FY23. GCC Thrust will require $3-5 million in capex to support its growth. Guidance also states that gross profits will grow 1.4x by FY26 compared to FY24.

Achieving break-even at earnings before interest, tax, depreciation and amortisation (EBITDA) level for the fashion business by FY26 would be a significant improvement compared to the Rs 1,000 crore loss in FY24.

However, while a 25% GMV CAGR would provide an upside, EBITDA margin expansion expectations for the BPC division need to be lowered based on management guidance closer to current levels.

The BPC segment recorded a GMV growth of 27% YoY in FY24, so the high CAGR expectation is likely to be achievable.

The company plans to double the number of offline stores from the current 187 to more than 400 by fiscal year 2028, and aims to grow revenue from offline stores at an average annual rate of 40% between fiscal years 2024 and 2028.

The guidance states that, given the positive trend in premium fashion, fashion division sales are expected to increase 2.5 to 3 times by fiscal year 2027 due to new customer acquisition, increased total product sales across stores and improved lifetime value (LTV) of existing customers.

The guidance states that the segment will reach EBITDA breakeven by FY26 due to reduced fulfillment costs from increased scale, reduced marketing expenses and reduced overhead.

The firm noted several favorable macro trends.

India has 800 million active internet users, but only 230 million shop online and 350 million make digital payments.

This means that e-commerce penetration is still low compared to China and the US, where more than 70% of internet users shop online, though penetration is likely to rise in the future.

Per capita BPC expenditure is also expected to increase in line with rising per capita income, from $2,700 currently (FY23) to about $5,500 in FY30.

BPC spending is expected to increase from $15 per person per year in FY23 to $50 by FY30.

Management aims to maintain the current contribution margin of 25.5% of BPC's (excl. superstores) net sales and plans to reinvest in light of the expected 1.4x gross margin expansion over FY24-FY26.

The mix of BPC's business is changing, with color cosmetics declining and hair care, fragrances and bath and body products experiencing strong growth.

Nykaa's brands are expanding, with five brands achieving an annual GMV run-rate of over Rs 150 crore. Management expects fashion NSV (net sales volume) to grow 2.5-3x over the next three years from the current Rs 990 crore. Nykaa claims that its superstores offer retailers a superior shopping experience.

GCC countries such as Saudi Arabia, UAE, Qatar, Kuwait, Bahrain and Oman have a BPC market of $30 billion with a very high per capita BPC spend of $500.

Nykaa aims to open 70 stores in the GCC within five years and capture a 7% share of the GCC BPC market within five years, with the first five stores scheduled to open in FY25.

According to analysts, the valuation target is in the range of Rs 195-200, with the analyst consensus remaining positive.