Nykaa, India's largest online beauty and cosmetics retailer, recently held its annual investor day where management expected its beauty and personal care (BPC) business to grow at a mid to high 20% annual rate between FY24 and FY28. Addressing the analyst meet, Nuvama Institutional Equities said the company's target is to grow net sales volume (NSV) of its fashion business by 2.5-3x over the next three years.
Other highlights include that Nykaa is targeting BPC margins to be close to current levels and expects the fashion division to reach breakeven by FY26. Nykaa believes that capex will peak in FY23 and then decline in India, while the GCC region will require capex of $3-5 million in the near term to support growth.
Nykaa's management believes that improving economic conditions for its fashion and retail businesses will drive profitability and is focused on driving growth through reinvestment in the business.
Following this event, Nuvama maintained its 'buy' recommendation on Nykaa and suggested a DCF-based March 2025 target price of Rs 203.
With the fashion business growing at a faster pace than the overall company growth rate, Nykaa expects the overall contribution of the fashion business to increase from 16% of NSV in FY24 to 21% in FY29.
One of the few profitable new generation companies, the company plans to grow its gross retail merchandise volume (GMV) at a compound annual growth rate of 40% from FY24 to FY28 and to increase the number of stores from 187 in FY24 to more than 400 by FY28.
“Superstores (eB2B segment) is performing well and Nykaa aims to grow Superstores nine times compared to FY24 in the medium term and expects EBITDA margins of 3-5 per cent at scale,” Nuvama said.
The company's management plans to maintain the contribution margin of its BPC business at current levels and reinvest further savings into the business to support growth.
Nykaa expects to improve EBITDA margins by 1,300-1,600 basis points by FY27. It also outlined its path to achieve this improvement, calling for margins to improve from the current -10.3% level to breakeven by FY26, to mid-single digits by FY27, and to a plateau of 10% in the medium term.
“Unlike BPC, Fashion has a niche positioning with a strong focus on curation and management plans to continue with that. This offers a potential path to profitability, albeit on a limited scale, and achieving it would be significant value in our view.
It says “Driver.”
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