InCred Equities initiates coverage on Nykaa with a reduce rating; cuts target price by 39%

The brokerage house has cut target price by 39 percent to Rs 103 a share from current market price.

InCred Equities has initiated coverage on FSN E-Commerce Ventures Ltd, the parent company of Nykaa, with a "Reduce" rating and a lowered target price. The outlook highlights a plateauing revenue growth trajectory coupled with shrinking EBITDA margins, pressured by rising costs of goods sold (COGS) and intensifying competition. The brokerage house has cut target price by 39 percent to Rs 103 a share from current market price.

On January 9, Nykaa's shares on NSE were trading 0.39% higher at Rs 170.18 apiece.

Nykaa’s revenue growth is normalising after a period of strong expansion—55% in FY22, 36% in FY23, and 24% in FY24. Future growth is projected at 26% for FY25F and 25% for FY26F-FY27F, according to InCred Equities. The deceleration is attributed to slowing growth in the beauty and personal care (BPC) segment, which accounts for 73% of GMV. Increasing cost of goods sold, driven by competition from Tira in the luxury segment and a shift toward lower-margin mass/masstige products, presents key challenges, it said.

Additionally, the low-margin eB2B segment is compounding these pressures. While fulfillment costs could see some relief with the addition of new warehouses, rising marketing expenses and intensified competition are expected to further squeeze EBITDA margins, which are projected to decline to 5.1% by FY27F, it said.

Nykaa’s high-margin services, including marketing support and marketplace services, have seen a sharp slowdown. Marketing services growth decelerated from 92% in FY22 to 18% in FY24, while marketplace services stagnated at 19% growth in FY24 after peaking at 188% in FY22. Together, these services contribute just 13.4% to revenue but remain vital for profitability, the brokerage said.

Meanwhile, Nykaa's 27 owned brands are making progress but face hurdles. In BPC, GMV contribution rose from 11.1% in FY22 to 13.1% in FY24, though dependence on third-party brands hampers pricing power. Fashion lags further, with GMV declining from 12.9% in FY23 to 12.7% in FY24 and YoY growth stalling at 1.7% in 2QFY25. Scaling owned brands is essential to reduce reliance and improve margins, it added.