Beauty and fashion retailer Nykaa is expected to post a compound annual growth rate (CAGR) of about 20% from FY24 to FY27, brokerage firm Jefferies said.
This growth rate is considered a baseline case, where the upside scenario implies about 25% growth and the downstream scenario estimates about 15% growth over the same period.
Segment-wise Growth Insights
In terms of base, Nykaa will grow incrementally as its customer base grows, according to Jefferies. The brokerage also said that the gross merchandise value (GMV) for the beauty and personal care (BPC) and luxury apparel categories is expected to grow at a CAGR of about 25%.
In FY24, Nykaa’s BPC segment experienced a 25% growth in GMV, reaching INR 8,340 crore, while the fashion segment grew by 27%, hitting INR 3,269 crore. The ‘others’ segment, which includes the business-to-business (B2B) arm Superstore and the media arm LBB, saw a 59% increase, totaling INR 835 crore.
Approximately one-third of Nykaa’s product lineup consists of makeup products, another third comprises skincare items, and the final third includes various other items, Nykaa’s senior management stated during a roadshow in the US, as quoted by Jefferies.
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Market Presence and Expansion: Online and Offline
Nykaa holds about 35% of the Indian online BPC market and is expanding offline as well. Typically, its stores become profitable on an EBITDA (earnings before interest, taxes, depreciation, and amortization) basis within a year of opening and recover their initial investment within three years.
In its latest earnings call on May 22, the firm announced its expansion into Gulf Cooperation Council countries, including the United Arab Emirates and Saudi Arabia, via its website in January. Additionally, it opened its first physical store in Dubai in March.
“Recently, there has been a surge in interest from global brand partners. With India’s strong consumption story and the over-dependence on China, brands have accelerated their plans for entering the Indian market. Nykaa has experienced numerous new brand sign-ups in the last few quarters,” the note added.
In FY24, Nykaa, which features global brands, saw a GMV growth of 31% at its Global store, while the luxury vertical witnessed a massive 68% growth
In a separate note, brokerage Morgan Stanley revealed that Nykaa’s own brand in the BPC segment has shown significant growth and could contribute 15-20% of GMV at its peak (13.1% in FY24).
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According to the Morgan Stanley note, Nykaa executives said Indian beauty brands are highly competitive, relying on steep discounts, which impacts profitability and marketing costs.
“The management emphasised that quick commerce is currently gaining market share from Kirana stores and may not have as extensive an inventory or assortment, especially when compared to long-tail inventory seen in the BPC category. Specialised platforms such as Nykaa, which focus on customer education, will remain important, and the company is actively working to reduce delivery times, according to the Morgan Stanley note.
