In December last year, FSN E-Commerce Ventures Ltd, the parent company of Nykaa was losing its shine. Beauty sales were strong, but costs refused to come down.
Fashion was bleeding, and the promise of profitability looked distant.
Investors, once dazzled by its glamorous growth story, suddenly saw it for what it was: an expensive stock with too many moving parts. The shares tumbled, and the Street began asking if scale had only magnified Nykaa’s problems rather than solved them.
Fast forward eight months, and the story has flipped. Nykaa’s stock has surged nearly 40% in 2025, making it one of the best performers among new-age listings. Beauty margins are improving, fashion has shown signs of life, and profits are finally visible. For investors, the question now is whether this is the start of a long compounding journey or just another rebound rally riding on hope.
Beauty: the reliable engine
At its core, Nykaa is still a beauty business. Beauty and personal care (BPC) contributes nearly two-thirds of gross merchandise value (GMV) and enjoys contribution margins that most internet companies can only dream of. With gross margins above 40%, beauty has been the steady engine keeping Nykaa afloat.
International brands continue to choose Nykaa as their launchpad for India. Meanwhile homegrown names also flock to the platform.
This has helped BPC GMV rise 26% year-on-year in Q1FY26.
But beauty is a fickle category.
Skincare preferences change overnight, competition is endless, and customer loyalty is fragile.
To keep its position intact, Nykaa spends heavily on advertising. In FY25, marketing expenses rose 62% year-on-year. This is the paradox: the very category that gives Nykaa its shine also forces it into a treadmill of high spending.
Fashion: promise or drag?
The fashion segment was launched in 2018. Nykaa had an ambition of replicating it’s beauty success.
The logic was simple: if Nykaa could curate beauty products, why not fashion?
The market size was huge, and the positioning, premium and curated rather than mass discounting, was differentiated.
On paper, the bet makes sense. In practice, it has been a drag. Fashion GMV crossed Rs 964 crore in Q1FY26, showing that scale is not the problem. Profitability is. The segment ran at an EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin of –6.2% in FY25, despite narrowing losses. Competition is intense, with deep-pocketed players willing to burn cash for market share. Nykaa’s premium positioning helps, but the segment has yet to prove it can deliver steady profits.
Management has guided for breakeven by FY26. If that happens, fashion could transform from a weak spot into a profit driver. If not, patience may wear thin again.
B2B: the long bet
The third leg of Nykaa’s strategy is its B2B Superstore, which supplies products to retailers across 1,100 cities and serves more than 305,000 partners. This business adds heft to Nykaa’s top line, but profitability is a distant dream. Management itself has said breakeven is likely only by FY29.
That means B2B is not about near-term margins but about building distribution scale. The problem is that until it delivers, it keeps consolidated margins capped.
The ace: House of Brands
If Nykaa has a joker in the pack, it is its owned brands. Dot & Key, Kay Beauty, and Nykaa Cosmetics have grown into meaningful contributors, together accounting for 55% of Nykaa’s GMV run rate in Q1FY26.
Dot & Key has doubled GMV in FY25, scaling to a Rs 1,500 crore run rate with high-teen margins.
Kay Beauty, co-created with Katrina Kaif, is now India’s largest celebrity beauty brand. Looking ahead, it is eyeing global launches.
Nykaa Cosmetics remains a leader in staple categories like lipsticks and blush, which drive repeat demand.
Owned brands allow Nykaa to control customer experience, expand margins, and differentiate itself from competitors. But they also demand visibility, which means more advertising. This is where Nykaa diverges from a Hindustan Unilever or a Colgate. It cannot rely on entrenched consumer habits. In beauty, trends shift every few months, and brands that are hot today can disappear tomorrow.
The numbers behind the rally
FY25 was the year Nykaa began to balance growth with profitability. Consolidated GMV rose 25% to Rs 15,600 crore, revenue climbed 24% to Rs 7,950 crore, and EBITDA margin improved to 6.5% from 5.2% in FY24. By Q1FY26, net profit had surged 79% year-on-year to Rs 24 crore.
The improvement in margins gave investors what they had been waiting for, proof that scale could in fact translate into profits. That is what has powered the 40% rally this year.
But let us not forget December 2024, when Nykaa’s stock tanked after Q3 results. Beauty GMV was up 32%, but fashion lagged at 8%, ad spends rose, and profitability stayed capped. The same investors cheering the rally today were questioning the model back then. That memory should keep optimism in check.
The road to 2030
At its Investor Day in June 2025, Nykaa sketched an ambitious roadmap. By 2030, it aims to have 1,000 stores, embedding itself into India’s offline fabric from malls to airports to tier-2 high streets. Its House of Brands will push global expansion, with Dot & Key targeting 20% margins and Kay Beauty preparing for international launches. Beauty will scale premiumisation, cementing Nykaa as the go-to platform for luxury and mass-premium brands.
The B2B Superstore, meanwhile, is expected to serve millions of small retailers. But profitability there remains pushed out to FY29, a reminder that growth will continue to weigh on margins.
Management insists Nykaa will keep outgrowing the market regardless of near-term demand conditions. The vision is clear: entrench leadership in beauty, chip away at fashion losses, and build the B2B base for the long haul.
The risks in plain sight
The risks are obvious. Beauty, while profitable, is fickle. Fashion is still unproven. And B2B is a margin drag for the foreseeable future. The high ad spends that Nykaa relies on to keep brands visible may be difficult to cut without hurting growth.
In other words, Nykaa has to sprint just to stay in place. That is not unusual in consumer internet businesses, but it does raise questions about the sustainability of margins.
Valuation check: hope versus reality
This brings us to valuation.
At over 824 times earnings (P/E), Nykaa is clearly not priced for reality. Even at a price-to-sales (P/S) of 7.9, it is priced for belief. Belief that beauty margins will keep expanding, that fashion will eventually stem losses, and that the B2B bet won’t remain a drag forever.
The trouble is, belief-based investing has burnt fingers before.
Plenty of internet stocks looked invincible until profitability, or the lack of it, caught up. Nykaa’s own December stumble is a reminder of how quickly sentiment can swing.
But here’s the real question: are P/E or P/S ratios even the right lens for a business like this? A discounted cash flow might be better suited to capture Nykaa’s long runway in beauty, the optionality in fashion, and the physical retail moat it is quietly building. That doesn’t mean the stock is cheap. It just means that shorthand metrics might be misleading.
Nykaa’s valuation debate boils down to this: do you believe this is just another consumer-tech rally, or a rare internet platform company that actually scales into profits?
Conclusion: vanity versus value
Nykaa has come a long way from being a niche online beauty seller. It is now a multi-pronged platform with scale, a growing house of brands, and a physical presence that few digital-first companies can boast of. FY25 showed it could expand margins while still growing in the mid-20s, easing some of the doubts that surfaced last year.
But here is the irony. Nykaa has conquered India’s vanity cabinet but still has to conquer investor trust. Growth is abundant; profits are not. After a 40% surge, the market is betting Nykaa can deliver both.
The next few years will decide whether Nykaa is the next compounding story in India’s consumption boom or just another stock rally fuelled by hope.
Disclaimer:
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
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Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.
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