Broker’s call: Nykaa (Buy)

The brokerage maintains a positive outlook on FSN E-Commerce Ventures, or Nykaa, due to its dual engines of premium user penetration and premiumisation. These factors are projected to drive a durable about 25% BPC GMV CAGR through FY30E. Nykaa's curated, high-average order value (AOV) proposition is protected from quick-commerce disruption, which poses more significant challenges for horizontal platforms.

Despite quick commerce's rapid growth, Nykaa has maintained its leadership position in online BPC, holding a 27% share in FY27 with minimal erosion.

As quick commerce penetration stabilises, the brokerage expects Nykaa to regain market share by FY30E, driven by its niche proposition and higher AOV. These elements help offset fulfilment investments and facilitate the scaling of Nykaa Now, its online grocery delivery service. The rising premium smartphone penetration is also expected to contribute to a 25% CAGR in FY26-FY30E.

The brokerage's revenue and profit after tax (PAT) estimates for Nykaa exceed consensus for FY29E but fall within the lower range of its FY30 guidance. This optimism is based on multiple factors, including higher platform fees that provide margin upside, a high-AOV that supports superior unit economics, and an ROE of 37% by FY30E, surpassing that of any other Indian B2C internet platform. Additionally, potential earnings upgrades from executing on the guidance's upper end are anticipated.

The brokerage also highlights Nykaa's improving free cash flow to EBITDA conversion, which reached 59% in FY26, outperforming global peers. Consequently, the brokerage reiterates its buy rating with an increased target price of ₹475, up from the previous ₹400.