Macquarie has maintained an "Underperform" rating on FSN E-Commerce Ventures, the parent company of beauty and fashion retailer Nykaa, warning that the company's recent beauty growth momentum may be difficult to sustain over the long term.
In a recent note, the brokerage said Nykaa's strong beauty segment performance has been largely driven by the rapid rise of its in-house skincare brand Dot & Key, which has delivered outsized growth within the platform's owned-brand portfolio. Macquarie believes replicating the brand's success across Nykaa's broader private-label lineup could prove challenging.
However, Macquarie has raised its earnings estimates for Nykaa for FY26, FY27 and FY28 by 12%, 35% and 35%, respectively, reflecting stronger-than-expected growth from owned brands. Despite the upgrades, the brokerage reiterated its Underperform rating but hiked the target price of Rs 210 from Rs 150, implying potential downside from current levels.
Dot & Key Driving Beauty Segment Growth
Nykaa holds a dominant ownership stake in Dot & Key, having gradually increased its share to 90% over time. The company first acquired 51% of the Kolkata‑based skincare label in 2021, bringing the brand into its portfolio. It later expanded its ownership by purchasing an additional 39% in 2024, giving Nykaa full majority control and formally establishing Dot & Key as one of its subsidiary brands.
According to the brokerage, Nykaa's beauty division has seen a sharp uptick in performance in the first nine months of FY26, with Dot & Key emerging as a key growth driver. The brokerage estimates that Dot & Key alone accounted for more than half of the beauty segment's gross merchandise value (GMV) growth, even though the brand represents a relatively small share of Nykaa's overall owned-brand portfolio.
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Macquarie estimates that the three largest owned brands - Dot & Key, Kay Beauty, and Nykaa Cosmetics - together account for around 90% of owned-brand GMV on the platform. However, excluding Dot & Key, the share of GMV contributed by other in-house brands falls sharply, suggesting the broader portfolio has not matched the same growth trajectory.
Growth Playbook May Be Hard to Replicate
Macquarie said Dot & Key's success has been driven by effective product innovation and marketing across categories such as sunscreen, moisturisers, and face wash, which helped the brand gain traction with consumers.
However, the brokerage cautioned that other Nykaa-owned brands have limited presence across multiple categories, making it difficult to replicate Dot & Key's growth playbook at scale. As the platform grows larger, scaling newer brands to the same level of traction could become increasingly challenging, the brokerage noted.
Beauty Momentum Could Slow
Macquarie also warned that Nykaa's beauty growth momentum could moderate as consumers begin seeking greater variety on the platform and shift toward third-party brands.
Such a shift could weigh on margin expansion, since owned brands typically offer higher profitability compared with third-party products sold on the platform. The brokerage added that as Nykaa scales further, constraints around expanding owned brands and sustaining rapid customer growth may begin to emerge.
Macquarie said while Nykaa's owned brands have helped boost beauty GMV growth, the pace of expansion and margin improvement could slow as the business matures.
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