Nykaa parent FSN E-Commerce Ventures Ltd. has drawn mixed reactions from top brokerages following its fourth quarter results. HSBC downgraded the stock from 'buy' to 'hold' and cut its target price to Rs 200 from Rs 250, citing limited upside and risks to consensus margin expectations.
Meanwhile, Morgan Stanley maintained its 'overweight' rating and a Rs 191 target, highlighting sustained margin improvement and strong growth in core segments.
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HSBC's downgrade stems from what it perceives as a “tall ask” on margin improvement expectations, especially in Nykaa's Fashion vertical. The brokerage is sceptical about the company achieving breakeven in fashion by financial year 2026, noting gross margin pressures from a shift in distribution strategy and a 470 basis points year-on-year rise in marketing spend.
The brokerage also noted the tight but plateauing working capital improvements, suggesting that future gains may be more modest.
HSBC forecasts a slower margin improvement of 120 basis points versus 150 basis points consensus and reduced financial year 2026–2027 revenue estimates by 3–5%. Ebitda projections were also trimmed by up to 10%. Despite strong growth in beauty, HSBC believes current valuations offer no significant upside and leaves little room for error.
In contrast, Morgan Stanley is more confident in Nykaa's trajectory. It highlighted a 6.5% consolidated Ebitda margin in the quarter ended March, up 90 basis points year-on-year and robust GMV growth of 27%. The beauty vertical remains a standout, with 31% GMV growth and margin expansion to 9.6%. The eB2B superstore business also impressed, growing 57% year-on-year and contributing 8% to beauty GMV.
Fashion GMV grew 18% year-on-year, ahead of the 10–11% industry average. While margins remain under pressure, Morgan Stanley noted management's confidence in improving trends and sees early signs of recovery in fiscal 2026.
The brokerage sees near-term volatility as a stepping stone to profitability, while HSBC sees risk of margin compression and an overvalued stock price.
However, both brokerages acknowledged strong execution in beauty, driven by higher-margin own brands and operational efficiency. Nykaa Now, the company's rapid delivery arm, is scaling well in metro cities.
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