'Sell' Nykaa Shares Maintains Dolat Capital Despite Healthy Q1 Topline Citing Rich Valuations
At the current market price, the stock trades at 84x EV/Ebitda and 303x P/E for FY26E, highlighting extremely rich valuations and high investor expectations.
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The report flags Nykaa’s valuation as the biggest red flag; the stock is trading at 84x EV/Ebitda and 303x PE (FY26E), while beauty and personal care margins remain flat and newer business lines are still in investment phase.
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Dolat Capital Report
FSN E-Commerce Ltd. parent of Nykaa’s Q1 FY26 operating and financial performance was in-line and healthy. Gross merchandise value/revenues/gross profit/Ebitda grew by 26/23/27/46% YoY. PAT grew by 72% YoY on a low base. Yet, Ebitda was below estimate due to higher marketing expenses and adjusted profit after tax due to higher tax.
The company is facing a challenge of managing rapid growth along with margin expansion (lack of Oplev/platform play), as multiple segments are under-investment mode (viz. fashion, superstore, GCCs etc), thereby limiting margin expansion.
Core BPC margins, too, remain rangebound, restricting platform effect due to higher marketing costs for customer acquisition/retention and due to competition. Growth in Fashion continues to remain weak.
We broadly maintain our FY26/27E estimates.
Reiterate ‘Sell’ rating with revised target price of Rs 185 at 4.5x FY27E EV/S (earlier Rs 183 @ 4.5x FY27E EV/S).
At current market price, Nykaa trades at ~84/59x FY26/27E EV/E and 303/147x PE. Valuations remain extremely rich.
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