Premium Beauty And Gen Z Adoption Will Drive Long Term Upside Potential

Catalysts

About FSN E-Commerce Ventures

FSN E-Commerce Ventures, which operates Nykaa, is a leading Indian beauty, personal care and fashion platform with an expanding omni-channel and house-of-brands business model.

What are the underlying business or industry changes driving this perspective?

• Rapid expansion of premium beauty and fragrance consumption, supported by exclusive global brand tie ups and experiential stores such as makeovers, diagnostics and fragrance bars, is expected to drive higher average order values and structurally support gross margins and EBITDA.
• The sharp rise in Gen Z and young millennial beauty adoption, amplified by campus programs, creator incubators and personalized Gen Z stores, positions Nykaa to capture lifetime wallet share from a large, growing cohort and steadily compound revenue and earnings.
• Scaling of the House of Nykaa brands, with several labels already profitable at meaningful GMV and expanding aggressively across GT, MT, marketplaces and international retailers, creates a high margin, asset light brands engine that can lift blended gross margin and PAT over time.
• Omni-channel infrastructure, including 265 tech enabled stores, 44 warehouses, 53 rapid stores and hyperlocal delivery in top cities, improves convenience and speed versus peers, which can deepen customer loyalty, increase repeat purchases and improve fixed cost absorption and net margins.
• Rising online fashion and lingerie penetration, coupled with marquee brand additions like H&M and a disciplined focus on higher quality channels and own brands such as Nykd, is expected to sustain above market GMV growth while driving continued EBITDA margin improvement in the fashion vertical.

Assumptions

This narrative explores a more optimistic perspective on FSN E-Commerce Ventures compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming FSN E-Commerce Ventures's revenue will grow by 29.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.2% today to 7.0% in 3 years time.
• The bullish analysts expect earnings to reach ₹13.4 billion (and earnings per share of ₹4.25) by about December 2028, up from ₹1.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹7.4 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 97.7x on those 2028 earnings, down from 679.4x today. This future PE is greater than the current PE for the IN Specialty Retail industry at 24.6x.
• The bullish analysts expect the number of shares outstanding to decline by 1.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.1%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Beauty and personal care penetration in India may mature more slowly than management expects, despite current double digit GMV growth and heavy investment in Gen Z and campus programs. This would cap long term addressable market expansion and slow revenue growth.
• The aggressive push into premium and luxury beauty, including international brands and fragrance, could face demand softness in a downturn or sustained consumer trading down. This could compress average order values and limit gross margin expansion.
• High ongoing spending on marketing, experiential retail, tech and rapid delivery needed to drive penetration and premiumization, alongside continued losses in fashion and newer businesses, may keep operating costs elevated for longer. This could constrain EBITDA margin and net margin improvement.
• Scaling the House of Nykaa brands across GT, MT, marketplaces and international retailers increases execution and brand fatigue risk. If new labels fail to replicate successes like Dot & Key or Kay Beauty, the expected high margin mix shift may not materialize, weighing on long term earnings growth.
• Rapid omni channel expansion, including 265 stores, 53 rapid stores and new format fragrance outlets, raises the risk of overextension if store productivity or hyperlocal demand normalizes. This could erode fixed cost efficiency, depress ROCE and pressure net profit.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for FSN E-Commerce Ventures is ₹310.0, which represents up to two standard deviations above the consensus price target of ₹242.42. This valuation is based on what can be assumed as the expectations of FSN E-Commerce Ventures's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹310.0, and the most bearish reporting a price target of just ₹150.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be ₹191.8 billion, earnings will come to ₹13.4 billion, and it would be trading on a PE ratio of 97.7x, assuming you use a discount rate of 15.1%.
  
• Given the current share price of ₹247.3, the analyst price target of ₹310.0 is 20.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.