Nykaa - The Make Up Company

This is a buy on dips, sure.

I have enquired with local distributors, makeup gives them a margin of 3%. So, this is not IT kind of business, where margins are high double digits.

Best case, if we consider 10% margins, then for 4000Cr of revenue, gives 400Cr of profits… Still PE is 165.

Now, the question is would we wanna buy a 40% growing business at 165PE…

Well I have bought Dmart, 20% growing business at 125PE.

Then, one year forward PE for Nykaa would be 120.


No offense to anybody being high on Nykka. Valuations look sketch, period! After a big sell off in May, Nykaa’s stock price is staying still on weak retail participants. Given that we have entered a bear market, I could see a strong selloff in Nykaa in the future.

My guess for high valuations in Nykaa might be a ‘big market delusion’ and ‘ecommerce disruption potential’.

The business is good as an investment point of view, don’t get me wrong! But I would start seeing Nykaa as fair value stock, when it comes down to around 500 (aka around 23,000 cr Market Cap).

Disc. Not Invested, Just tracking for fun!

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Certainly this is not IT kind of business where there is no proper path to profitability yet. To me this is a new age retail business. The new age dynamic team working on various possibilities and disruptions in retail.

Regarding margins, make up might have less because it is inventory based model. I guess in fashion, they should have more eventually. Also they are expanding their own private label brands in both make up & fashion so that piece should also add up eventually. Regarding their B2B business - where they would act as distributors, margins maybe lesser…however that part of business would give them strong hold on the entire make up ecosystem…

Having said that, i am not sure of what ideal margins are in Make up, fashion & distribution of make up business. Would be prudent to compare with Fashion margin of Trent and maybe make up margins of established global players like Sephora

Also, the distributors you checked with, are they associated with any brands? I would think Nykaa might have different margins for different brands they sell and also there may not be distributors in middle for some now or eventually as they themselves would act as one and directly buy from brands…so as compared to any other player in this business they should have best margins…

Disc. Above thoughts only for academic purposes. I can be completely wrong in all my asessments

Yes. All pan-national brands. As sole distributors if local guys have 3% margin, then Nykaa’s margins won’t be a whole lot different, in the inventory model.

These distributors would make 3% margins in selling to retailers while Nykaa would sell directly to consumers in inventory model…so margins could be different…


I don’t have any detailed idea about the products or the product categories Nykaa in present in, so is the market fragmented and there are lot of generic and local brands that Nykaa has to compete with in order to increase market share?

Are the prices of Nykaa’s products affordable by all of their target customers so that it has a pan India presence? Or Nykaa is more of an urban story, and targeting a specific set of customers, providing them with premium quality with wide varieties and these customers will not shift to other players?

Dmart is not a margin story, it is a sales story, expanding presence story, strengthening its presence story, and capturing market story, with a successful business model. Does Nykaa belong to this category?

To me Nykaa is a discretionary spend, but, if sales are increasing and if one believes the management and also sees their products everywhere in physical stores and/or online, then may be it is not a discretionary spend and part of lifestyle.

Not invested, obviously, but interested.

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Looks like research needs some scuttlebutt and checking online reviews, a granular research unlike established business like FMCG, because I think things can change quickly with the arrival of new brands. People who can spend 1000, can spend 1200 if they think they are buying a more premium product. One’s appearance to one’s own self is subjective, unlike taste, it may change, given more options.

As with many things in our country, perhaps there has come a change with lifestyle too, I don’t know, at least in the urban areas, in indeed that is true, this business if run properly and successfully can have a lengthy road ahead, prone to all the threats that exist for all businesses.

Nykaa is a margin and a sales story. Mostly sales, cuz the management is focussed on sales growth and covering TAM as much as possible without taking on debt.

Threats should be considered when growth dips sharply. Or a competitor appears on the horizon. The way it’s growing, I doubt that’ll happen.

@Investor_No_1 has chosen to buy in a staggered manner. That is wise. Nykaa being a 5L Cr mcap in another decade is a strong possibility. And no one can know which will be the right time to buy.

Just like I believe, Dmart can be a 10L Cr mcap in the long term.

I have learned to pick growth stories, esp established ones. One might end up buying expensive, but that time will heal, since growth is on our side.

The downside is that if the growth falters the stock price will be punished.

What’s throwing people off is Nykaa’s high PE of 1600. But if u plug in a net margin of 15%, then at 4500Cr of sales, we get EPS of 14.2 and a PE of 107

And that is not terrible. Reason: at 1300 a share one year fwd PE would be 65, much like Hindustan Lever!

So, valuation doesn’t seem to bother me, as long as I believe growth of 30% to 40% will be intact for another 2/3 years.