Four Levers That Lifted Nykaa's Beauty Biz In Q1

“Nykaa’s strong growth momentum continues with this quarter with GMV coming 26% YoY growth and GMV at INR 4,182 Cr.” That was the opening statement of Nykaa’s Executive Chairperson, MD & CEO of Falguni Nayar on the analyst call after the company’s Q1 FY26 financial results were out.

At a cursory glance, the company’s financial performance has improved on a year-on-year basis. The Mumbai-based BPC major’s net profit zoomed nearly 80% to INR 24.5 Cr from INR 13.6 Cr a year earlier.

Concerning the revenue, the company’s operating revenue increased by 23% to INR 2,155 Cr on a YoY basis. Even on a sequential basis, the company’s topline increased by 5%.

With the growing revenue, the company also managed to improve its EBITDA to INR 141 Cr.

Akin to the previous quarters, the company’s beauty segment continued to remain the core driving engine, contributing almost 92% of the company’s operating revenue.

Revenue from the beauty vertical surged over 25% YoY to INR 1,957 Cr while its profit grew 32% to INR 96Cr.

According to Anchit Nayar, CEO of Nykaa retail, one of the four beauty verticals, the B2B superstore is operating in the red, while the online marketplace, House of Nykaa, and retail business remain profitable.

The fashion business which is yet to achieve breakeven, saw its revenue increase 15% to INR 171 Cr, with loss narrowed by 11% YoY to INR 27 Cr.

Let’s take a look at the key factors that fueled Nykaa’s core growth engine – beauty vertical.

House of Brands: Margin Lever

Nykaa’s “House of Nykaa”, a textbook house of brands strategy, unlike many rivals who have stumbled in similar space, has become a major growth driver, if not the single biggest lever with respect to margin expansion. While the company never pinned down an exact starting point for this strategy, but a steady combination of in-house launches and targeted acquisitions has built into one of the most prominent personal care beauty brands.

The portfolio, spanning beauty and fashion, has scaled to an annualised GMV of INR 2,700 Cr, a staggering 7X growth over the five years. The momentum, however, is far from evenly distributed. Dot & Key, an acquisition, commands a GMV run rate of over INR 1,500 Cr, roughly around 65% of the beauty-house portfolio. Kay Beauty follows a INR 250 Cr, and Nykaa Cosmetics at INR 350 Cr.

It is pertinent to note that new launch in House of Brands contribute to 20% of the overall sales.

On the analysts call, Adwaita Nayar, cofounder of Nykaa and CEO of Nykaa Fashion acknowledged that Dot & Key enjoyed a strong presence in various categories and underlined that the brand can command a stronger margin such as 20%, aligning with typical FMCG benchmarks.

The management reiterated that the house of brands model enjoys structurally higher margins than retailing third-party products.

However, it needs to be highlighted that such a heavy skew on one brand can impact the company’s overall financial performance. While Nykaa’s other brands such as Kay Beauty, and Nykaa Cosmetics are growing on an YoY basis, others such as Earth Rhythm, Nudge, Nykaa Skin, and Nykaa Wanderlust, among others are yet to break through among the top sellers.

Growing Offline Presence

Initially launched as an online marketplace, Nykaa forayed into the offline retail space in 2020. Since then, the company has increased its retail presence significantly. Currently, the company operates 250 beauty stores across 82 cities. The store network posted a GMV growth of 33% year-on-year basis. In the quarter under review alone, the company has added offline stores in three new cities and two airports.

The total retail presence grew by 36% YoY in the first quarter of FY26, to over 2 lakh sq ft supported by roll out of larger format experimental flagship stores. These stores offer broader premium assortments and elevated brand experiences, along with experiential services such as hair styling, nail spas, paid and unpaid makeovers, which result in customer loyalty.

Chairman and CEO of Nykaa E-Retail Anchit Nayar highlighted that the majority of Nykaa’s active users are their repeat customers, highlighting the importance of customer stickiness for the company.

Besides, the management stated that offline serves as a profitable customer acquisition and premiumisation engine.

Quick Commerce Delivers

The quick commerce push through Nykaa Now launched in June this year is already live across seven cities. The newly launched channel has already fulfilled over a million deliveries through its over 50 rapid delivery stores, underlining the growing importance of convenience and changing habits.

While Nykaa has reported the fulfillment cost per order has reduced, this could reverse as order density plateaus or customers’ demand for discount increases. Competitors in this space have struggled to achieve breakeven at scale, and beauty products typically have a lower basket size than groceries.

While Nykaa retail stores continue to be profitable, the unit economics of a retail business in India are telling. High rents, employee costs, infrastructure costs are just a few to add. With Nykaa now targeting Tier II and Tier III towns, maintaining store profitability is likely to be one of the hurdles.

Onboarding International Brands

For a scaling company to maintain a sound financial performance, it needs to increase its average order value (AOV), a metric almost every marketplace are stressing on. In the quarter under review, the company saw its AOV in the beauty segment increase by 4% to INR 2,009. One of the key factors was bringing in international brands.

Currently, Nykaa has the likes of Chanel, Armani beauty, Supergoop, Aestura on its platform. This move not only helps the company to scale its assortment, tap a more opulent user base, but also evokes a sense of trust in Nykaa. Moreover, tying up with these brands further helps Nykaa capture the international market share.

While Nykaa’s Kay Beauty is set to debut at the UK’s SPACE NK, Falguni Nayar has indicated that Dot & Key will follow suit.

Edited By Nikhil Subramaniam

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