Once upon a time, Nykaa was the Cinderella of India’s stock market – a rare, profitable unicorn in the cutthroat e-commerce and beauty world. When it debuted on the stock market in Oct 2021, it was welcomed with roaring applause, making founder Falguni Nayar India’s wealthiest self-made woman. Investors were thrilled, the future seemed dazzling, and Nykaa’s shares skyrocketed.
But like in every fairy tale, there was a twist.
The stock, once soaring above ₹2,200 per share, plummeted, erasing billions in market capitalization. Just after a year of listing – in November 2022 – the table was totally turned and the company was under tremendous pressure to justify its valuation.
At the time of its IPO in October 2021, Nykaa’s market capitalization stood at an impressive ₹1 lakh crore. However, within a year, this valuation experienced a significant reduction, dropping to ₹53,540.46 crore by October 2022.
As a result, the company not only split its share, offering 6-for-1, but also issued a 5:1 bonus share which coincided with the end of the lock-in period for pre-IPO investors, a move that garnered significant attention, criticism, allegations and analysis.
Nykaa’s chief financial officer, Arvind Agarwal, resigned after the bonus issue.
Today, Nykaa’s stock hovers around ₹159.45, a jaw-dropping 60% drop from its all-time high (after adjusting the stock split price).
What went wrong? And more importantly, will Nykaa’s struggles end soon, or are they far from over?
Let’s dive deep into the data, the story, and the reality that many investors need to hear.
The High-Flying IPO and the Harsh Reality Check
In November 2021, Nykaa went public with a staggering ₹5,352 crore IPO, valued at a mind-blowing ₹1 lakh crore ($13 billion). The subscription numbers were phenomenal – almost 82 times oversubscribed. Analysts, investors, and social media celebrated it as India’s answer to Sephora and Amazon rolled into one.
However, soon after the initial frenzy, reality hit hard:
- Overvaluation Nightmare: At its peak, Nykaa’s stock traded at a P/E ratio of over 1,200, meaning it was priced at over 1,200 times its earnings. Even industry giants like Amazon and Reliance Retail have never been that overvalued.
- Profitability Concerns: Despite being one of the rare profitable Indian startups, Nykaa’s net profits were slim – nowhere near justifying such an astronomical valuation.
- Lock-In Period Expiry: In November 2022, when the IPO lock-in period for pre-IPO investors ended, big investors dumped millions of shares, causing a dramatic price drop.
Cracking the Code – Is Nykaa Fundamentally Weak?
Picture this: You’re at a fancy beauty store. Everything looks glamorous, the shelves are lined with premium brands, and influencers rave about these products online. You assume the business must be booming.
Now, imagine peeling back the glossy packaging. The numbers inside tell a different story – one of tight margins, aggressive competition, and hidden cracks in the foundation.
This is exactly what’s happening with Nykaa. From the outside, it’s still India’s premier beauty destination. But internally, its financial health tells a far more fragile story.
1. Valuation Metrics – The Price No One Wants to Pay
| Metric | Nykaa | Industry Average |
|---|---|---|
| P/E Ratio | 871.19 | ~50-80 (E-commerce) |
| P/B Ratio | 35.87 | 4-8 |
| P/S Ratio | 7.24 | 2-5 |
Imagine going to a mall and seeing two shops selling the same lipstick. One store sells it for ₹500, while the other charges a ridiculous ₹5,000. Which one would you buy from?
That’s exactly what’s happening with Nykaa’s stock. Investors are looking at Nykaa’s insanely high valuation and realizing they could buy shares of much stronger, global giants like Amazon or L’Oréal for far cheaper, making Nykaa an overpriced bet in a risky market.
2. Profitability – A Mirage in the Desert?
In business, profits are king. And when you dig into Nykaa’s numbers, they paint a worrying picture:
- Net Profit Margin: A mere 0.3%, compared to Amazon’s 10% and Reliance Retail’s 6%.
- Return on Equity (ROE): Averaged at 2.95%, one of the weakest in the industry.
- Free Cash Flow (FCF): Negative in multiple quarters, indicating potential cash burn issues.
In the quarter ending December 31, 2024, the company reported a 61% increase in profit, reaching ₹261.2 million, driven by heightened consumer demand for premium beauty products.
Let’s be clear—Nykaa isn’t a loss-making startup. But it’s also not a money-printing machine. At a time when investors are shifting focus from “growth at any cost” to sustainable profitability, Nykaa’s razor-thin profits just don’t make the cut.
3. Growth Story – The Engine Losing Steam?
Think of Nykaa like a trendy new café. In its first year, the café is packed every weekend. But in the second year, a few new cafés open next door. By year three, fewer customers walk in, and the buzz fades.
That’s exactly what’s happening with Nykaa:
- Nykaa’s GMV (Gross Merchandise Value) growth rate has slowed from 100% YoY in 2021 to just 26% in 2024.
- The fashion segment, which Nykaa bets on for future growth, contributes less than 25% of total revenues, making it highly dependent on beauty products.
Nykaa is still growing, but not at the jaw-dropping pace it once did. And in the stock market, when growth slows, stock prices drop.
The Competitive Storm – Can Nykaa Survive the Onslaught?
Imagine being the only player in a football match, scoring goals effortlessly. That was Nykaa five years ago – a monopoly in India’s premium beauty e-commerce space.
Now?
The game has changed, and new, more powerful players have entered the field.
1. Reliance’s Tira – The Billionaire’s Challenge
Mukesh Ambani’s Reliance Retail has launched Tira Beauty, a direct competitor with one major advantage – deep pockets and a vast physical network.
Nykaa’s customer acquisition costs are high, while Reliance can burn money indefinitely. In a price war, the odds are stacked against Nykaa.
2. Amazon & Flipkart – The Silent Giants
While Nykaa built its empire around exclusive brands, Amazon and Flipkart have started offering beauty products at unbeatable discounts, slowly chipping away at Nykaa’s market share.
3. Sephora India & Tata Cliq Luxury – The Premium Threat
Nykaa’s early success came from bringing international brands to India. But now, Sephora and Tata Cliq Luxury have direct brand tie-ups, cutting Nykaa out of the equation.
Consider this: In luxury beauty, brand exclusivity is everything. If international brands shift away from Nykaa to Tata or Sephora, Nykaa loses its biggest competitive edge.
Will Nykaa’s Struggles End Soon or Persist?
In the quarter ending December 31, 2024, the company reported a 61% increase in profit, reaching ₹261.2 million, driven by heightened consumer demand for premium beauty products. The company’s revenue increased by 26.7% year-over-year to ₹2,267.2 crore in the same quarter.
Since the beginning of FY25 (April 2024 – March 2025), Nykaa has been reporting steady growth in its quarterly revenue. However, the performance is not able to influence its stock price to a considerable level. Between January and Dec 2024, there wasn’t any improvement in Nyka’s stock price. In contrast, it fell nearly 8% even more.
Can Nykaa ever bounce back on the stock market? It’s up to the stock market experts to have a say on this. But as of today the company’s overall performance depends on many internal and external factors:
Bull Case – A Comeback is Possible IF:
- Nykaa’s physical retail expansion boosts revenues significantly.
- It improves profit margins and cash flows to justify its valuation.
- It successfully differentiates itself from aggressive competitors.
Bear Case – More Pain Ahead IF:
- E-commerce growth continues to slow down.
- Reliance’s Tira and other competitors erode Nykaa’s market share.
- The stock remains overvalued, making it unattractive to institutional investors.
Since its IPO, Nykaa has navigated a complex landscape marked by significant valuation shifts, profitability fluctuations, consistent revenue growth, stock market volatility, and strategic financial decisions. These developments underscore the dynamic nature of the beauty and fashion e-commerce industry in India and highlight Nykaa’s adaptive strategies in response to evolving market conditions.
Nykaa’s fairy tale isn’t over yet, but whether it ends in a happily ever after or a cautionary tale depends on the company’s execution.
