The shares of a Large-Cap company, which specializes in an omnichannel retail model focused on beauty, wellness, and fashion products, including makeup, skincare, haircare, and fragrances, are gaining attention as they are trading at a high valuation. In this article, we will explore and examine whether its P/E ratio of 936 is justified.
With a market capitalization of Rs. 74,622 crores on Tuesday, the shares of FSN E-Commerce Ventures Ltd rose upto 0.13 percent, making a high of Rs. 262.95 per share compared to its previous closing price of Rs. 261.35 per share.
FSN E-Commerce Ventures Ltd. is the parent company of Nykaa, a leading Indian e-commerce platform specializing in beauty, wellness, and fashion products. Founded in 2012, Nykaa offers a wide range of products from global and Indian brands, catering to diverse consumer needs. The company has established a strong presence both online and through physical stores, with a focus on quality, customer experience, and innovative beauty solutions.
The company’s high valuation has raised questions among some investors, especially those who usually look for steady profits. Even though the company’s earnings are still small or uneven, its stock is valued very highly. That’s because today’s investors are not just looking at current profits; they’re focusing more on future growth
Here are several factors that suggest they are overvalued
High PE Ratio: FSN E-Commerce has a high price-to-earnings (PE) ratio of 936, which is significantly above the industry average PE ratio of 37.8. This indicates that the market is valuing the company at a premium compared to its peers.
High PS Ratio: In the e-commerce industry, Nykaa has a P/S (Price-to-Sales) ratio of 8.86, while Honasa Consumer with a P/S ratio of just 9.07. This suggests that Nykaa’s stock is priced at more than double the value of Honasa Consumer’s for each rupee of sales, which may indicate that Nykaa is overvalued relative to its peer.
High EV/EBITDA: The company has an EV/EBITDA ratio of 140, which is extremely high by industry standards. This means investors are paying a large premium for the company’s operating earnings, suggesting the stock may be overvalued unless future earnings grow significantly.
High P/B Ratio: The stock is trading at 58.2 times its book value, meaning investors are paying over almost fifty-seven times what the company’s net assets are worth. This high ratio could mean the stock is overpriced, especially if the company’s assets or profits don’t grow fast enough to justify it.
High PEG Ratio: With a PEG ratio of 55.4, Nykaa is trading at a premium compared to its earnings growth rate. The PEG ratio takes into account both the price-to-earnings (P/E) ratio and the company’s expected earnings growth, and a value above 1 typically indicates that the stock may be overvalued relative to its growth potential.
Is its P/E justified?
The reason for the high P/E ratio is that in past years, listing gains on IPOs were higher compared to the recent IPO gains. The Nykaa IPO, for instance, was expected to list with a 68.89 percent gain, but it listed at Rs. 2,018, which was 79.38 percent higher than the issue price of Rs. 1,125, and due to the exceptional listing gains, the stock’s P/E ratio was also higher.
FSN E-Commerce crossed Rs 1 lakh crore market cap, at Rs 1,04,360.85 crore, on the listing day itself, while the same at a day’s high price of Rs 2,248.10 stood at Rs 1.06 lakh crore. The IPO (initial public offering) of Nykaa was concluded and saw a massive response from investors, and during the three-day bidding process, the Nykaa IPO was subscribed 81.78 times. Investors had significant expectations for Nykaa’s IPO, driven by the company’s strong brand presence and growth potential in the e-commerce and beauty sectors.
From March 2018 to the TTM, the company has shown a strong and consistent revenue growth trajectory. Sales have increased from Rs. 574 crore in FY18 to Rs. 8,359 crore in the TTM, representing a more than 14x growth over the period. This sharp rise in revenue showcases the company’s successful scale-up over the years.
Looking at Operating Profit Margin (OPM %), the company moved from a negative margin of 5% in FY18 to a stable positive 6% in the TTM. After reaching 6% in FY21, margins slightly fluctuated but remained positive, reflecting improving operational efficiency. Notably, from FY23 onwards, OPM consistently held at or improved to 5–6%, signaling a more stable and sustainable business model.
From FY18 to FY20, Nykaa gradually narrowed its net loss from Rs. 28 crore in FY18 to a profit of Rs. 16 crore in FY20. A major turnaround began in FY21, when the company posted its first net profit of Rs. 62 crore, and while FY22 and FY23 saw some decline, the trend reversed again with net profit improving from Rs. 21 crore in FY23 to Rs. 40 crore in FY24, and further to Rs. 83 crore in the TTM. This consistent improvement post-FY23 underlines the company’s strengthening bottom line and operational discipline.
The company has experienced fluctuations in its profits, but there are high expectations for the stock from a future-oriented perspective, as the e-commerce market is expected to grow significantly. While the current P/E ratio is high, as the company continues to execute its ideas and developments, it is expected to deliver strong performance in the coming days. This could lead to good earnings growth, resulting in a more reasonable P/E ratio and better valuation for the stock in the upcoming days.
Industry Outlook
The rising influence of online beauty and fashion is boosting India’s e-commerce market, as today’s generation is increasingly conscious about health and beauty, making these sectors more popular than ever. From FY20 to FY25, the beauty and fashion segment is expected to grow significantly, from about $25 billion to around $60 billion, making up a larger portion of the overall market. By FY30, it is projected to capture 39% of the total e-commerce market, which is set to grow from $25 billion in FY20 to a range of $170–190 billion.
Financials & Others
The company’s revenue rose by 23.4 percent from Rs. 1,746 crore to Rs. 2,155 crore in Q1FY25-26. Meanwhile, the Net profit rose from Rs. 14 crore to Rs. 24 crore during the same period.
FSN E-Commerce Ventures Ltd, widely known as Nykaa, is an Indian retail company headquartered in Mumbai and incorporated in 2012. The company operates a leading online platform for beauty, wellness, and fashion products, catering primarily to young Indian women but also serving a broad consumer base through its website, mobile app, and many physical stores across India.
At FY25, Nykaa has a cumulative customer base of over 42 million, a 28% year-on-year growth. The company offers over 9,000 brands, making it India’s largest beauty assortment. Nykaa operates 250 beauty stores across 82 cities and provides faster delivery through its NykaaNOW service, which has delivered in 30-120 minutes across 7 cities. The platform has achieved a Gross Merchandise Value (GMV) of $1.8 billion across all platforms.
Conclusion: Nykaa’s stock looks expensive right now due to its high P/E ratio, but the company is growing well and improving its profits. With more people, especially the younger generation, spending on beauty and wellness, Nykaa is in a strong position to benefit. If the company continues to grow and increase its profits, the valuation could become more reasonable over time. Investors can stay hopeful, but should look at the company’s performance and future plans before investing.
Written By Sridhar J
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