In a development that highlights the market’s cautious sentiment around restructuring moves, FSN E-Commerce Ventures Ltd, the parent company of Nykaa, witnessed a decline of over 3% in its share price on March 12, 2025, following the announcement of a new wholly owned subsidiary, Nykaa Essentials Private Limited. The new unit will focus exclusively on the beauty and personal care segment, one of Nykaa’s core business verticals.

While the move signals a strategic shift to sharpen operational focus, the market response has been subdued. Shares hit an intraday low of ₹160.2 before recovering slightly to ₹162.4 by midday—still down 2%—as compared to a 0.65% drop in the broader Nifty 50 index.

Market Reaction and Share Price Performance

The reaction from investors comes against the backdrop of a broader 30% decline in Nykaa’s share price since its peak in August 2024. Since its high of ₹229.90, the stock has consistently underperformed, delivering negative returns both in calendar year 2024 (-5.6%) and so far in 2025. From its IPO listing price in November 2021, Nykaa shares have lost nearly 55% in value, signaling long-term investor concern about valuation, competitive dynamics, and growth sustainability.

March 12’s market reaction, driven by the launch of Nykaa Essentials, appears to be part of this ongoing caution, despite operational performance improvements seen in recent quarters.

Nykaa Essentials: Purpose and Structure

According to the company’s filing with the stock exchanges, Nykaa Essentials Private Limited has been incorporated to exclusively manage and scale the brand’s operations in the beauty, personal care, and lifestyle product categories. The new unit will handle a wide portfolio, including:

• Cosmetics
• Toiletries
• Skincare and healthcare products
• Perfumery
• Lifestyle and wellness-related goods

Nykaa’s parent entity will hold 100% ownership of the newly incorporated subsidiary, which is yet to commence operations. The move is not classified as a related party transaction and is being executed as an internal business restructuring rather than a divestment or spin-off.

The authorised share capital of Nykaa Essentials is ₹100 million, with a paid-up capital of ₹5 lakh—indicating it is currently a shell setup, likely to be capitalised further once operations begin.

Strategic Intent: Focused Scaling in Core Verticals

The creation of Nykaa Essentials suggests a renewed strategic push to consolidate and scale the company’s high-growth verticals, particularly beauty and personal care. This category continues to be the revenue and margin backbone for Nykaa, despite the company diversifying into fashion, wellness, and lifestyle segments in recent years.

This move also aligns with market trends, where consumer-focused internet companies are increasingly separating business units to streamline operations, prepare for future fundraising, or attract vertical-specific partnerships.

Financial Performance Snapshot (Q3 FY25)

Despite the negative stock sentiment, Nykaa’s financial performance has shown sequential and year-on-year improvement, particularly in its core verticals. Key highlights for Q3 FY25 (ended December 2024) include:

• Profit before tax surged 68.2% YoY to ₹44.56 crore.
• Operating income rose 42.5% YoY to ₹140.8 crore.
• EBITDA margin improved by 69 basis points to 6.2%, from 5.5% in Q3 FY24.

The beauty vertical, now under Nykaa Essentials, saw impressive traction:

• Gross Merchandise Value (GMV) rose 32% YoY, reaching ₹3,389.9 crore.

Retail Network Growth

As of March 2025, Nykaa operates 221 physical retail outlets across 73 cities in India, having added 47 stores in the past 12 months. The company has expanded its retail footprint by 31% YoY, covering 2.1 lakh sq. ft., and continues to invest in large-format flagship stores, signaling a clear hybrid strategy between digital-first and physical retail presence.

Challenges Ahead: Investor Skepticism and Sector Competition

Despite its improving operational metrics, Nykaa continues to face multiple challenges:

1. Stock Performance: Persistent underperformance has led to skepticism, especially from institutional investors who had entered at higher valuations during the IPO boom.
2. Intensifying Competition: With Reliance Retail (Tira), Tata CLiQ, and even global platforms ramping up their beauty and personal care offerings in India, the competitive intensity is only set to increase.
3. Market Sentiment: Investors appear to be demanding clearer visibility on profitability and sustained growth, especially in newer verticals like fashion and wellness, where Nykaa’s success has been mixed.

Nykaa Essentials Private Limited

While the launch of Nykaa Essentials Private Limited is a strategic move to focus on core strengths in beauty and personal care, the market response reflects broader investor concerns over valuation, sustained profitability, and competitive pressure. The company’s decision to streamline operations and potentially prepare the beauty vertical for greater autonomy—or even a future listing or fundraising—could prove rewarding in the long run, but short-term sentiment remains cautious.

As Nykaa navigates 2025, it will need to balance operational excellence with renewed investor engagement, especially if it hopes to reverse the prolonged stock slump and reestablish confidence in its long-term vision.