BEFIRST - Nykaa

The company’s product portfolio has divided into BPC and fashion. And company has other division which is called as Nykaa others which comprises of eB2B and Nykaa Man and other growth verticals. The company is playing importer, distributor, and retailer for 22 global brands.

Company’s online channels includes mobile applications, websites and mobile sites. As of March 31, 2022, company had cumulative downloads of 72.5 million (47.3 million in BPC and 25.2 million in Fashion verticals) across mobile applications and during FY 2022, 88.9% of company’s online GMV came through company’s mobile applications. As of March 31, 2022 company’s offline channel comprises 105 physical stores across 49 cities in India over three different store formats. The physical stores currently exist in three formats, Nykaa Luxe, Nykaa On Trend and Nykaa Kiosks and are developed to cater to a specific consumer demographic and need of the local market. Nykaa Luxe store format offers a luxury beauty experience, which showcases prestige and luxury international and domestic brands. Nykaa On-Trend stores offers a differentiated experience to the consumers with the current best-selling products chosen across beauty and personal care brands. Nykaa Kiosks are free-standing units usually in the atriums of shopping malls where company predominantly sell their owned brands. The company is able to deliver its products to 98% pin codes after expansion of the ware housing. Company’s beauty & fashion product portfolio spanned 4,500+ brands and ~4.6 million different products as of March 31, 2022.

The company has invested in omnichannel distribution, digital marketing, technology and logistic capabilities has enabled company to provide a wide range of services to their brand partners, thereby enabling long-term and mutually beneficial relationships. For online- first brands, the company provides them with the ability to rapidly scale by leveraging company online platform; for prestige brands, company helps them grow through company’s omnichannel distribution; and for traditional FMCG and CPG brands, company provides them with the ability to acquire and retain millennial and Gen-Z consumers as they stay relevant to changing consumer trends.

· Company’s Gross Merchandise Value grew by 71% Y-O-Y.

· beauty & personal care, company’s omnichannel beauty business observed GMV growth of over 49% Y-o-Y

· The fashion vertical witnessing an accelerated GMV growth of over 168% over FY 2021

· The company’s profit grew by 71% year on year and stood at 1644crs.

· EBITDA grew by 4% and stood at 163crs for FY22.

· Margins improved by 471bps in FY22.

Nykaa’s 15 consumer brands are-

Company’s beauty segment brands

· Nykaa Cosmetics

· Nykaa Naturals

· Kay Beauty

· Wanderlust

· Nykaa SkinRx

· Dot & Key

· Earth Rhythm

· Nudge wellness

· Pipa Bella

Company’s fashion segment brands

· Twenty Dresses

· RSVP

· Nykd by Nykaa

· Gajra Gang

· Kica

· IYKYK

Brands of Nykaa

Nykaa SkinRx is a Science-based skincare brand with clean formulations and effective ingredients launched in August 2021. It provides a range of gender-neutral serums, with clinically proven ingredients in essential concentrations addressing some of the most common concerns for Indian skin, the brand taps into proven scientific research to offer gentle, dermatologically tested formulations.

Dot & Key was acquired in September 2021, Dot & Key is a new-age brand focused on providing solutions to skincare problems and offers premium skincare products across serums, toners, cleansers and face masks

Partnered with Earth Rhythm a homegrown science-focused beauty brand, launched in 2015, through a minority stake.

Nudge wellness Private Limited Company partnered with homegrown, D2C brand incubator, Onesto Labs, to create a new category of nutraceuticals and wellness products under Nudge wellness Private Limited and unlock a new, high-potential category of edible beauty in India.

Pipa Bella is a brand for contemporary and personalised fashion jewellery. Pipa Bella was acquired in March 2021 and offers on-trend aesthetic jewellery at accessible prices.

Gajra Gang is launched in August 2021, Gajra Gang aims to build a niche between trendy fast fashion and luxury, Indian wear. Gajra Gang offers several product categories, including kurta sets, ethnic dresses, saree, tops and accessories.

By acquiring Kica, company have expanded company’s activewear portfolio which already houses under company’s owned brand, Nykd All Day to connect with the community of athletes and everyday fitness enthusiasts.

IYKYK is launched in February 2022, IYKYK ‘If you know you know’ is a trend-forward bags and footwear brand from the Pipa Bella team designed for younger consumers. On April 22, 2022, Nykaa announced strategic partnerships with three early stage D2C brands to shape the homegrown beauty, fashion and wellness landscape.

These brands contributed to 11.2% of the Beauty Personal care GMV and 7.8% of the Fashion GMV in the year, respectively.

FY 2021-22 was a year of growth and expansion for the supply chain Network of Nykaa. Company pivoted from national fulfilment model to regional fulfilment model. Company has expanded and added five new warehouses in different cities for company’s Beauty and Personal Care vertical with focus on faster order to delivery and control on split shipments. Company focused on regional fulfilment which helps ensuring that the right stock is available at the right location and at the right time. As a result of these initiatives, company’s order to delivery (O2D) timelines reduced by one day, and air shipments as well as split shipments ratio have reduced resulting in lower cost per shipment by Q4 of FY 2020-21- 22. As of March 31, 2022, Company has served 27,800 pin codes, covering 98% of the serviceable pin codes across the country. 95% of company’s BPC orders and 79% of company’s fashion orders were delivered within five days for the year ended March 31, 2022.

Nykaa launched new B2B segment business in the name of “Super Store by Nykaa” which combines its technology to its personal care market. This enables Nykaa to distribute to beauty stores, pharmacies, salons and kirana stores and to resolve current challenges of all stakeholders - brands, retailers as well as end consumers. They are building this business in a sustainable manner.

The company is investing in Nykaa Pro, a membership-based programme for beauty professionals and makeup artists, providing them access to products, offers and classes, including, educational content.

In FY 2021-22, The company has launched The Nykaa Cross Border Store (formerly Nykaa Global Store), an online channel that enables Indian consumers to buy select beauty and personal care products of several prominent foreign brands from accredited overseas retailers. Additionally, Nykaa Fashion launched The Global Store by bringing the best of international brands directly to Indian consumers.

BEAUTY & PERSONAL CARE

The company is offering 2,96,122 different types of products from 3,118 global and domestic brands primarily across make-up, skincare, haircare, bath and body, fragrance, grooming appliances, personal care, and health and wellness categories as of March 31, 2022. The company manages their BPC business vertical predominantly through an inventory led model.

Nykaa introduced new ways of selling on company’s digital platforms - live stream formats, virtual try-ons and curations such as ‘Conscious At Nykaa’, ‘Beauty Bazaar’ and more.

Company manufactures and distribute their own branded beauty and personal care products through third- party contract manufacturers. The products are sold under brands such as ‘Nykaa Cosmetics’, ‘Nykaa Naturals’ and ‘Kay Beauty’. The owned brands follow “Go to Market Strategy “and are available on company’s online and offline channels, as well as third-party retailers.

Beauty and personal care vertical’s GMV grew by 49% Y-o-Y

Beauty and personal care segment acquired 4.4 million customers, in FY2021-22 and in FY2020-21 acquired 3 million. Which show the company’s customers grew by 47% Y-o-Y.

FASHION

Company has launched fashion vertical in 2018. The company adopted to men, children, others categories in the fashion vertical. As of March 31, 2022, Nykaa Fashion housed 1,553 brands and over 4.3 million different fashion products across five consumer divisions: women, men, kids, tech and home. Within these divisions, company merchandise across several categories, including western wear, Indian wear, lingerie, footwear, bags, jewellery, accessories, athleisure, tech accessories, home decor, bath, bed and kitchen to cater to diverse consumer jcompany’sneys across Nykaa platform. Company offer a mix of brands across established national brands, international brands, luxury brands, and emerging labels and designers. Nykaa Fashion has seven owned brands, which are available on company’s online channel, one physical store, and third-party retailers for many brands. Nykaa Fashion has different operating models such as sale or return (SOR), marketplace and just-in-time (JIT) inventory model. Such model lends capital efficiency for the fashion business where trends change quickly or frequently

Fashion Vertical’s GMV grew by 168% Y-o-Y. And it’s contribution increased by 9% in the consolidated GMV of the company. This vertical just started three years back.

Fashion segment acquired 1.6 million customers, in FY2021-22 and in FY2020-21 acquired 0.6 million. Which show the company’s customers grew by 167% Y-o-Y.

Other business

The company entered into new eB2B segment of business. The company launched a digital platform called “Superstore by Nykaa”. This platform brings access to underserved channels and markets using technology. By catering to retailers such as beauty stores, pharmacies, salons and kirana stores, company aims to solve the current challenges in the unorganised beauty ecosystem for all stakeholders - brands, retailers as well as end consumers. But this business is in the initial day and in the growth stage.

ECONOMY

Beauty and Personal Care

The Beauty and Personal Care Market in India was sized at ₹1,267 billion in 2019, after having grown at a CAGR of 13% over the last 3 years. It shrank to ₹1,120 billion in 2020 due to reduced spending during the first COVID-19 wave. This is now projected to grow at a CAGR of 12% to reach ₹1,981 billion in 2025, primarily because of increasing urbanisation, a young population and other demographic and socio-economic factors.

The Online Beauty and Personal Care Market in India grew at a promising 60% CAGR between 2016 and 2020, reaching ₹91 billion in 2020, representing 8-10% of the Indian Beauty and Personal Care Market. The sector is expected to grow at 35%+ CAGR over the next 5 years. Company has 3,000+ brand partners and 22 global brands which were introduced in India by Nykaa and several more through distributors/retailers.

Key trends to look out for in the industry is an increasing demand for ‘clean beauty’ products as well as purpose-led brands, drawing a higher focus on ingredients, environmental consciousness, diversity, equity and inclusion. Another trend that will drive this future growth is rising e-commerce sales, which will be the fastest-growing channel for beauty sales over the next couple of years.

Opportunity to grow in this segment are

· Increase in the spending on personal and personal care products by the youth.

· Non-Metro cities spending also increasing the India for the products.

· There is a rise in the spending on the specialised BPC Categories such as deep skin and derma care, fragrances, nutraceuticals, men’s grooming, sexual wellness and hygiene products

· Increase in the use of men BPC product in the recent years.

· prestige segment is growing at a much faster rate than the mass segment and overall BPC market.

Fashion

The Fashion Market grew at a 12% CAGR over three years to reach ₹5,838 billion in 2019. It declined by 35% in 2020 during the first COVID-19 wave - driven by the reduction in discretionary spending and disruption in supply chain due to the first lockdown. The Fashion market in India is projected to recover strongly and grow at 18% CAGR over the next five years to reach ₹8,702 billion by 2025. Apparel is projected to continue driving ~73% of the market in 2025.

The online fashion retail sector size was at ₹450 billion in 2020 (based on checkout GMV), growing at 25% CAGR over the past 4 years. This led to online penetration growing 3x in 4 years to 12% in 2020, with relatively higher penetration in the footwear and accessories categories compared to apparel. The sector is expected to grow at 36% CAGR over the next 5 years.Company has 1,500+ brand partners and multiple curated style offerings like Hidden Gems for niche market modern Indian design.

Key drivers of growth here include increasing online shopping penetration in Tier-2+ cities, sustained investments in growth of the sector, rising affinity for branded products, wide assortment, increasing need for convenient shopping experiences, rising adoption of e-commerce by Gen-Zs and millennials, and higher consumer trust on products bought online.

Opportunity to grow in this segment are

· Increase in the spending on fashion products by the youth.

· Non-Metro cities spending also increasing the India for the fashion products.

· Increasing in the spending due to influence of social media.

OTHER

Others in FY 2021-22 includes new businesses like Nykaa Man, eB2B platform ‘SuperStore by Nykaa’, International and new brand acquisitions. Of the total GMV of ₹69,332 million, others contributed 2.6% i.e., ₹1,829 million, which increased 371% from FY 2020-21 where GMV was ₹389 million. Others in FY 2020-21 included Nykaa Man only.

Nykaa strengthened its partnership with ELCA Cosmetics Private Limited with the launch of Aveda X Nykaa unisex salons in India, starting from Bengaluru in April 2022, offering advanced, international, high performance and 100% vegan premium hair services to Indian consumers.

Super Store by Nykaa

In October 2021, company launched the Super Store App, an online channel with a separate mobile application for standalone local retailers in India to offer them select BPC products to offer to their consumers. The investment in Super Store, allowed the company to connect with retailers across India, and will enable them to create multiple touchpoints. As of March 31, 2022, they had connected with 18,806 transacting retailers across 302 cities in India. Super Store is a democratised distribution channel powered by advisory & advocacy with following objectives:

a) All-in-One Store: top brands, international bestsellers and new online products are all in one place for local retailers

b) Super Service: enabling 24-hcompany’ss doorstep delivery, safe credit facility and quick returns

c) Super Flexibility: retailer chooses what to buy, how much to buy and when to buy

d) Super Earnings: retailer has access to popular products in the locality

Marketing

As a retail platform Nykaa does a lot of marketing for the product in the platform. This enables the users/Customers to buy the product. Nykaa trusts that Content is The First Approach to Retailing. So as per Red Seer Report, company is one of the first online retail platforms in India to drive widespread product and influencer-led education through creative and entertaining content across video and written formats. The company works with the brands for developing the content to boost the sales. They create and film most of the content in house with help of Nykaa army. The company creates the content in eight different languages. As of March 31, 2022, the company has a network of 5,403 influencers. A brief description of some of company’s content assets is provided below:

· Nykaa TV: A YouTube based platform aimed at creating educational content with immersive storytelling across beauty and personal care. Nykaa TV is one of the India’s leading channels exclusively focused on beauty with over 1.2 million YouTube subscribers as of March 31, 2022.

· Nykaa Network: A peer-to-peer social community, which is an interactive beauty forum that has reached a scale of 4.4 million members as of March 31, 2022. Here members can chat with other beauty enthusiasts, ask and answer beauty-related questions, give and seek advice, discover trends and join beauty-centric conversations on topics of their interest.

· Nykaa Beauty Book and Style Files: Company’s beauty and fashion blogs with 1,101 articles published during FY 2021-22.

· Explore: Company’s in-app content aggregation hub, launched in 2020. It is a ‘watch and buy’ feature that enables a consumer to watch content and shop for the products featured in that content in real time. Such content is uploaded to the mobile application on Explore by company’s influencers and from social media channels. The content is predominately multi-brand and education focused, including tutorials, reviews and product trials. During the year ended March 31, 2022, explore received 12.7 million visits and 23.5 million post views.

· Live commerce: An interactive, entertaining and gamified shopping format as part of which special deals were unveiled, valid exclusively during the livestreaming session.

The company’s has huge scope to grown in the Indian market as per the economic analysis. But the business game plays around the customer acquisition, the recurring consumers and spending of the consumer. Annual Unique Transacting Customers increased by 163% percent Y-O-Y after increasing 183% spending on marketing and advertisement. The company is earning approx. ~7.9rs on every rupee spend on the marketing and advertisement. Totally company spent 4,781million for marketing and advertisement but the company also earned a ₹5,333million revenue by providing this service to the brands. But the expense increased by 183% but the revenue increased by the 113% The company is spending around 8.6% of revenues are spent on the employee benefits and salaries. Beaty and personal care segment is only making EBITDA positive returns. But the fashion and other segments are in the negative EBITDA segments. As fashion and other businesses are newly born businesses, they will be generating negative EBITDA. This type of businesses depends on the internet penetration. According to the Redseer estimates in the year 2020 48-50% population has the access to the internet but only 11-13% people are making transactions on online retail platforms. It’s estimated that by 2025 the internet will be access to 67-69% population and 24-28% population will be interested in online retail platforms. So according to the report the consumers number will be doubled in the future years.

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