Nykaa’s Crown Slipping?

In the heyday of India’s ecommerce boom, while Amazon and Flipkart squabbled over the wider share of the market, startups cemented their places within verticals. Myntra went from selling gift items to a fashion marketplace, and Nykaa, which came about in 2012, laid claim to the beauty segment. For the past several years, Nykaa has enjoyed the perks of that first-mover advantage, but this has slowly been whittled away in the past year. And now it has to brace for impact from Reliance’s entry with Tira, as well as other relatively smaller headwinds, departures of key leaders that threaten its core beauty business. Can the company fight off the new competition and prove the value of its years of experience in the beauty space? We’ll see, but before that, these three stories that deserve your attention: Edtech Founders Pay: From PhysicsWallah to Unacademy to Vedantu, how much do the founders at India’s top edtech startups make? Here’s an exclusive look The InsuranceDekho Way: The insurtech startup has taken a leaf out of the LIC playbook to carve a niche in India’s underpenetrated insurance market Beauty Contest: Nykaa, Tata Cliq, Myntra and others will feel the pinch with the launch of Reliance’s omnichannel beauty platform Tira which saw a grand unveiling this week Beauty Is Key For Nykaa The timing of Reliance’s entry is not ideal for Nykaa. A pullback in discretionary consumer spending continued to impact the fashion business in Q4 FY23, Nykaa said this week. The focus for the next quarter or so would heavily tilt towards beauty. Besides this, in the fashion category Nykaa also has to contend with Reliance-owned Ajio, Myntra, Tata Cliq which has further complicated the growth outlook and will increase customer acquisition costs. While Nykaa’s fashion and men’s grooming bets might pay off in the long run, the dependency on beauty for short-term growth is expected to be high, according to analysts that spoke to Inc42. Besides this, the company added that year-on-year growth rates for the beauty segment are higher in Q4 FY23 than the previous quarter. Within the beauty or BPC segment, Nykaa has looked to push its private label or owned brands such as Dot & Key, Nyveda and Earth Rhythm to the fore. The 10 Nykaa-owned BPC brands contributed INR 224.7 Cr to GMV in a lukewarm Q3. The share of owned-brand GMV in the total BPC GMV grew 29% YoY. Further growth in this private label or owned-brand segment will be key for Nykaa as it brings better margins for the company in the long run. It is likely to report much higher SKU count within the owned-brand portfolio in Q4, after reporting 2,000 SKUs in Q3. Nykaa witnessed its consolidated net profit decline 71% to INR 8.48 Cr in the previous quarter. There’s some pressure on the company to deliver more value to investors after an already contentious bonus issue last year. Shares of the company saw a 6% bump in week-on-week performance after block deals this week totalling 5.54 Mn shares worth INR 75.5 Cr. Nykaa’s stock closed the week at INR 131.25 per share. Another bulk deal took place on March 17, 2023, wherein 6.57 Mn shares or 0.23% of equity worth Rs 93.2 Cr was offloaded at INR 141.90 apiece. Leadership Shakeup At Nykaa The challenges for Nykaa in terms of the competitive landscape coincide with significant changes at the top. The company has seen the exodus of as many as five key leaders in 2023 — chief commercial operations officer Manoj Gandhi, Nykaa Fashion’s chief business officer Gopal Asthana, wholesale CEO Vikas Gupta, fashion owned brands business VP Shuchi Pandya and as well as VP of finance for Nykaa Fashion Lalit Pruthi. Last year, CFO Arvind Agarwal had quit the company at a time when there was a lot of talk about the bonus issue which was timed around the expiry of the lock-in period for pre-IPO investors. Nykaa’s leadership rejig, which is likely to be clarified in the next few weeks, will have a big target in front of them. Tira Enters The Stage Reliance’s beauty retail platform Tira is sure to also disrupt a lot of the incumbent D2C brands. The core focus is on a true omnichannel experience according to the retail giant. The omnichannel beauty platform will directly lock horns not only with Nykaa but also the likes of Tata Cliq Palette and other companies. As reports emerged last month of Tira’s debut, Nykaa’s shares fell and brokerages raised alarm over the new competition. Besides an app and a website, the launch includes a 4,300 sq ft flagship store in Mumbai. It’s expected to offer global and homegrown beauty brands and features such as shoppable videos, beauty tutorials, as well as a virtual try-on feature. Brokerage Macquarie had said the entry of big players such as Tata and Reliance Retail in the beauty space could ‘exacerbate’ problems for the many players. While Nykaa went for an IPO to raise funds for its offline expansion, Reliance Retail raised close to $6.7 Bn in institutional funding in 2020 to scale up its various verticals, including Tira. A discount war by Tira, as Reliance did with its telecom arm Jio and also JioCinema in recent weeks, could also make matters worse for Nykaa. Competition For Beauty In Tier 1 Nykaa cofounder, executive chairperson, MD & CEO Falguni Nayar had flagged the macroeconomic slowdown in consumption as a concern in February during the Q3 results. But it's not just Nykaa that is dealing with a pullback in consumer spending, especially outside metros. Marketplaces and consumer services platforms across categories have had to deal with this issue, and in turn they have looked to extract as much revenue as possible from the most active users. “In Q4 FY23, against the backdrop of subdued industry growth, Tier 1 consumers have demonstrated sustained consumption. This has led to stronger revenue growth on the Nykaa platforms,” Nykaa admitted in its filings. This is where the competition has become sterner for Nykaa. D2C startups are also gunning for this very slice of the market, BigBasket has looked to tap into beauty for a while now, marketplaces have beefed up their beauty verticals, quick commerce platforms such as Blinkit are also ramping up their presence in beauty. “Nykaa solved some of the problems in the beauty vertical such as procurement, last-mile reach for many products as well as habituating women customers with online shopping,” says the cofounder of a Mumbai-based D2C beauty brand. The Nykaa playbook showed the way for many companies. But the fear is that Nykaa is just another marketplace channel for beauty brands and that’s another reason, the company has to push its owned-brand portfolio as much as possible. Sunday Roundup: Startup Funding, Tech Stocks & More Funding Sees Uptick: April began on a happy note for the startup ecosystem as over $564 Mn was raised by Indian startups across 18 deals, though a bulk of this came from DMI Finance’s $400 Mn round. YC’s Latest Cohort: Just 12 Indian startups have made it to the Y Combinator Winter 2023 cohort, compared to 21 in the previous batch BharatPe Vs PhonePe: Bombay HC has dismissed PhonePe’s injunction seeking to restrain BharatPe’s PostPe from using the brand name due to the ‘Pe’ suffix Paytm’s Loan Book Grows: With 4.1 Mn loans worth INR 4,468 Cr disbursed in March 2023, Paytm saw a YoY growth of 206% in its lending business Splurging On Ads: Meesho pipped Flipkart to the first spot among ecommerce platforms when it comes to ad spends, while Mamaearth was a surprise third ZestMoney In Trouble: Goldman Sachs-backed ZestMoney is laying off about 30% of its workforce after talks for an acquisition by PhonePe failed We’ll be back next Sunday with more insights and a roundup of the top stories from the world of Indian startups. Of course, you can follow us on Instagram, Twitter and LinkedIn for the latest news as it happens.

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