[What The Financials] Nykaa Turns Profitable As Revenue Marginally Outpaces Expenses

Indian ecommerce industry has been notorious for its loss-making with cash burn being the primary reason for this, despite rising revenue. Taking a larger view, ecommerce in India is largely following the sale of electronics and fashion for most of its time, but the new excitement in the box is beauty and wellness with the rise of platforms such as Nykaa, PopXO and a slew of private labels.

In fact, Nykaa has managed to buck the trend of ecommerce losses and become profitable in the financial year ending March 31, 2019 as per its regulatory filings.

According to RedSeer Consulting, Indian online beauty and personal care market is expected to reach $22.5 Bn by 2022, growing at a CAGR of 9%. It expected that category-wise expansion for smaller labels and widespread offline distribution for the proven and larger labels will define 2019 in this space.

With the burgeoning market opportunity and investor confidence, having raised $93.02 Mn till date, Mumbai-based Nykaa has diversified well. As a result, in FY19, the company’s revenues grew 1.08X with 99% increase in expenses, thus leading to profits of INR 2.31 Cr.

Where Did Nykaa Earn Revenue?

Claiming a 75% retention rate and with over 1000 brand collaborations, Nykaa follows an inventory model. Products are bought from brands and distributors and then sold directly to the customers. Recently, talking to Inc42, Nykaa CEO (retail) Anchit Nayar said that the company has 16 Mn visitors on its website, with 55 Mn pageviews a month.

Nykaa currently offers over 1K brands and 100K products online. The company has 55 stores across 20 cities for Luxe, On Trend and Kiosks. On examining company filings, we noted that Nykaa’s major revenue is unquestionably its sale of products, generating INR 898.59 Cr, a 1.06X Y-o-Y growth.

Further, the company earned INR 169.77 Cr from banner advertisement and has also earned via discounts.

In the coming years, it would be interesting to identify the company’s dependency on online and offline channels for its business growth. Recently, Nayar told us that ecommerce accounts for 85% of the business, but that doesn’t tell you the whole story. Nayar said when compared on the basis of brands that are available both online and offline, the revenue share is split down the middle at 50%.

Nykaa Gets Thrifty For Profitability

With an inventory model, one of the highest expenses for Nykaa is the purchase of goods which increased 1.07X reaching INR 879.4 Cr in FY19. Some of the major expenses for the company have also grown with 43.7% increase in advertising promotional expenses, 1.14X increase in transportation cost, 1.3X increase in secondary packaging charges, etc.

It is to be noted that the company is looking to continue investing in the omnichannel business and has plans to open up to 100 stores in the next two to three years. New cities being targeted under these expansions include less popular locations such as Jammu and Bareilly among other Tier 3 and 4 cities after having a successful run.

Nykaa is also stepping into a bigger vertical — fashion. Nayar called Nykaa Fashion a natural progression of the Nykaa brand. Today, it has over 350 Indian and international brands across high street, designer labels and accessories. Even though, fashion is definitely a part of the Nykaa’s future plans but the company will do it in a sustainable way and if works great, company will keep building it or otherwise take a call on it.

Nykaa is competing against verticals for Myntra, BigBasket, Grofers etc which have now joined the club to explore beauty ecommerce. So it will be interesting to see how the next few months unfold for the company after happy news in 2019.

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