Nykaa’s parent company FSN E-Commerce Ventures Ltd held its first investor and analyst meeting on Thursday, where it gave a lot of details on its business plans. Analysts lauded the move.
“At a time when most consumers and internet companies look for excuses to make poor disclosures, sometimes under the guise of ‘competing reasons’, Nykaa stands out,” analysts at Jefferies India said in a report on June 23.
The beauty and fashion retailing company’s core beauty and personal care (BPC) business is expected to ride on the strong demand momentum seen in the March quarter (Q4FY22). Considering the number of customers doing annual unique transactions in FY 2012 was 8.4 million, there is scope for growth. In comparison, Nykaa has an average of 21 million monthly average unique visitors. Apart from makeup, the craze of personal care products is also increasing.
While this segment Ebitda (earnings before interest, taxes, depreciation and amortization) was positive at Rs 277.2 crore in the fiscal, the fashion business reported negative Ebitda of Rs 68.2 crore. High customer acquisition cost is likely to keep the segment’s profits low in the near future.
In its relatively new e-B2B segment, which is superstored by Nykaa, the company sees potential for gross merchandise value (GMV) of $3-4 billion and mid-single-digit EBITDA margin. GMV is the value of the order including taxes and total discount before product return or order cancellation, including sales to and through third party channels.
Through this app, Nykaa targets the unorganized market as it anticipates that business in this sector will cater to a significant portion of the BPC segment by 2025, i.e. around 41-50% of the market. Therefore, it aims to serve retailers who face issues such as poor fill rates, inadequate credit coverage and lack of proper access to new brands. The platform will assist kiranas, pharmacies, salons, beauty shops etc. to get BPC products directly from various brands like Dabur, Nile, Marico, Mamaearth etc.
The working capital requirement for this segment will be minimum. However, analysts say Nyka’s strategy to establish itself here is still unclear. “The superstore business, while not demanding on working capital, is a low-margin business that will only achieve profitability on a significant scale. “Watch for losses in business,” analysts at Edelweiss Securities said in a report on June 23.
The e-B2B business with NykaaMan and other brands is expected to report losses in the short term. In FY22, these segments together saw an Ebitda loss of Rs 45.7 crore. “We believe this loss in FY13 could double before stabilizing in FY14 and subsequently subside as channel economics improve. We cut profit after tax estimates by 17-27% for FY23-25 as we break into these losses; In a June 24 report, analysts at Kotak Institutional Equities said, “The impact of discounted cash flows is minimal as we believe these businesses will turn profitable in the medium term.”
Meanwhile, Nykaa shares are down 32% so far in CY22 and 11% down in the Nifty 500 index. This is in keeping with trends seen in stocks of other technology-based companies in an era of rising interest rates.