Consumer demand in India is unlikely to be affected for the whole year despite the COVID-19 pandemic, said Falguni Nayar, founder and CEO of Nykaa. In an interview with CNBC-TV 18, Nayar shared her views on why the parent company of Nykaa reported a decline in its consolidated profit for this fiscal year.
Though Nykaa’s earnings were not as expected, Nayar remained upbeat about the growth of consumer demand in India.
The Nykaa founder said, “Despite two bouts of COVID, the demand growth wasn’t affected a lot. And if we look at the year until March, despite Omicron as well, Nykaa has shown 71 percent GMV growth and 55 percent revenue growth.”
Nykaa's parent company reported a decline of about 57 percent in its consolidated profit to Rs 7.57 crore for the fourth quarter ended March 2022, mainly on account of new investments.
Taking the company forward
“If you look at the FY22 results, our top categories of makeup, skincare, and haircare grew 40 percent, 50 percent, and 60 percent respectively. Those are already large businesses, and in beauty and personal care we are market leaders online,” stated Anchit Nayar, CEO, Beauty E-Commerce at Nykaa, who was the other guest at CNBC-TV 18.
He also said that on the basis of consumer demographic, Nykaa has “lower sensitivity to inflation” versus other consumer companies.
Since the company is looking to expand more into physical stores and into new businesses, there are questions about whether its EBITDA margin will be around 3-5 percent or will they get the benefits of scale.
To this, the founder said that at the underline level, their EBITDA margin is strong; it has come out at a similar level as last year. “It is eight percent plus for the beauty business and that can improve slightly going forward.”
As far as new businesses are concerned, “we are investing for the future”.
She added, “From the EBITDA perspective, fashion is quite well ahead of the curve. And EBITDA for a digital business also depends on the mix of new versus repeat customers. At a time when we start seeing better composition of new and repeat customers in fashion, which happens after being three years in business, that’s when we think fashion will also be on a better path from an EBITDA break-even perspective.”
While Nykaa’s Q4 earnings were operationally weak despite strong revenue growth, it was the higher marketing expenses and the investments in new businesses which hurt the performance, said CNBC-TV 18.
According to Anchit Nayar, “for new businesses such as fashion and B2B, they do tend to have a higher percentage of their sales as marketing because we like to invest ahead of the curve. As fashion continues to grow and become a larger part of the revenue base, you will see the marketing expense at the level you are seeing today”.Since physical stores account for only 7.5 percent of Nykaa's sales, it will “continue expanding its physical presence”.