Those giving up long-term growth for short-term profitability are wrong: Nykaa’s Falguni Nayar

Nykaa founder Falguni Nayar

At a time when tech start-ups are cutting costs, Nykaa chief Falguni Nayar said that those giving up long-term growth for short-term profitability would be committing a mistake.

Nayar made the remark at a press briefing after the company posted its result for the December quarter (Q3) when the company’s net profit dropped 71 percent to Rs 8.5 crore, while revenue rose 33 percent to Rs 1,463 crore.

“As a company focused on improving EBITDA. We have improved our 9-month and 12-month EBITDA margins… But certain costs below the EBITDA line have increased on account of lease rentals,” she said.

According to her, the increased lease rentals were due to addition of physical retail stores (50 percent of the rentals), expansion of office space with employees coming back to work (25 percent) and growing its footprint of warehouses for e-commerce (25 percent).

“We are now going into state capitals with fulfillment centres to go closer to the customer. This will mean that the last mile cost of delivery will come down,” she pointed out.

In a post-earnings call with journalists, the company’s top executives highlighted that new verticals within the company such as its B2B arm and fashion segment are growing at a fast pace.

While fashion gross merchandise (GMV) value grew 50 percent YoY to Rs 724 crore, the segment contributed 25.9 percent to the overall sales in the December quarter. The total GMV grew 37 percent YoY to Rs 2,796 crore while EBITDA grew 13 percent to Rs 78 crore.

“We have added a lot of customers on beauty and fashion.. And are on a trajectory to acquire 7 million new customers this year. But, we are making the investment to acquire customers from our main P&L,” said Nayar.

The Nykaa chief also said that the worst of the inflation scare was past in India and the company expects the momentum of the previous quarter to carry on. However, she pointed out that the company doesn't get hurt by inflation as much because its target audience is more on the premium side.

“Even when there’s inflation, there's the lipstick effect... When people can't spend on big pleasures, they invest in beauty,” she said.