Falguni Nayar at ET now

HIGHLIGHTS

  • Nykaa is down more than 40% since the peak of the quotation.
  • From Nykaa’s perspective, we acquired almost 6 million new customers this year
  • Nykaa has grown and this scale now allows us to be closer to our customers in regional warehouses
New Delhi: Nykaa, owned by FSN Ventures, had a successful IPO in 2021 with nearly 78% pop. In fact, on Day 1 itself, Nykaa had entered the coveted club of companies with a market capitalization of Rs. 1 million crores. The experts have had their say on valuations, and Nykaa is still trading above its IPO price. Nevertheless, it has fallen by more than 40% since the peak of the quotation.

New age companies say they are focused on hyper-growth rather than quarter-to-quarter living. In fact, since its IPO, Nykaa has reported declining earnings in all three quarterly newsletters since the IPO.

In the January to March quarter of 2022, Nykaa’s net profit fell 49% year-on-year to just over Rs. 7 crore. Here is Nykaa Founder and CEO Falguni Nayar on the earnings details. Edited excerpts from his interview with ET Now:

Q: Why has Nykaa’s net profit almost halved compared to last year?

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From Nykaa’s perspective, we had almost 6 million new customers acquired this year and that represents around 4.4 million new customers acquired in beauty and around 1.6 million in fashion. This has been a big investment that we are making for the future and which also reflects a slight erosion in EBITDA.

EBITDA is 200 basis points lower and part of it is due to this increased marketing that we have undertaken during the year. On the execution side, our costs are slightly unfavorable, but here we have seen unfavorable costs due to rising fuel prices.

As you know, supply chain logistics was an issue and we invested in regional warehouses. About three to four are coming now and there will be more coming. And, thanks to this regional warehouse structure, Nykaa has grown in size over the last two or three years.

Nykaa has grown and this scale now allows us to be closer to our customers in regional warehouses from which we have achieved three things. We have achieved faster delivery of parcels to our customers. They don’t need the shipment to be airmailed and that cuts costs and thirdly of course we have greater regional availability and that also allows us to stock even heavy products closer to customers.

So in many ways we have the ability to be in regional warehouses. This is going to allow us to put more emphasis on our BPC business, what we call the personal care business.

Q: Just a quick note on the stock price. You were an investment banker and I’m sure you were also convinced at some point that valuations are a slave to earnings. But we have seen Nykaa’s net losses increase in all three quarterly results since the IPO. The stock price is down more than 40% from the peak of the quotation. What do you have to say to retail investors and when and when do you see it all backfired?

I want to remind you that Nykaa stock price is up from its IPO price even today. This is the listing pop from which some decline in the share price has occurred, but Nykaa continues to be in positive territory even from an IPO price.

When it comes to an investment for the future, I strongly believe that every business needs to invest for the future, and coming out of COVID, it’s time to step on the investment pedal. So whether it’s our warehouses, whether it’s our stores, we’re rolling out more stores than we did in the previous year as well as the new customer acquisition that I just mentioned.

So comparing with the COVID year is a bit difficult because in the COVID year, for the first quarter or two, we really had a lot of adversity where we could only do essential business and that didn’t did not make you want to invest.

Last year the comparisons were all made on the half year results of some normalization and this year we have clearly pushed the growth pedal in all directions – be it customer acquisition, stores as well as the deployment of warehouses. We continue to develop new activities such as fashion. Today, fashion represents more than 25% of our GMV, or almost 30%.

Fashion is therefore an important part of our business, it is doing well now. We have improved the economy of our unit and we continue to want to do so. In fact, this year we gave a lot of data to our investors because before our data was a mix between the beauty and fashion numbers, now we have stated the beauty and fashion numbers separately so that investors can see how each of the business unit’s economy is developing.

We gave information about the new company like the eB2B company in which we invest as well as Nykaa Man. Nykaa has been very transparent and I think businesses need to invest in their future growth and the business will come out stronger in the long run. I don’t think there is any weakness. I want investors to understand the investments we are making for the future.