Beauty and fashion retailer Nykaa, which filed its papers for an IPO, is estimated to have a market opportunity of Rs 1.9 lakh crore in the Indian Beauty and Personal Care (BPC) space by 2025.
Nykaa currently has a large BPC market opportunity of Rs 1.1 lakh crore, which is growing at 12 percent per annum. Counting fashion to the mix would take its addressable market to over Rs 10 lakh crore with the fashion opportunity currently at Rs 3.79 lakh crore, expected to grow at 18 percent per annum, a Redseer report commissioned by Nykaa for the IPO states.
According to its DRHP, Nykaa operates in the Indian beauty and personal care market, which is estimated to double to around Rs 2 trillion ($28 billion) by 2025 from Rs 1.1 trillion in 2020, the Redseer report on the India Beauty and Personal Care and Fashion Markets states.
Adding fashion to this mix makes it a market opportunity of Rs 10.6 trillion by 2025 in the country. In this industry, Nykaa competes with organised multi-brand and exclusive retailers, unorganised merchants, horizontal online platforms like Amazon, Flipkart, Paytm Mall among others, and vertical online platforms such as Myntra, Purplle, Myglamm among others.
The growth in the space, the report states, is projected to be primarily driven by the market shift towards the organised sector, high growth of e-commerce due to increased internet penetration, growing wallet share for beauty, personal care and fashion products and increased spending leading to subsequent premiumization across categories.
Internet penetration and as a result, the rising number of online shoppers. E-commerce penetration in India grew 1.6x from 3 percent in 2019 to 5 percent in 2020, and according to the report in the DRHP, the number of online shoppers in India reached 150-180 million in 2020, up from 120-150 million in 2019. Of this, approximately 70 percent of shoppers come to non-metro cities. Nykaa too, sees a major portion of its sales coming from tier 2 and 3 cities. As per the DRHP, 64 percent of Nykaa's GMV sales in FY21 came from tier 2 and tier 3 cities, an increase from 56.9 percent in FY20.
"There has been an increase in aspirational spending on BPC products especially in non-metro cities enabled by rising disposable income, aided by increasing female workforce participation, increasing popularity and the growing influence of social media, and lifestyle changes. BPC spending from tier 2+ cities are projected to grow faster than the metro and tier 1 cities as a large population base increases their per capita BPC spend," Nykaa stated in its DRHP.
Discretionary spending or non-essential products (fashion and BPC account for 35 percent of this) declined by 32 percent in 2020 due to the COVID-19 pandemic. However, Nykaa’s financials indicate that the company bucked the trend. Nykaa’s revenue from operations in FY21 grew 38.1 percent to Rs 24,408.96 million over FY20. Its restated profit came in at Rs 619.45 million, as compared to a restated loss of Rs 163.40 million in FY20. The company generated an EBITDA of Rs 1,614.26 million and an EBITDA margin of 6.61 percent in FY21.
In FY21, 17.1 million orders were placed on Nykaa for beauty and personal care products with a total GMV of Rs 33,804.1 million, a 35.3 percent increase over FY20.
The company said its opportunity in the space is massive because at 8 percent in FY21, beauty and personal care is one of the more underpenetrated e-commerce categories in India, indicating a large headroom for disruption in the future.
Nykaa currently operates three apps – Nykaa, Nykaa Man and Nykaa Fashion. As of March 31, 2021, Nykaa offered 197,195 SKUs from 2,476 brands primarily across make-up, skincare, haircare, bath and body, fragrance, grooming appliances, personal care, and health and wellness categories. Nykaa Fashion, on the other hand, housed 1,350 brands and over 1.8 million SKUs across women, men, kids and home divisions.
The company owns six brands across beauty and fashion which include Nykaa Cosmetics, Nykaa Naturals, Kay Beauty, Nykd by Nyka, and two brands it recently acquired, Twenty Dresses and Pipa Bella.
In addition to rising consumers from smaller towns, another interesting trend spoken about Nykaa in its DRHP is the rise in popularity of online content-led discovery, where it sees significant opportunity. This is an area that all brands in the BPC space including Sugar, and the likes are increasingly leveraging.
"Online content has become the primary lever of BPC purchase decisions, by effectively facilitating discovery and understanding of BPC products and brands. This is providing a significant push to the market as Generation Z and Millennial consumers, the most active BPC buyers, are also active consumers of online content on social media platforms. The live e-commerce market, comprising of influencers, merchants, and key opinion leaders selling directly to consumers on the platform via video live streaming, is likely to become an important enabler of discovery in the BPC category," it said.
As of FY21, Nykaa TV, its YouTube content platform, had a watch time of 1.3 million hours, and content posted on Instagram and Facebook (including videos, reels, posts, and stories) was 39,498 posts. According to the RedSeer Report, Nykaa has over 12.6 million followers across leading social media platforms as of March 31, 2021.
In addition to its online presence, Nykaa also has a strong offline presence with 73 physical stores across 38 cities in India over three different store formats as of March 31, 2021. However, Nykaa disclosed in its risk factors that it has deferred implementing its physical store expansion strategy due to the slowdown in consumer footfall.
"Even if the governmental restrictions are relaxed, it is unclear whether the risk of infection will continue to affect the willingness of consumers to visit our stores, and when normal footfalls and sales levels will resume. The COVID-19 restrictions on the sales levels of our physical stores have and could continue to adversely affect our business, cash flows, financial condition, and results of operations," Nykaa stated.