fsn e commerce ventures ltd share price Management discussions


You should read the following discussion in conjunction with our Restated Ind AS Consolidated Financial Statement as of and for the Financial Years ended March 31, 2021, 2020, and 2019, including the related notes, schedules and annexures. Unless otherwise indicated or the context otherwise requires, the financial information for the Financial Years 2021, 2020 and 2019 included herein is derived from the Restated Ind AS Consolidated Financial Statement, included in this Draft Red Herring Prospectus, which have been derived from our audited financial statements and restated in accordance with the relevant provisions of the SEBI ICDR Regulations, Section 26 of Part I of Chapter III of the Companies Act 2013, as amended and the Guidance Note on Reports in Company Prospectuses (Revised 2019) issued by the ICAI, as amended from time to time.

Our Financial Year ends on March 31 of each year. Accordingly, all references to a particular Financial Year are to the 12 months ended March 31 of that year.

Unless otherwise indicated, the industry-related information contained in this section is derived from the RedSeer Report. We commissioned and paid for the RedSeer Report for the purposes of confirming our understanding of the industry specifically for the purpose of the Offer, as no report is publicly available which provides a comprehensive industry analysis, particularly for our Companys services, that may be similar to the RedSeer Report. For further details and risks in relation to commissioned reports, see "Risk Factors - Internal Risk Factors - Certain sections of this Draft Red Herring Prospectus contain information from RedSeer which has been exclusively commissioned and paid for by us. There can be no assurance that such third-party statistical, financial and other industry information is either complete or accurate, and any reliance on such information for making an investment decision in the Offer is subject to inherent risks. " on page 72.

This discussion contains forward-looking statements that involve risks and uncertainties and reflects our current view with respect to future events and financial performance. Actual results may differ from those anticipated in these forward-looking statements as a result of factors such as those set forth under "Forward-Looking Statements" and "Risk Factors" on pages 39 and 41, respectively.

Overview

We are a digitally native consumer technology platform, delivering a content-led, lifestyle retail experience to consumers. Since our incorporation in 2012, we have invested both capital and creative energy towards designing a differentiated journey of brand discovery for our consumers. We have a diverse portfolio of beauty, personal care and fashion products, including our owned brand products manufactured by us. As a result, we have established ourselves not only as a lifestyle retail platform, but also as a popular consumer brand. We offer consumers an Omnichannel experience with an endeavor to cater to the consumers preferences and convenience:

Online: Our online channels include mobile applications, websites and mobile sites. As of March 31, 2021, we had cumulative downloads of 43.7 million across all our mobile applications and during the Financial Year 2021, 86.7% of our online GMV came through our mobile applications. According to the RedSeer Report, we have one of the highest share of mobile application-led transactions, among the leading online retail platforms in India during Financial Year 2021.

Offline: Our offline channel comprises of 73 physical stores across 38 cities in India over three different store formats as of March 31, 2021. Our physical stores offer a select offering of products as well as a seamless experience across the physical and digital worlds.

Our lifestyle portfolio spans across beauty, personal care and fashion products. We believe that consumers have different journeys for different lifestyle needs, and this has led us to build business vertical-specific mobile applications, websites and physical stores. These independent channels allow us to tailor our content and curation optimally for the convenience of consumers and to cater to the different consumer journeys that exist in these business verticals:

Nykaa: Beauty and personal care

Nykaa Fashion: Apparel and accessories

In addition to leveraging our strengths in comprehensive merchandising, brand relationships and delivery experience, we focus on inspiring and educating consumers via digital content, digital communities and tech-product innovations, which is an integral component of our business model.

Principal Components of Statement of Profit and Loss

 

Total Income

Total income consists of revenue from operations and other income.

 

Revenue from operations

Revenue from operations consists of sale of products, sale of services and other operating revenue.

Sale of products - Sale of products relates to transactions where we act directly as the seller of goods we purchase from our suppliers or owned brands we manufacture. Revenue from operations from sale of products is measured based on the transaction price, which is the consideration, adjusted for volume discounts, rebates, scheme allowances, price concessions, incentives, and returns, if any, as specified in the contracts with our consumers.

Sale of services - Sale of services consist of (i) marketing support revenue and (ii) income from marketplace services.

o Marketing support revenue includes (a) marketing income from visibility services provided by us to various brands at our retail outlets and (b) revenue from advertising services which allow our brand relationships and sellers to place advertisements or show their products in particular areas of our websites and mobile applications at fixed or variable fees.

o Income from marketplace services represents commission fees charged to our brand relationships or third party sellers for selling their products through our managed marketplace primarily for our fashion business. Upon a sale, we charge our brand relationships or third party sellers the pre-agreed commission fee. Marketplace commission is recognised on a net basis at the point of delivery of products to the buyers.

Other operating revenue - Other operating revenue consists of

(i) logistic services income (shipping and delivery charges) for the delivery of products to our consumers who place their Orders through our websites and mobile applications and

(ii) the recognition of revenue on expiration of points under our reward points programme.

 

Other income

Other income consists primarily of interest income on our security deposit relating to lease of premises and bank deposit, gain/loss on financial assets and foreign exchange gain/loss.

Expenses

Our expenses consist of

(i) cost of goods sold,

(ii) employees benefits expense,

(iii) finance costs,

(iv) depreciation and amortisation and

(v) other expenses.

 

Cost of goods sold

Cost of goods sold consist of cost of materials consumed, purchase of traded goods and changes in finished goods and stock-in-trade.

• Cost of materials consumed consists of

(i) costs incurred towards the purchase of raw materials,

(ii) cost of packaging materials consumed for packing of finished products and

(iii) labour and job work charges.

• Purchase of traded goods and packaging materials consists of the purchase price of beauty and personal care products, including supplier rebates and subsidies, write-downs and losses of inventories, and the costs of obtaining and supporting contracts with brand relationships and third party sellers on our managed fashion marketplace.

• Changes in finished goods and stock-in-trade consists of movements between opening and closing value of finished goods, and stock-in-trade.

 

Employee benefits expense

Employee benefit expense consists of salaries, wages and bonus, contribution to provident fund, gratuity expenses, compensated absences expenses, share-based expenses and staff welfare expenses.

 

Finance costs

Finance costs consist of interest on borrowings, lease liabilities and other finance charge.

 

Depreciation and amortisation expenses

Depreciation and amortisation expenses consist of depreciation on property, plant and equipment (including computers, furniture and fixtures, vehicles, lease hold improvement, plant and machinery and office equipment) and right-of-use assets and amortisation of intangible assets (including computer software, trademarks and capitalised business application development cost).

 

Other expenses

Other expenses primarily consist of marketing and advertising expenses, freight expenses, consumption of packing materials, web and technology expenses, payment gateway charges, legal and professional fees, and rent and maintenance expenses.

Significant Factors Affecting Our Results of Operations

 

Our Ability to Attract New Consumers, Retain Existing Consumers and Increase Repeat Purchases

Our success, and our revenue growth in particular, is significantly dependent on our ability to continually attract New Consumers, retain Existing Consumers and cultivate loyalty, including through increasing repeat purchases. We observe a high level of loyalty for our platform among consumers, with over a majority of our GMV stemming from Existing Consumers for each of the last three financial years. Our high consumer centricity is reflected in our strong consumer retention and GMV contribution behaviour. The chart below depicts the contribution to GMV from New Consumers and Existing Consumers by Financial Year on our beauty and personal care website and mobile application.

Our Annual Unique Transacting Consumers have increased from 3.5 million in the Financial Year 2019 to 5.6 million in the Financial Year 2021 for our beauty and personal care vertical and from 2,637 in the Financial Year 2019 to 0.6 million in the Financial Year 2021 for our fashion vertical. These indicators have led to an increase in our revenue from operations over the years, and their respective growth rates have primarily been driven by the growing popularity and recognition of brands on our Nykaa lifestyle platform, increasing assortment of products and stronger consumer engagement. We expect continued growth in our consumer base and purchasing activities, as well as increased overall consumer engagement with our product offerings, which we expect will contribute to increase in our total income in absolute terms in the foreseeable future.

Number of Orders, AOV and GMV

We believe that the number of Orders placed on our platform is largely driven by our base of consumers, mix of products and brands that are sold on our platforms. Our number of Orders has grown from (i) 11.0 million in the Financial Year 2019 to 17.1 million in the Financial Year 2021 for our beauty and personal care vertical, and (ii) 0.4 million in the Financial Year 2019 to 2.4 million in the Financial Year 2021 for our fashion vertical. Our total GMV has been growing consistently over the last three Financial Years, from Rs. 16,500.8 million in the Financial Year 2019 to Rs. 40,459.8 million in the Financial Year 2021, across beauty and personal care and fashion products. An increase in Orders and GMV on our platforms generally results in an increase in our revenues from operations.

The COVID-19 outbreak led to government imposed country-wide lockdowns, restrictions on travel and business operations. We experienced lower Orders and GMV in the fourth quarter of the Financial Year 2020 and first quarter of the Financial Year 2021 primarily due to the lockdown restrictions imposed owing to COVID-19 pandemic. Following the first quarter of the Financial Year 2021, as lockdown restrictions were gradually relaxed, our business witnessed a sharp recovery through our online channels, while sales from our physical stores continued to be impacted. We recorded our highest quarterly Orders and GMV for the business to date in the first quarter of the Financial Year 2022. While the majority of our physical stores were still shut in the first quarter of the Financial Year 2022 due to the lockdowns imposed in the second wave of COVID-19, we witnessed strong growth in Orders and GMV led by sales through our online channels. Our Orders and GMV over the last seven quarters are as shown below:

Our AOV has also increased from

(i) Rs. 1,433 in the Financial Year 2019 to Rs. 1,963 in the Financial Year 2021 for our beauty and personal care business and

(ii) Rs. 655 in the Financial Year 2019 to Rs. 2,739 in the Financial Year 2021 for our fashion business. The lockdowns imposed due to the first wave of COVID-19 outbreak led to supply chain disruptions. Due to this, we decided to fulfil Orders only above a minimum AOV threshold and also increased the threshold for free shipping in our beauty and personal care vertical, which led to an increase in our AOV in the first and second quarters of the Financial Year 2021. In subsequent quarters of the Financial Year 2021, as lockdown restrictions were gradually relaxed, we reduced the minimum AOV threshold for Order placement and the threshold for free shipping, which led to a normalisation of AOVs. However, the AOV observed in the third and fourth quarters of the Financial Year 2021 continued to trend higher than pre-COVID-19 AOVs, due to an increase in assortment on our platform and change in consumer behaviour leading to higher basket sizes.

In our fashion business, the increase in AOVs over the four quarters in the Financial Year 2021 and the first quarter in the Financial Year 2022 has been a result of increase in the categories, new consumer divisions like Men and Kids, and brands offered since the launch of Nykaa Fashion, which has led to an increase in the number of items bought by consumers per Order.

Our AOV over the last seven quarters are as shown below:

Our Ability to Attract and Maintain Brand Relationships and Manage Our Mix of Product Offerings

The number and diversity of our brand relationships whose products are sold on our platform directly affects our revenue from operations. Our product positioning and merchandising strategy are guided by the brands, through our team of brand managers who work closely with the brands. We advise brands that sell their products on our managed marketplace on pricing and commercial strategies including discounting, sampling, gifting and couponing to meet consumer demand while respecting each brands desired positioning in the market. We need to continue to maintain and expand our brand relationships base to maintain and grow our revenues. The combination of wide selection of products offered on our platform, competitive prices and convenient shopping experience, coupled with our strong brand awareness and commitment to authenticity, enables us to attract more consumers to our platform, which, in turn, draws more brand relationships to our platform, resulting in an expansion of our product portfolio and increased consumer retention. As a result, we have seen a consistent increase in the number of brand relationships and the number of SKUs offered on our platform over the last three Financial Years. As of March 31, 2021, we offered approximately 2.0 million SKUs from 3,826 national and international brands to our consumers across business verticals.

Our beauty and personal care offering is extensive with 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 as of March 31, 2021. Our beauty and personal care portfolio includes domestic brands, international brands, luxury brands, premium brands, niche and cult brands. As of March 31, 2021, Nykaa Fashion housed 1,350 brands and over 1.8 million SKUs with fashion products across four consumer divisions: women, men, kids and home. Within these consumer divisions, we merchandise across several categories including western wear, Indian wear, lingerie, footwear, bags, jewellery, accessories, athleisure, home decor, bath, bed and kitchen in order to cater to diverse consumers journeys across our platform. Having a broad, attractive and updated product mix helps to maintain the popularity of our platforms, increases consumer loyalty and encourages consumer purchases.

Cost-Effectiveness of Our Platform

Our profitability depends on our ability to maintain a cost-effective platform, which depends on a number of factors such as, the efficiency of our sales and marketing initiatives, fulfillment process and continuous investment to develop our technology for improvement in operational effectiveness.

 

Marketing and advertisement expenses

We invest in marketing and advertisement initiatives to drive new consumers acquisitions on our platform and to encourage existing consumers to increase the frequency of purchase. While we have gained prominence as a lifestyle retail platform by leveraging our core capabilities in content, social media and influencer marketing, our cost effectiveness depends on our ability to attract and retain consumers at reasonable marketing expenses. As a percentage of revenue from operations, our marketing and advertisement expenses decreased from 12.85% in the Financial Year 2019 to 11.44% in the Financial Year 2020 and 6.94% in the Financial Year 2021. The drop in marketing and advertisement spend in the Financial Year 2021 was due to an increase in AOV and partially due to muted spend during the first half of the Financial Year 2021. However, we expect the marketing cost will increase in the future as we continue to further invest for consumer acquisition and engagement.

 

Fulfilment Costs

We incur freight, packaging costs and payment gateway charges for the products that we ship from our warehouses as a part of other expenses. We work with delivery companies to execute our deliveries and ensure smooth and efficient courier delivery of products to our consumers. We pay service fees to delivery companies that we engage to carry out deliveries and pick-up services. Our cost effectiveness depends on our ability to continue optimising fulfilment costs on a per Order basis through operational efficiencies like improved terms on service fee with our delivery partners with increasing Orders. As a percentage of revenue from operations, our fulfilment costs increased slightly from 9.67% in the Financial Year 2019 to 9.79% in the Financial Year 2020, then decreased to 8.92% in the Financial Year 2021.

Our Critical Accounting Policies Basis of Consolidation

The Restated Ind AS Consolidated Financial Statement comprises the financial statements of our Company and subsidiaries as at March 31,2021. Control is achieved when we are exposed, or have rights, to variable returns from our involvement with the investee and have the ability to affect those returns through our power over the investee. Specifically, we control an investee if and only if we have:

• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

• exposure, or rights, to variable returns from its involvement with the investee; and

• the ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when we have less than a majority of the voting or similar rights of an investee, we consider all relevant facts and circumstances in assessing whether it has power over an investee, including:

• the contractual arrangement with the other vote holders of the investee;

• rights arising from other contractual arrangements;

• our voting rights and potential voting rights;

• the size of our holding of voting rights relative to the size and dispersion of the holdings of the other voting rights holders; and

• any additional facts and circumstances that indicate that we have, or do not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings.

We re-assess whether or not we control an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when we obtain control over the subsidiary and ceases when we lose control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the Restated Ind AS Consolidated Financial Statement from the date we gain control until the date we cease to control the subsidiary.

The Restated Ind AS Consolidated Financial Statement are prepared using uniform accounting policies for like transactions and other events in similar circumstances. If a member of the group uses accounting policies other than those adopted in the Restated Ind AS Consolidated Financial Statement for like transactions and events in similar circumstances, appropriate adjustments are made to that group members financial statements in preparing the Restated Ind AS Consolidated Financial Statement to ensure conformity with our accounting policies.

The financial statements of all entities used for the purpose of consolidation are drawn up to same reporting date as that of the parent company, i.e., year ended on March 31. When the end of the reporting period of the parent company is different from that of a subsidiary, the subsidiary prepares, for consolidation purposes, additional financial information as of the same date as the financial statements of the parent to enable the parent to consolidate the financial information of the subsidiary, unless it is impracticable to do so.

 

Consolidation procedure:

a) Like items of assets, liabilities, equity, income, expenses and cash flows of the parent are combined with those of its subsidiaries. For this purpose, income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the Restated Ind AS Consolidated Financial Statement at the acquisition date.

b) Offset (eliminate) the carrying amount of the parents investment in each subsidiary and the parents portion of equity of each subsidiary. Business combinations policy explains how to account for any related goodwill.

c) Eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full). Intragroup losses may indicate an impairment that requires recognition in the Restated Ind AS Consolidated Financial Statement. Ind AS 12 "Income Taxes" applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of our Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with our accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of our group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If we lose control over a subsidiary, we:

• derecognise the assets (including goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost;

• derecognise the carrying amount of any non-controlling interests;

• derecognise the cumulative translation differences recorded in equity;

• recognise the fair value of the consideration received;

• recognise the fair value of any investment retained;

• recognise any surplus or deficit in profit or loss;

• recognise that distribution of shares of subsidiary to us in our capacity as owners; and

• reclassify the parents share of components previously recognised in OCI to profit or loss or transferred directly to retained earnings, if required by other Ind ASs as would be required if we had directly disposed of the related assets or liabilities.

Revenue Recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government.

We identify the performance obligations in its contracts with customers and recognises revenue as and when the performance obligations are satisfied. The specific recognition criteria described below must also be met before revenue is recognised.

 

Sale of products

Revenue is recognised upon transfer of control of promised products to customer in an amount that reflects the consideration which we expect to receive in exchange for products. Revenue from the sale of products is recognised when products are delivered to customer. Revenue is measured based on the transaction price, which is the consideration, adjusted for volume discounts, rebates, scheme allowances, price concessions, incentives, and returns, if any, as specified in the contracts with the customers.

Contacts where our obligation is to arrange for the provision of goods and services by another party, we recognise revenue in the amount of the commission to which it expects to be entitled in exchange for arranging for the provision of goods and services.

Revenue excludes taxes collected from customers on behalf of the government. Accruals for discounts/incentives and returns are estimated (using the most likely method) based on accumulated experience and underlying schemes and agreements with customers. Due to the short nature of credit period given to customers, there is no financing component in the contract.

 

Rendering of services

Income from services are recognised as and when the services are rendered.

 

Marketing support revenue

• We recognise marketing income i.e. visibility services provided by us to various brands at retail outlets of ours. Revenue from advertisement services is recognised when advertisement is displayed;

• Advertising revenue is derived from displaying web and application-based banner ads and sale of online advertisements. Revenue from banner advertisement is recognised pro rata over the period of display of advertisement as per contract; and

• Revenue from sale of online advertisements is recognised based on output method and we apply the practical expedient to recognise advertising revenue in the amount to which we have a right to invoice upon rendering of services.

Reward points programme

We have a reward points programme which allows customers to accumulate points that can be redeemed against future purchases of products at discounted prices. The reward points give rise to a separate performance obligation as they provide a material right to the customer. A portion of the transaction price is allocated to the reward points awarded to customers based on relative standalone selling price and recognised as a contract liability until the points are redeemed. Revenue is recognised upon redemption of points by the customer.

When estimating the stand-alone selling price of the reward points, we consider the likelihood that the customer will redeem the points. We update its estimates of the points that will be redeemed on an annual basis and any adjustments to the contract liability balance are charged against revenue.

Contract Balances

Contract assets

A contract asset is the right to consideration in exchange for products or services transferred to the customer. If we perform by transferring products or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.

Trade receivables

A receivable represents our right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in "- Financial Instruments - initial recognition and subsequent measurement."

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which we have received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before we transfer goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when we perform under the contract.

Inventory

Inventories are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

• Raw materials: Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on first in, first out basis;

• Finished goods and work in progress: Cost includes cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity but excluding borrowing costs. Cost is determined on first in, first out basis; and

• Stock-in-trade: Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on first in, first out basis.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion necessary to make the sale.

An inventory provision is recognised for cases where the net realisable value is estimated to be lower than the inventory carrying value. The net realisable value is estimated taking into account various factors, including obsolescence of material due to design change, process change etc., unserviceable

items i.e. items which cannot be used due to deterioration in quality or due to shelf life or damaged in storage and ageing of material i.e. slow moving/non-moving prevailing sales prices of inventory.

Leases

We assess at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

Group as a lessee:

We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. We recognise lease liabilities to make lease payments and right-of- use assets representing the right to use the underlying assets.

 

i. Right-of-use assets:

We recognise right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.

Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:

- Right of use for properties 2 to 6 years

If ownership of the leased asset transfers to us at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

 

ii. Lease liabilities:

At the commencement date of the lease, we recognise lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by us and payments of penalties for terminating the lease, if the lease term reflects our exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, we use our incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

 

iii. Short term leases and leases of low value assets:

We apply the short-term lease recognition exemption to its short-term leases of property (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases where the underlying asset is considered to be low value.

Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

 

Sub-lease

At the commencement date, we recognise assets held under a sub-lease in its balance sheet and present them as a receivable at an amount equal to the net investment in the lease. We use the interest rate implicit in the lease to measure the net investment in the lease. In case if the interest rate implicit in the sublease cannot be readily determined, we being an intermediate lessor uses the discount rate used for the head lease (adjusted for any initial direct costs associated with the sublease) to measure the net investment in the sublease.

At the commencement date, the lease payments included in the measurement of the net investment in the lease comprise the following payments for the right to use the underlying asset during the lease term that are not received at the commencement date:

- fixed payments less any lease incentives payable;

- variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

- any residual value guarantees provided to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee;

- the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

- payments of penalties, if any, for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease

We recognise finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on net investment in the lease.

Net investment in the lease are subject to the derecognition and impairment requirements in Ind AS 109. We regularly review estimated unguaranteed residual values, if any, used in computing the gross investment in the lease and adjusts the income allocation accordingly.

Business Combinations and Goodwiii

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. Acquisition-related costs are recognised as incurred and included in administrative and other expenses.

We determine that we have acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organised workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.

When we acquire a business, we assess the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of Ind AS 109 "Financial Instruments", is measured at fair value with the changes in fair value recognised in the statement of profit or loss in accordance with Ind AS 109. Other contingent consideration that is not within the scope of Ind AS 109 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, we re-assess whether we have correctly identified all of the assets acquired and all of the liabilities assumed and review the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of our cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

Current versus Non-current Classification

We present assets and liabilities in the balance sheet based on current/non-current classification. An asset is treated as current when it is:

• expected to be realised or intended to be sold or consumed in normal operating cycle;

• held primarily for the purpose of trading;

• expected to be settled within 12 months after the reporting period; or

• cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is current when:

• it is expected to be settled in normal operating cycle or due to be settled within twelve months after the reporting period;

• it is held primarily for the purpose of trading; or

• there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

We classify all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. We have identified period of twelve months as our operating cycle.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises of purchase price, borrowing costs if capitalisation criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discounts and rebates are deducted in arriving at the purchase price.

Subsequent expenditure related to an item of property, plant and equipment is included in assets carrying amount or recognised as a separate asset, as appropriate only when it is probable that future economic benefits associated with the item will flow to us and cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit and loss for the period during which they are incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

Cost incurred on property, plant and equipment not ready for their intended use is disclosed as capital work-in-progress. Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date are classified as capital advances under other non-current assets.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit and loss when the asset is derecognised.

 

Depreciation on Property, Plant and Equipment

Depreciation is provided using the straight-line method based on useful lives of the assets prescribed in Schedule II to the Companies Act, 2013. Leasehold improvements are amortised on a straight-line basis over the period of primary lease or the expected useful life whichever is lower.

Estimated useful lives of the assets are as follows:

Property Plant and Equipment Useful lives (in years)
Plant and Equipment 8
Computers 3
Furniture and Fixtures 10
Office Equipment 5
Vehicles 8

The assets residual values, useful lives and methods of depreciation are reviewed at each reporting period and adjusted prospectively for any change in estimate, if appropriate. Changes in expected useful lives are treated as change in accounting estimates.

Intangible Assets

Intangible assets acquired separately are measured on initial recognition at cost. The useful lives of intangible assets are assessed as either finite or indefinite.

Following, initial recognition, intangible assets with finite lives are carried at cost less accumulated amortisation and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the statement of profit and loss in the year in which the expenditure is incurred.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit and loss unless such expenditure forms part of carrying value of another asset.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

An intangible asset is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss.

Amortisation of intangible Assets

Intangible assets are amortised on straight line basis as per the following useful lives:

Intangible asset Useful years) lives (in
Trade Mark 5
Business application development (Internally generated) 3
Website 3
Software 3

Research and Development Costs

Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when we can demonstrate:

• the technical feasibility of completing the intangible asset so that the asset will be available for use or sale;

• our intention to complete and its ability and intention to use or sell the asset;

• how the asset will generate future economic benefits;

• the availability of resources to complete the asset; or

• the ability to measure reliably the expenditure during development.

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete, and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation expense is recognised in the statement of profit and loss unless such expenditure forms part of carrying value of another asset. During the period of development, the asset is tested for impairment annually.

Impairment of Non-financial Assets

The carrying amounts of assets are reviewed at each balance sheet date. If there is any indication of impairment based on internal / external factors, an impairment loss is recognised, i.e. wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

We base our impairment calculation on most recent budgets and forecast calculations, which are prepared for our CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.

Impairment losses are recognised in the statement of profit and loss.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, we estimate the assets or CGUs recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the assets recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

Initial recognition and measurement:

Financial assets and financial liabilities are recognised when we become a party to the contractual provisions of the instrument. All Financial assets and liabilities are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.

 

Financial Assets

The classification of financial assets at initial recognition depends on the financial assets contractual cash flow characteristics and our business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which we have applied the practical expedient, we initially measure a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which we have the practical expedient are measured at the transaction price as disclosed under "-Revenue Recognition - Revenue from contracts with customers."

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.

 

Financial Liabilities

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

Interest Income

Interest income is accrued on time basis, by reference to the principle outstanding and using the effective interest rate method. Interest income is included under the head "Other income" in the statement of profit and loss.

Provisions

A provision is recognised when we have a present legal or constructive obligation as a result of past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to a provision is presented in the statement of profit and loss.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

Foreign Currency Transactions

Functional and presentation currency

The Restated Ind AS Consolidated Financial Statement is presented in Indian Rupees, which is our functional currency and the currency of the primary economic environment in which we operate.

 

Foreign currency transactions and balances

i. Initial recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

ii. Conversion

Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined.

iii. Exchange differences

Exchange differences arising on settlement or translation of other monetary items or on reporting monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognised as income or as expenses in the statement of profit and loss in the year in which they arise.

Share-based Payments

Employees (including senior executives) of ours receive remuneration in the form of share- based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions).

The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised, together with a corresponding increase in share Options outstanding reserves in equity, over the period in which the performance

and/or service conditions are fulfilled in employee benefits expense. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and our best estimate of the number of equity instruments that will ultimately vest. The statement of profit and loss expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employee benefits expense.

When the terms of an equity-settled award are modified, the minimum expense recognised is the expense had the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share- based payment transaction or is otherwise beneficial to the employee as measured at the date of modification. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

Post-employment and Other Employee Benefits

Short term employee benefits

All short term employee benefits such as salaries, incentives, medical benefits which are expected to be settled wholly within 12 months after the end of the period in which the employee renders the related services which entitles him to avail such benefits are recognised on an undiscounted basis and charged to the statement of profit and loss.

Post-employment Benefits

Defined Contribution Plans:

Retirement benefit in the form of Provident Fund is a defined contribution scheme and the contributions are charged to the restated statement of profit and loss of the year when the contribution to the funds is due. There are no other obligations other than the contribution payable to the fund. We recognise contribution payable to the provident fund scheme as expenditure, when an employee renders the related service.

Defined Benefit Plans

Gratuity

We have an obligation towards gratuity, a defined benefit plan covering eligible employees. The plan provides for a lump-sum payment to vested employees at retirement, death while in employment or on termination of employment of an amount equivalent to 15 days salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The gratuity benefits are unfunded.

Gratuity liability is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial year. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows by reference to market yields at the end of the reporting period on government bonds that have terms approximating to the terms of the related obligation.

Net interest is calculated by applying the discount rate to the net defined benefit liability. We recognise the following changes in the net defined benefit obligation as an expense in the restated statement of profit and loss:

• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and

• Net interest expense or income

Re-measurements, comprising of actuarial gains and losses, excluding amounts included in net interest on the net defined benefit liability, are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through ‘Other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.

 

Compensated absences

We provide for the encashment of leave or leave with pay subject to certain rules. The employees are entitled to accumulate leave subject to certain limits, for future encashment. The liability is provided based on the number of days of unutilised leave at each balance sheet date on the basis of an independent actuarial valuation using the projected unit credit method at the reporting date. Actuarial gains/losses are immediately taken to the statement of profit and loss and are not deferred. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer the settlement for at least 12 months after the reporting date, regardless of when the actual settlement.

Income Taxes

Tax expense comprises current and deferred tax.

 

Current income tax

Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax Act, 1961 enacted in India and tax laws prevailing in the respective tax jurisdictions where we operate.

 

Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences and the carry forward of any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred taxes relate to the same taxable entity and the same taxation authority.

Current tax and deferred tax are measured using the tax rates and tax laws enacted or substantively enacted, at the reporting date. Current income tax and deferred tax relating to items recognised outside profit and loss is recognised outside profit and loss (either in OCI or in equity). We periodically evaluate positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. We shall reflect the effect of uncertainty for each uncertain tax treatment by using either most likely method or expected value method, depending on which method predicts better resolution of the treatment.

Cash and Cash Equivalents

Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short-term deposits with an original maturity of three months or less, and other short term highly liquid investments which are subject to an insignificant risk of changes in value.

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and shortterm deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of our cash management.

Earnings per Share

Basic earnings per share is computed by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. The weighted average number of equity shares outstanding during the period is adjusted for events such as bonus issue, bonus element in a rights issue, share split, and reverse share split (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources.

For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares, except where the result would be anti-dilutive.

Segment Reporting Policies

Considering our aggressive expansion plan for driving synergy across fulfilment models, sales channels and product categories, it necessitates change in current review mechanism. The management reviews and allocates resources based on omni business and omnichannel strategy, which in the terms of Ind AS 108 on ‘Operating Segments constitutes a single reporting segment.

Share Capital

Equity shares are classified as equity. Incremental costs directly attributable to the issue of equity shares are recognised as a deduction from equity.

Our Results of Operations

The following table sets forth select financial data from our restated Ind AS consolidated summary statement of profit and loss for the Financial Years 2021, 2020 and 2019, the components of which are also expressed as a percentage of total income for such periods:

Financial Year
2021 2020 2019

(Rs. in million)

(% of Total Income)

(Rs. in million)

(% of Total Income)

(Rs. in million)

(% of Total Income)

Income:
Revenue from operations 24,408.96 99.52 17,675.33 99.42 11,113.94 99.55
Other income 117.41 0.48 103.17 0.58 49.88 0.45
Total income 24,526.37 100.00 17,778.50 100.00 11,163.82 100.00
Expenses:
Cost of materials consumed 382.41 1.56 173.43 0.98 2.41 0.02
Purchase of traded goods 14,956.06 60.98 11,787.46 66.30 7,852.43 70.34
Changes in finished goods and stock-intrade (460.22) (1.88) (1,818.84) (10.23) (1,252.07) (11.22)
Employee benefits expenses 2,836.47 11.56 1,956.13 11.00 1,172.96 10.51
Finance costs 307.01 1.25 442.93 2.49 263.42 2.36
Depreciation and amortisation expense 671.28 2.74 595.09 3.35 308.76 2.77
Other expenses 5,079.98 20.71 4,766.60 26.81 3,133.11 28.06
Total expenses 23,772.99 96.93 17,902.80 100.70 11,481.02 102.84
Restated profit/(loss) before tax 753.38 3.07 (124.30) (0.70) (317.20) (2.84)
Tax expense/(income):
Current tax 400.78 1.63 45.37 0.26 - 0.00
Deferred tax (266.85) (1.09) (6.27) (0.04) (71.81) (0.64)
Total tax expense/(income) 133.93 0.55 39.10 0.22 (71.81) (0.64)
Restated profit/(loss) for the year 619.45 2.53 (163.40) (0.92) (245.39) (2.20)
Restated total other comprehensive income/(loss) for the year (net of tax) (21.80) (0.09) 1.09 0.01 2.51 0.02
Restated total comprehensive income/(loss) for the year 597.65 2.44 (162.31) (0.91) (242.88) (2.18)

Financial Year 2021 Compared to Financial Year 2020 Total Income

Our total income increased by 37.96% to Rs. 24,526.37 million for the Financial Year 2021 from Rs. 17,778.50 million for the Financial Year 2020, primarily due to an increase in revenue from operations.

Revenue from operations. Our revenue from operations increased by 38.10% to Rs. 24,408.96 million for the Financial Year 2021 from Rs. 17,675.33 million for the Financial Year 2020, primarily due to an increase in sale of products and sale of services. Our total revenue growth was also supported by an increase in demand for our products in Financial Year 2021 as a result of increasing online shopping by consumers in our beauty and personal care vertical and, as well as launch of multiple product categories and brands as part of our fashion offering, despite the adverse impact of the COVID-19 pandemic.

• Our revenue from operations from sale of products increased by 37.70% to Rs. 21,809.06 million for the Financial Year 2021 from Rs. 15,838.25 million for the Financial Year 2020, primarily due to the following trends in our beauty and personal care vertical: (i) an increase in Annual Unique Transaction Consumers from 5.3 million for the Financial Year 2020 to 5.6 million for the Financial Year 2021, (ii) a slight increase in the number of Orders placed on our platform from 17.0 million for the Financial Year 2020 to 17.1 million for the Financial Year 2021 and (iii) an increase in AOV from Rs. 1,448 for the Financial Year 2020 to Rs. 1,963 for the Financial Year 2021.

• Our revenue from sale of services increased by 37.90% to Rs. 2,502.99 million for the Financial Year 2021 from Rs. 1,815.09 million for the Financial Year 2020 due to the growth in revenue from marketing support revenue and income from marketplace services.

Other income. Our other income increased by 13.80% to Rs. 117.41 million for the Financial Year 2021 from Rs. 103.17 million for the Financial Year 2020, primarily due to an increase in our interest income on security deposit and bank deposit, and foreign exchange gain, partially offset by a decrease in miscellaneous income and no gain on financial assets carried at fair value through profit and loss during the Financial Year 2021 (as compared to a gain on financial assets carried at fair value through profit and loss of Rs. 75.99 million for the Financial Year 2020.

Expenses

Cost of goods sold. Cost of goods sold increased by 46.70% to Rs. 14,878.25 million for the Financial Year 2021 from Rs. 10,142.05 million for the Financial Year 2020, primarily due to an increase in sale of products that we purchase from brand relationships or their authorised distributors and manufacture under our owned brands which we sell directly to our consumers, in line with the growth in the number of Orders on our platform which was driven by an increase in the number of Annual Unique Transacting Consumers and AOV.

Financial Year 2021 Financial Year 2020
(Rs. in million) (Rs. in million)
Cost of Goods Sold:
Cost of materials consumed 382.41 173.44
Purchase of traded goods 14,956.06 11,787.46
Changes in finished goods and stock-in-trade (460.22) (1,818.84)
Total Cost of Goods Sold 14,878.25 10,142.05

 

Employee benefits expense. Employee benefits expense increased by 45.00% to Rs. 2,836.47 million for the Financial Year 2021 from Rs. 1,956.13 million for the Financial Year 2020, primarily due to an increase in salaries, wages and bonus to Rs. 2,582.06 million for the Financial Year 2021 from Rs. 1,822.27 million for the Financial Year 2020 and a one-off compensated absences expenses of Rs. 102.81 million for the Financial Year 2021 attributable to a change in our leave policy during the Financial Year 2021 which allowed employees to accumulate leave subject to certain limits and carry forward into subsequent years for availment/encashment. Accordingly, this is the first year where we have made a provision for compensated absences as per the leave policy existing as of March 31, 2021. The increase in salaries, wages and bonus was primarily due to an increase in employee headcount to 2,045 as at March 31,2021 from 1,772 as at March 31,2020 and annual increment.

 

Finance costs. Our finance costs decreased by 30.69% to Rs. 307.01 million for the Financial Year 2021 from Rs. 442.93 million for the Financial Year 2020, primarily due to

(i) a decrease in interest expenses on borrowings to Rs. 162.42 million for the Financial Year 2021 from Rs. 293.04 million for the Financial Year 2020 as a result of the repayment of certain borrowings, lower utilisation of, and a reduction in interest rates on, working capital loan, and

(ii) a decrease in interest expenses on lease liabilities to Rs. 129.69 million for the Financial Year 2021 from Rs. 140.43 million for the Financial Year 2020.

 

Depreciation and amortisation expense. Our depreciation and amortisation expense increased by 12.80% to Rs. 671.28 million for the Financial Year 2021 from Rs. 595.09 million for the Financial Year 2020, primarily due to an increase in depreciation of rights-of-use assets to Rs. 408.36 million for the Financial Year 2021 from Rs. 382.77 million for the Financial Year 2020 and an increase in depreciation of property, plant and equipment to Rs. 186.12 million for the Financial Year 2021 from Rs. 134.52 million for the Financial Year 2020.

 

Other expenses. Our other expenses increased by 6.57% to Rs. 5,079.98 million for the Financial Year 2021 from Rs. 4,766.60 million for the Financial Year 2020, primarily due to

(i) an increase in freight expenses to Rs. 1,580.08 million for the Financial Year 2021 from Rs. 1,314.15 million for the Financial Year 2020, which was driven by the increase in the volume of Orders processed through our platform and an increase in the number of outsourced personnel in fulfillment centers and

(ii) an increase in consumption of packing materials to Rs. 438.73 million for the Financial Year 2021 from Rs. 345.74 million for the Financial Year 2020, which was primarily due to an increase in shipments in line with an increase in Order volume. The increase in other expenses was partially offset by the decrease marketing and advertisement expense to Rs. 1,694.80 million for the Financial Year 2021 from Rs. 2,022.03 million for the Financial Year 2020, primarily due to a reduction in expenses on advertising and digital marketing.

 

Tax expense/(income). Our total tax expense increased by 242.53% to Rs. 133.93 million for the Financial Year 2021 from Rs. 39.10 million for the Financial Year 2020. Our tax expenses for the Financial Year 2021 comprised a current tax of Rs. 400.78 million and a deferred tax income of Rs. 266.85 million, while our tax expenses for the Financial Year 2020 comprised a current tax of Rs. 45.37 million and a deferred tax of Rs. 6.27 million. Deferred tax income for the Financial Year 2020 was lower on account of one-time reversal of previously recognised deferred tax asset of Rs. 92.99 million on account of a reduction in corporate tax rate. Our effective tax rate was 17.78% and 31.46% for the Financial Years 2021 and 2020, respectively.

 

Restated profit/(loss) for the year. As a result of the foregoing, our restated profit for the year increased to Rs. 619.45 million for the Financial Year 2021 from a restated loss of Rs. 163.40 million for the Financial Year 2020.

Financial Year 2020 Compared to Financial Year 2019

 

Total Income

Our total income increased by 59.25% to Rs. 17,778.50 million for the Financial Year 2020 from Rs. 11,163.82 million for the Financial Year 2019, due to an increase in revenue from operations.

 

Revenue from operations. Our revenue from operations increased by 59.04% to Rs. 17,675.33 million for the Financial Year 2020 from Rs. 11,113.94 million for the Financial Year 2019, primarily due to an increase in sale of products and sale of services.

• Our revenue from operations from sale of products increased by 62.63% to Rs. 15,838.25 million for the Financial Year 2020 from Rs. 9,739.11 million for the Financial Year 2019, primarily due to the following trends in our beauty and personal care vertical:

(i) an increase in Annual Unique Transaction Consumers from 3.5 million for the Financial Year 2019 to 5.3 million for the Financial Year 2020,

(ii) an increase in the number of Orders placed on our platform from 11.0 million for the Financial Year 2019 to 17.0 million for the Financial Year 2020 and

(iii) an increase in AOV from Rs. 1,433 for the Financial Year 2019 to Rs. 1,448 for the Financial Year 2020.

• Our revenue from sale of services increased by 33.41% to Rs. 1,815.09 million for the Financial Year 2020 from Rs. 1,360.55 million for the Financial Year 2019 due to the growth in revenue from marketing support revenue and income from marketplace services.

 

Other income. Our other income increased by 106.84% to Rs. 103.17 million for the Financial Year 2020 from Rs. 49.88 million for the Financial Year 2019, due to an increase in interest income in security deposit, bank deposit, miscellaneous income and gain on financial asset carried at fair value through profit and loss as a result of a one-off gain on sale of mutual fund (relating to investment in liquid/debt funds where we had parked our temporary surpluses) for the Financial Year 2020, partially offset by decrease in liabilities written back.

Expenses

Cost of goods sold. Cost of goods sold increased by 53.60% to Rs. 10,142.05 million for the Financial Year 2020 from Rs. 6,602.77 million for the Financial Year 2019, primarily due to an increase in sale of products that we purchase from brand relationships or their authorised distributors and manufacture under our owned brands which we sell directly to our consumers in line with the growth in the number of Orders on our platform which was driven by an increase in the number of Annual Unique Transacting Consumers.

Financial Year 2020 (Rs. in million) Financial Year 2019 (Rs. in million)
Cost of Goods Sold:
Cost of materials consumed 173.44 2.41
Purchase of traded goods 11,787.46 7,852.43
Changes in finished goods and stock-in-trade (1,818.84) (1,252.07)
Total Cost of Goods Sold 10,142.05 6,602.77

 

Employee benefits expense. Employee benefits expenses increased by 66.77% to Rs. 1,956.13 million for the Financial Year 2020 from Rs. 1,172.96 million for the Financial Year 2019, primarily due to an increase in salaries, wages and bonus to Rs. 1,822.27 million for the Financial Year 2020 from Rs. 1,074.50 million for the Financial Year 2019. The increase in salaries, wages and bonuses was due to an increase in employee headcount to 1,772 as at March 31, 2020 from 1,205 as at March 31, 2019 and annual increment.

 

Finance costs. Our finance costs increased by 68.15% to Rs. 442.93 million for the Financial Year 2020 from Rs. 263.42 million for the Financial Year 2019, primarily due to (i) an increase in interest expenses on borrowings to Rs. 293.04 million for the Financial Year 2020 from Rs. 189.13 million for the Financial Year 2019 as a result of higher utilisation of working capital loan and an increase in borrowings and (ii) an increase in interest expenses on lease liabilities to Rs. 140.43 million for the Financial Year 2020 from Rs. 65.38 million for the Financial Year 2019 due to the rapid expansion of our physical retail stores in the Financial Year 2020.

 

Depreciation and amortisation expense. Our depreciation and amortisation expense increased by 92.74% to Rs. 595.09 million for the Financial Year 2020 from Rs. 308.76 million for the Financial Year 2019, primarily due to an increase in depreciation on right-of-use assets to Rs. 382.77 million for the Financial Year 2020 from Rs. 193.83 million for the Financial Year 2019 and an increase in depreciation of property, plant and equipment to Rs. 134.52 million for the Financial Year 2020 from Rs. 61.44 million for the Financial Year 2019 as we rapidly expanded physical retail stores in the Financial Year 2020.

 

Other expenses. Our other expenses increased by 52.14% to Rs. 4,766.60 million for the Financial Year 2020 from Rs. 3,133.11 million for the Financial Year 2019, primarily due to

(i) an increase in marketing and advertisement expenses to Rs. 2,022.03 million for the Financial Year 2020 from Rs. 1,428.27 million for the Financial Year 2019 which was driven by increase in new consumers acquisition and advertisement initiatives,

(ii) an increase in freight expenses to Rs. 1,314.15 million for the Financial Year 2020 from Rs. 826.04 million for the Financial Year 2019, which was driven by the increase in the volume of Orders processed through our platform and an increase in the number of outsourced personnel in fulfilment centers and

(iii) an increase in consumption of packing materials to Rs. 345.74 million for the Financial Year 2020 from Rs. 198.23 million for the Financial Year 2019, which was due to an increase in shipments which is in line with an increase in Order volumes.

 

Tax expense/(income). Our total tax expense increased to Rs. 39.10 million for the Financial Year 2020 from total tax income of Rs. 71.81 million for the Financial Year 2019. Our tax expenses for the Financial Year 2020 comprised a current tax of Rs. 45.37 million and a deferred tax income of Rs. 6.27 million, while our tax expenses for the Financial Year 2019 comprised nil current tax and a deferred tax income of Rs. 71.81 million. Deferred tax income for the Financial Year 2020 was lower on account of one-time reversal of previously recognised deferred tax asset of Rs. 92.99 million on account of a reduction in corporate tax rate. Our effective tax rate was 31.46% and -22.64% for the Financial Years 2020 and 2019, respectively.

 

Restated loss for the year. As a result of the foregoing, our restated loss for the year decreased by 33.41% to Rs. 163.40 million for the Financial Year 2020 from Rs. 245.39 million for the Financial Year 2019.

Liquidity and Capital Resources

Historically, our primary liquidity requirements have been to finance our capital expenditure and working capital needs for our operations. We have met these requirements through cash flows from operations, equity infusions from shareholders and borrowings. As of March 31, 2021, we had Rs. 835.82 million in cash and cash equivalents and Rs. 1,640.88 million in other bank balances other than cash and cash equivalents. We believe that, after taking into account the expected cash to be generated from operations, our borrowings and the proceeds from the Offer, we will have sufficient liquidity for our present requirements and anticipated requirements for capital expenditure and working capital for the next 12 months.

Cash Flows

The following table sets forth our cash flows for the years indicated:

 

(Rs. in million)

Financial Year
2021 2020 2019
Net cash flows from/(used in) Operating Activities 1,498.43 61.51 (997.28)
Net cash flows from/(used in) Investing Activities (1,297.44) 149.23 (1,619.54)
Net cash flows from/(used in) Financing Activities (377.23) 687.21 2,356.91
Net increase/(decrease) in Cash and Cash Equivalents (176.24) 897.95 (259.91)

Operating Activities

Net cash flows from operating activities was Rs. 1,498.43 million for the Financial Year 2021. While our restated profit before tax was Rs. 753.38 million, we had an operating profit before working capital changes of Rs. 1,903.17 million, primarily due to adjustments for depreciation and amortisation of Rs. 671.28 million, interest expense and finance costs of Rs. 307.01 million and provision for compensated absence expenses of Rs. 102.81 million, partially offset by interest income of Rs. 102.92 million. Our working capital adjustments for the Financial Year 2021 primarily consisted of an increase of inventories of Rs. 521.31 million, an increase in current financial assets of Rs. 262.24 million and an increase in other current assets of Rs. 157.04 million, partially offset by an increase in current other financial liabilities of Rs. 462.02 million and a decrease in trade receivables of Rs. 152.49 million. Our cash generated from operations was Rs. 1,630.14 million, adjusted by payment of taxes of Rs. 131.71 million.

Net cash flows from operating activities was Rs. 61.51 million for the Financial Year 2020. While our net loss before tax was Rs. 124.30 million, we had an operating profit before working capital changes of Rs. 890.08 million, primarily due to adjustments for depreciation and amortisation of Rs. 595.09 million and interest expense and finance costs of Rs. 442.93 million, partially offset by realised gain from sale of investments of Rs. 74.41 million and interest income of Rs. 18.86 million. Our working capital adjustments for the Financial Year 2020 primarily consisted of an increase in inventories of Rs. 2,007.45 million and an increase in trade receivables of Rs. 404.76 million, while partially offset by an increase in trade payables of Rs. 1,314.99 million, a decrease in current financial asset of Rs. 207.75 million and an increase in current other financial liabilities of Rs. 187.85 million. Our cash generated from operations was Rs. 104.18 million, adjusted by payment of taxes of Rs. 42.67 million.

Net cash used in operating activities was Rs. 997.28 million for the Financial Year 2019. While our net loss before tax was Rs. 317.20 million, we had an operating profit before working capital changes of Rs. 286.55 million, primarily due to adjustments for depreciation and amortisation of Rs. 308.76 million and interest expense and finance costs of Rs. 263.42 million, partially offset by unrealised gain on fair valuation of investments of Rs. 15.28 million and interest income of Rs. 8.28 million. Our working capital adjustments for the Financial Year 2019 primarily consisted of an increase in inventories of Rs. 1,256.67 million, an increase in other current assets of Rs. 575.89 million, an increase in current financial asset of Rs. 466.68 million, partially offset by an increase in trade payables of Rs. 568.80 million and a decrease in non-current assets of Rs. 239.07 million. Our cash used in operations was Rs. 997.28 million, adjusted by nil payment of taxes.

Investing Activities

Net cash used in investing activities was Rs. 1,297.44 million for the Financial Year 2021, primarily comprising investment in fixed deposits of Rs. 896.60 million and payment for purchase of property,

plant and equipment, intangible assets including movement in capital work in progress ("CWIP") and capital creditors (net of proceeds from sales) of Rs. 420.71 million, offset by interest received of Rs. 36.02 million.

Net cash flows from investing activities was Rs. 149.23 million for the Financial Year 2020, primarily comprising proceeds from sale of investments of Rs. 1,344.67 million, offset by investment in fixed deposits of Rs. 738.94 million and payment for purchase of property, plant and equipment, intangible assets including movement in CWIP and capital creditors (net of proceeds from sales) of Rs. 457.04 million.

Net cash used investing activities was Rs. 1,619.54 million for the Financial Year 2019, primarily comprising payment for purchase of investments of Rs. 1,268.45 million and payment for purchase of property, plant and equipment, intangible assets including movement in CWIP and capital creditors (net of proceeds from sales) of Rs. 349.13 million.

Financing Activities

Net cash used in financing activities was Rs. 377.23 million for the Financial Year 2021, primarily comprising (repayment) of current borrowings (net) of Rs. 815.21 million, principle payment of lease liability of Rs. 299.50 million, interest paid of Rs. 176.55 million and interest expenses on lease liabilities of Rs. 129.69 million, partially offset by proceeds from securities premium of Rs. 1,022.56 million.

Net cash flows from financing activities was Rs. 687.21 million for the Financial Year 2020, primarily comprising proceeds from securities premium of Rs. 1,031.94 and proceeds from current borrowings (net) of Rs. 418.78 million, partially offset by principle payment of lease liability of Rs. 330.96 million, interest paid of Rs. 297.70 million and interest expenses on lease liabilities of Rs. 140.43 million.

Net cash flows from financing activities was Rs. 2,356.91 million for the Financial Year 2019, primarily comprising proceeds from current borrowings (net) of Rs. 1,427.35 million and proceeds from securities premium of Rs. 1,332.87 million, partially offset by interest paid of Rs. 197.10 million, principle payment of lease liability of Rs. 146.09 million and interest expenses on lease liabilities of Rs. 65.38 million.

Indebtedness

As of March 31, 2021, we had outstanding consolidated total borrowings of Rs. 1,874.65 million (comprising non-current liabilities - financial liabilities - borrowings of Rs. 16.60 million and current liabilities - financial liabilities - borrowings of Rs. 1,858.05 million) as compared with outstanding consolidated total borrowings including current maturities of long term debt of Rs. 2,675.48 million as of March 31,2020. Our borrowings are denominated in Indian Rupee as of such date.

Capital and Other Commitments

As of March 31,2021, our estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) was Rs. 19.90 million.

The following table summarises the maturity profile of our Groups financial liabilities based on contractual undiscounted payments as of March 31,2021:

(Rs. in millions)

Particulars Total Up to 1 year 1 -5 years
Borrowings (including current maturities) 1,878.03 1,858.05 19.98
Trade payables 3,162.12 3,162.12 -
Other financial liabilities 850.14 850.14 -
Lease liabilities 1,798.27 515.22 1,283.05
Total 7,688.56 6,385.53 1,303.03

Capital Expenditure

Our capital expenditures primarily relate to the purchase of computers, furniture and other fixtures, office equipment, leasehold improvements, software and business application development. Our purchase of property, plant and equipment, intangible assets including movement in CWIP and capital creditors (net of proceeds from sales) were Rs. 420.71 million, Rs. 457.04 million and Rs. 349.13 million for the Financial Years 2021,2020 and 2019, respectively.

Contingent Liabilities

As at March 31, 2021, we have contingent liabilities (as per Ind As 37) of Rs. 100.86 million comprising Rs. 74.37 million for claims against our Group not acknowledged as debts for disputed direct tax matters (including interest up to the date of demand, if any), Rs. 14.99 million for claims against our Group not acknowledged as debts for disputed indirect tax matters (including interest up to the date of demand, if any) and Rs. 11.50 million for certain bank guarantees against vendor liabilities.

Off-Balance Sheet Commitments and Arrangements

We do not have any off-balance sheet arrangements, derivative instruments or other relationships with other entities that would have been established for the purpose of facilitating off-balance sheet arrangements.

Related Party Transactions

We have engaged in the past, and may engage in the future, in transactions with related parties. For details of our related party transactions, see "Offer Document Summary - Related Party Transactions" on page 24.

Quantitative and Qualitative Analysis of Market, Credit and Liquidity Risks

Our Board has overall responsibility for the establishment and oversight of our risk management framework. We are exposed to the following risks:

Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk mainly comprises currency risk, product price risk and interest rate risk.

 

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates relates primarily to our operating activities denominated in foreign currency and thus the risk of changes in foreign exchange rates relates primarily to trade payables. Since the Financial Year 2022, we have started hedging our foreign currency payables.

 

Product price risk

In a potentially inflationary economy, we expect periodical price increases across its product lines. Product price increases which are not in line with the levels of consumers discretionary spends, may affect the business/ sales volumes. In such a scenario, the risk is managed by offering judicious product discounts to consumers to sustain volumes. We negotiate with our vendors for purchase price rebates such that the rebates substantially absorb the product discounts offered to the consumers. This helps us to protect itself from significant product margin losses. This mechanism also works in case of a downturn in the retail sector, although overall volumes would get affected.

 

Interest rate risk

We are exposed to interest rate risk primarily due to borrowings having floating interest rates. We use available working capital limits for availing short-term working capital demand loans with interest rates negotiated from time to time so that we have an effective mix of fixed and variable rate borrowings.

Credit Risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. We are exposed to credit risk from its operating activities (primarily trade receivables).

 

Trade receivables

Our retail business is predominantly based on cash on delivery and prepaid, and accordingly the credit risk on such collections is minimal. We have adopted a policy of dealing with only creditworthy counterparties in case of institutional consumers and the credit risk exposure for institutional consumers is managed by us by credit worthiness checks. Our experience of delinquencies and consumer disputes have been minimal. Further, trade and other receivables consist of a large number of consumers, across geographies, hence, we are not exposed to concentration risks. Also we have a simplified approach to determine impairment loss allowance on the portfolio of trade receivables. This is based on its historically observed default rates over the expected life of the trade receivable and is adjusted for forward looking estimates.

 

Security deposits

We also carry credit risk on lease deposits with landlords for properties taken on leases, for which agreements are signed and property possessions are taken for operations. The risk relating to refunds after vacating the premises is managed through successful negotiations or appropriate legal actions, where necessary.

 

Financial instruments and cash deposits

Credit risk from balances with banks and financial institutions is managed by our treasury department in accordance with our policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by our Board of Directors on an annual basis, and may be updated throughout the year subject to approval of our Finance Committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through a counterpartys potential failure to make payments.

Liquidity Risk

Liquidity risk is a risk that we may not be able to meet its financial obligations on a timely basis through its cash and cash equivalents, and funds available by way of committed credit facilities from banks. Management manages the liquidity risk by monitoring rolling cash flow forecasts and maturity profiles of financial assets and liabilities. This monitoring includes financial ratios and takes into account the accessibility of cash and cash equivalents and additional undrawn financing facilities.

Unusual or Infrequent Events or Transactions

Except as described in this Draft Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.

Known Trends or Uncertainties

Our business has been subject, and we expect it to continue to be subject, to significant economic changes arising from the trends identified above in "Significant Factors Affecting our Results of Operations" above and the uncertainties described in "Risk Factors" on page 41. To our knowledge, except as disclosed in this Draft Red Herring Prospectus, there are no known factors which we expect to have a material adverse effect on our income.

Future Relationship between Cost and Income

Other than as described elsewhere in this Draft Red Herring Prospectus, including disclosure regarding the impact of COVID- 19 on our operations, to the knowledge of our management, there are no known factors that might affect the future relationship between costs and income.

See "Risk Factors - Internal Risk Factors - Health epidemics, including the ongoing COVID-19 pandemic, have had, and could in the future have, an adverse impact on our business, operations and the markets and communities in which we and our consumers, suppliers, sellers and advertisers operate" for risks of the COVID-19 outbreak on our operations and financial condition on page 49 and see "Our Business" on page 193 for more details regarding the impact of COVID-19 on our operations.

Significant Developments subsequent to March 31, 2021

Except as disclosed in this Draft Red Herring Prospectus, no circumstances have arisen since the date of the last financial statements as disclosed in this Draft Red Herring Prospectus which materially or adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next twelve months.