Nykaa: BPC strong, Fashion next

14 Feb 2024 , 01:42 PM

Analysts of IIFL Capital Services hosted Nykaa at the IIFL’s 15th Global Investor Conference in Mumbai. Management sounded optimistic on both its Beauty & Personal care (BPC) and Fashion business on the back of high growth aspects given low underpenetration of BPC/Fashion e-commerce in India. The management mentioned that as fashion margins improve further, the overall margins at company level would also improve. The BPC business is expected to hold strong and focus would be on new customer acquisitions. Overall, the salience of owned brands has been increasing and is expected to continue to going forward. 

Key customer trends in the e-commerce space: 

Management highlighted some interesting trends in the e-com space, where there are ~230 mn people who have ever shopped online, and out of this ~65-70 mn are total BPC customer in India. Nykaa has seen ~23mn of customers out of this. Going forward, this number is expected to increase given the increasing trend of online shopping and inherent change in customers income which would lead to increase in spend toward premium brands. 

Strong moat in BPC:

The BPC business continues its strong growth trajectory and going forward the focus would be towards gaining more customers which would come on the back of various “product push” initiatives. For example, recently Nykaa hosted “Nykaaland” a two day event, where over 80 global brands participated and is also promoting CSMS (cleanser, serum, moisturiser and sunscreen) initiative focused on promoting beauty and personal care products. Management mentioned ~25-26% margin should be a number to look for on steady state basis. 

Fashion business the next driver: 

Fashion relatively a young business in overall scheme of things, is expected to contribute positively to overall company level margins as it turns Ebitda positive in next 2-3 years. Management highlighted that the focus on getting unit economics and assortment mix right in the fashion business is playing out well and resulting in better margins.