Beauty start-up Nykaa sitting pretty on path to profitability as IPO looms

It has an over 30 per cent share of the $1 billion gross merchandising value (GMV) online beauty market. And this segment constitutes for around 87 per cent of its sales. But Nykaa has ambitious plans for its fashion foray (account for 13 per cent sales) too.  It is targeting $ 1 billion in GMV by 2025 (from around $ 75 million) based on Goldman Sachs discussions with the company’s top brass sometimes ago.     

As Nykaa prepares to go for its maiden IPO this year, the cosmetics and beauty company has several reasons to be pleased. It is on the path to profitability, it has a large share of domestic online beauty market, and it is now expanding its foray into fashion.  

 Nykaa boasts an over 30 per cent share of the $1 billion gross merchandising value (GMV) online beauty market in India. This segment constitutes around 87 per cent of its sales.

Fashion accounts for 13 per cent of its sales but here too, it plans another push. It is targeting $1 billion in GMV by 2025, an increase from the current figure of $75 million – figures based on Goldman Sachs’ discussions with the company’s top brass some time ago. It is already EBITDA positive since FY19 and has become PBT profitable in FY20.

The goal now is to become EBITDA-positive in the fashion segment too by FY22. According to Goldman Sachs, the company had a PBT margin of 0.6 per cent in June which went up to 8.3 per cent in September. During the same period, its EBIDTA margins also went up from 3.2 per cent with net revenue of Rs 1510 million to 10.3 per cent with revenues of 1910 million.

Nykaa has been helped by the fact that it was quick to recover from the lockdown. It told analysts that it had recovered from the shock by June and is expecting revenues to grow by over 30 per cent in FY21 over the last year with margin improvement and lower cost of acquisition. The other plus is that it operates in market segments where there is a huge upside for growth. For instance, the total size of the fragmented beauty and care segment is over $15 billion. But the share of online is a mere 6 per cent.

The company’s inventory model has helped it to gain the trust of customers. It has partnerships with over 2000 brands. The expectation is that the online space will grow to anything between $3-4 billion.

The penetration of online in fashion is also abysmally low at 7 per cent of the $80 billion domestic market and this again offers a huge upside. In this market, Nykaa follows a combination of inventory and market place model and it might opt for a ‘premiumisation’ model.     

 To back its efforts, the two platforms (beauty and fashion which are now double shared) already attract over 1 million transacting users and 17 million unique monthly visitors.

Nykaa is not limiting itself to India. In discussions with analysts, it has said that it is looking at international expansion for its private labels to the US, Europe and Gulf Cooperation Council countries. 

It has also taken up an omni-channel expansion strategy which entails setting up 150 stores in three years and having a presence in the top 100 cities of India.  

Nykaa has raised 12 rounds since its inception in 2012 and, based on its last disclosed fund raise last March, is valued at around $1.2 billion. 

However, it also did a secondary fund raise in November for which details have not been disclosed.

Its investors include film stars such as Alia Bhatt, the Hero group’s Sunil Munjal, TPG and Steadview Capital.