Nykaa, Unilever moves likely to spur M&As in beauty, personal care market

India’s beauty and personal care (BPC) industry is entering a consolidation phase with global giants seeking a grip over the changing consumer habits, according to the analysts and industry sources.

 

At the same time, even the homegrown digital commerce firm Nykaa is buoyed by the success of its early buyouts.

 

Analysts are now betting on sectoral consolidation deals gathering momentum as the companies in the overcrowded direct-to-consumer (D2C) space face challenges related to scaling up, funding and profitability. Over 80 new-age consumer brands have entered the BPC segment in the recent past. Many of them are becoming potential merger and acquisition (M&A) targets for multinational companies as well as large legacy firms, as the industry moves into an inevitable consolidation phase, analysts commenting on the trend said.

 

“A few years back, the online D2C brands were fancily valued as they brought innovation. The investors continued betting on them without bothering about profitability. They thought these firms would take away the market share and create disruption for the biggies,” said Sanjay Jain, a board advisor and director at Taj Capital, a boutique investment advisory firm. “Now what has happened is that legacy players have also got their act together. They are creating their own internal teams to focus on digital channels. So, the novelty aspect of the startups having digital-only platforms has withered out,” said Jain. 

 

At the same time, D2C companies may also face competition from quick commerce companies, which are growing fast. These firms, which deliver products in 10-15 minutes, are coming up with their own private label brands in pursuit of profitability, according to the experts.

 

Many new-age direct-to-consumer brands, funded by venture capital money, have energised the $32 billion BPC market in recent years. They have democratised access and awareness to aspirational beauty care in India. But experts said that scalability demonstrated by these platforms with their digital-only channels has come at the cost of losses. 

 

“The strategy for D2C firms related to ‘growth at all costs’ followed by bigger funding rounds without bothering about losses is not working anymore. They are realising that investors want growth with profitability,” said Jain. 

 

The bigger opportunity lies in the offline space. But there the D2C companies have to address the problem of distribution already faced by legacy FMCG players. Creating the infrastructure for that is not easy.

 

“If they go for an initial public offering (IPO) and the valuation doesn’t meet the expectations of their investors, then M&A is the way for them to get funding,” said Jain.

 

Indeed, this trend may spur large companies such as Hindustan Unilever and L’Oreal and firms like Nykaa, which had an early mover advantage, to buy stakes or acquire these D2C companies.

 

For instance, fast-moving consumer goods giant Hindustan Unilever is reportedly in advanced deal talks to acquire D2C brand Minimalist for Rs 3,000 crore. In 2023, Spanish giant Puig, owners of brands like Nina Ricci and others, acquired a controlling stake in Kama Ayurveda, signalling the MNC's interest in the domestic market.

 

Nykaa has already been a leading consolidator with a string of acquisitions, with Dot & Key and Earth Rhythm being notable. It also acquired stakes in Nudge Wellness, and KICA. It also acquired local discovery and e-commerce platform Little Black Book (LBB)

 

The acquisition of Dot & Key, which moved from Rs 50 crore to Rs 750 crore gross merchandise value (GMV) in four years, is seen by analysts as a successful trigger for consolidation deals. The brand is at over 10,000 points of sale, bolstered by Nykaa’s influential omni-channel distribution. 

 

“Nykaa now controls 90 per cent of Dot & Key, for which it has paid Rs 362 crore in two tranches. This underlines the company's deal-making prowess under its banker-turned-founder, Falguni Nayar,” said a person familiar with the matter.

 

Global beauty and personal care giants made India their priority market in 2024. This was marked by top leadership visits from at least a dozen companies as part of their China Plus One strategy to diversify business in other countries. The leadership, including the founding families and global CEOs of L’Oreal, Estee Lauder, Charlotte Tilbury, Kenvue and Amorepacific, and Luxasia, joined P&G and Unilever in deepening the India push.

 

In this context, Unilever’s Indian unit's interest in Minimalist is bound to pique the interest of acquisitive global peers in a burgeoning and increasingly sophisticated beauty care market. Global PE giants such as Warburg Pincus, Advent International, and others could also participate in the domestic consolidation moves by extending their recent investing playbook to India, according to the sources.

 

Companies like Unilever and L’Oreal see India’s growth in the coming 10-15 years, taking it to where China was in the last decade, according to the people with knowledge about their strategy. L’Oreal, for instance, could double its India business in the next 3-5 years, analysts briefed on the matter said. India’s per capita spending on beauty and personal care remains low at $15, though it has nearly doubled since Nykaa was founded in 2013.

 

Strategic partnerships

 

On Wednesday, Foxtale, a D2C skincare firm, said it has raised $30 million (approximately Rs 250 crore) in its Series C funding round. The round saw participation from Japanese multinational company KOSÉ Corporation, along with continued support from Panthera Growth Partners, Z47, and Kae Capital.

 

The company has also entered into a strategic partnership with KOSÉ Corporation to expand the global beauty leader’s presence in India. 

 

RAS Luxury Skincare, recently raised $5 million in a Series A funding round led by Unilever’s investment arm, Unilever Ventures. It has also seen participation from Amazon Smbhav Venture Fund.

 

Hair care brand Arata also recently raised $4 million in a series A funding round led by Unilever Ventures. The funding round also saw participation from French beauty giant L’Oréal’s corporate venture capital fund, Bold, alongside existing investor Skywalker Family Office.