Outlook for next year across key segments - both growth and margins. We are seeing signs of inflation; how does it impact demand and margins?
It's hard to make forward-looking statements, but April and May have been good overall for the business in terms of growth momentum. Global concerns - high oil prices, depreciating currency, inflation impact on consumption - make us cautious for next year. However, we are definitely seeing benefits of AI-led growth in our business - both on top line and costs. Except for general environmental concerns, we are not seeing specific concerns yet, but inflationary pressures may emerge. Our consumption categories are small luxuries and as a result their consumption is not as impacted during tougher times.
Steady-state margins for BPC and Fashion - where should they go? And how should we think about inference cost adding pressure to margins, plus higher fuel price impact on raw materials and procurement costs?
The Beauty vertical comprises 3 very different businesses with different margin profiles - multi-brand retail, House of Brands and B2B Superstore. Each is independently seeing improvement in their margin profile - how that shakes out at a consolidated level is also an outcome of how fast each grows. If own brands continues to outpace others, that can be accretive; B2B currently is improving its margin profile but at the aggregate vertical level, if it grows faster, that can be diluted. There is also a plan for the core beauty retail business to continue to reinvest in growth - so the YoY improvement in margin you see is despite us reinvesting aggressively for growth. All else remaining constant, you can see similar trajectory in the coming years. On inflation and procurement cost - it is a risk, freight cost and currency issues mean some pressure on brands to take a price increase but it hasn't happened yet. From my conversations, brands are trying their best to not pass that on to the consumer.
Where would margins stabilize at steady state for all three separate Beauty businesses?
All three businesses have a very different steady-state margin profile. B2B is probably a single-digit margin type business. Beauty owned brands could have even better margin profile than the multi-brand retail business given they have a higher gross margin and selling more of our owned brands on our platform itself is accretive to the retailer margin. I don't know if we've given the exact numbers in terms of guidance, but the better owned brands do, the more accretive it is to the vertical; the better B2B does in the short term, that might be slightly dilutive. Generally, over time, both the owned brands business and the multi-brand retail business have opportunity to improve an already healthy margin profile.
On the Fashion side - margin thought process?
On Fashion side, the largest business is Nykaafashion.com, but there's owned brands business and recently a very different model with Nike. On Nykaafashion.com - we've been talking about intrinsics: customer acquisition flywheel, retention, assortment addition - all in place. We feel confident the trajectory should be positive on margins for the fashion business from here on. Owned brands made gains in health of overall portfolio, particularly Nykd. Early days on Nike partnership but seeing good signs in first few months. I won't speculate on long-term numbers, but the trajectory is expected to be positive and we are optimistic.
Follow-up on own brands and share of Nykaa retail revenue.
Our brands sell on multiple platforms like offline and other platforms - that's putting the number in context. In terms of how we think about strategy, it's not about getting a particular share of Nykaa as a platform. We're truly trying to build an independent unit within Nykaa which is truly a house of brands - it's a brand's business. We want a beautiful portfolio of brands extending across many different categories and positionings, and every brand should hit its own correct potential and distribution strategy. It's not about penetrating Nykaa as a retailer, but truly building standout brands in the country. There's a lot of appetite from consumers to try Indian brands built on Indian insight.
On owned brands in beauty - you've done exceedingly well, 65% YoY growth. Dot & Key must be close to INR 1,000 crores in NSV. How do you see this portfolio growing? Can growth rate maintain or slow on this base? If owned brands portfolio slows, does the lever to push up margins in the coming 1-2 years weaken?
Nykaa has become very excited about the opportunity to build a really compelling house of brands. The strategy comes down to the right portfolio of brands. We have 3 big brands and probably 4 really meaningful brands - Dot & Key, Nykaa Cosmetics, Kay Beauty and Nykd. There are a couple of brands further that are looking very high potential and will break out next year. Strategy is three pronged: making sure big brands continue to hit their right potential in each category and take market share; getting incubating brands through to INR 150 crores+ threshold; and doing acquisitions or building brands in-house to supplement category. I'm not answering exactly whether growth will continue to be 50% plus next year - we're getting really focused and ambitious about the strategy here.
On the beauty B2C retail platform - high 20s GMV/NSV growth currently coming from unique annual customers increasing. Over 2-3 years, can you keep adding new users at same pace or will new user growth taper and AOV pick up slack?
First, on margin improvement - the retailer business has the highest margin profile and continues to improve on the back of marketing efficiencies, fulfilment improvements and repeat customer behaviour. So even if owned brands business slows down, you're not going to see an impact on the overall margin profile for the Beauty vertical. On growth - customer acquired today is a repeat customer tomorrow. AOV of repeat customers tends to grow over time due to education and personalization. We have not seen too much growth in AOV in the past several quarters because new customer AOVs are lower than repeat customer AOVs, and we've been trying to focus on driving frequency of purchase rather than AOV - ultimately our goal is annual consumption value, not just AOV. We have initiatives to improve AOV in the coming quarters - personalization showing right products to right user, plus relative premiumization. There is still tremendous runway for us on customer acquisition.
FY26 saw massive 65% growth in owned brands GMV, almost 2/3 of which is Dot & Key. To sustain 50%-60% growth, do you need another new brand in this portfolio? How should we think about FY27 portfolio growth?
Growth has to be on the back of both existing brands accelerating - I think there's still considerable growth for Dot & Key to be had. But there's also a lot of potential in those next two makeup brands where larger market share gain is possible, so a big acceleration is possible. And we need new engines that come into place and start to fire - laying the right portfolio that delivers consistent growth over the next 5 years, 10 years, rather than just year-on-year.
Follow-up on owned brands portfolio mechanics and Dot & Key weightage.
Actually, the weightage of Dot & Key may not be that high, though it's significant. Like Adwaita has been saying, it's a portfolio approach. If you have 3-4 brands who are at 1/3 the turnover but growing 65% or 100%, that is very much possible. On a portfolio basis, we remain confident we can deliver high growth. Nowhere are we claiming we'll deliver 65% YoY growth forever for next 5 years. We have an annual day coming up in about a month and a half - at that time we'll make an effort to explain the entire plan more in detail. In different brands there are different opportunities - Dot & Key of this size and scale based on e-commerce success and a lot can be done on physical and GT MT rollout and even international forays. Skin is a different space than makeup, so the two can't be compared. Everything has to be seen in the context of size of TAM.
Nykaa Now - what's the salience in overall GMV in FY26? Any specific call-outs on offline store expansion targets for FY27?
On retail brick-and-mortar expansion, we're thinking it will be similar to FY26 - 50 to 60 or 70 doors. We're covering the top 99 cities. It's more about increasing density of our store network in Tier 2, Tier 3 towns to get to 2 to 5 stores per city. We said the plan was to get to about 500 stores over the next 3 to 4 years (said 2 years ago). On track - about 170 or 180 doors more over next 2-3 years, averages to 50-60 doors per year. On Nykaa Now - last year was the year of building out the rapid stores network. Today we have close to 75 or 80 rapid stores in top 7 metros, covering 80% to 90% of relevant pin codes with delivery promise of 30 minutes to 2 hours. We're coupling that speed with the largest assortment of beauty and personal care products. There is a meaningful percentage of our orders in top 7 metros being serviced through Nykaa Now. The exact number is not disclosed but we can get back to you offline. This year (FY27) the plan is to really start to market Nykaa Now more actively to consumers - so you'll see us marketing a lot more aggressively and start to see better consumer traction.
We've seen an uptick in the new visitors at top of funnel and marketing efficiency - marketing spends came down QoQ which drove profitability. How are you achieving this drive up in new visitors but marketing spends well under control? And more on AI-driven growth?
We've been talking about our focus on new customer acquisition for at least 4 to 6 quarters - there's been a lot of work done to improve the new customer experience on the app. We have also found efficiency on customer acquisition through digital platforms like Meta and Google, with AI helping drive efficiency on marketing on third-party platforms. And on app experience personalization, AI has now allowed us to infer signals about new customers where we don't have too much previous browse/purchase history data on them, allowing us to personalize the experience to an extent that was earlier not possible. That's driving further efficiency in customer acquisition spends.
What has driven the improvement in fashion growth in FY26? We've seen 15% jump to more than 30%, while reducing marketing also. Landscape of both elements?
Growth is firstly dependent on customers transacting more frequently and more customers transacting. We've been focused on customer acquisition throughout. A bulk of our marketing investments go towards brand building for the platform and acquiring customers. And we've been very focused on assortment addition - adding very strong brands like H&M and Nike - those led to the growth revival. As we focus more of our traffic towards better brands and acquire the right quality of customers, marketing efficiency de facto looks better. These are structural changes, very deliberate structural changes.
Has competitive intensity from similarly positioned platforms abated this year?
I wouldn't say it has abated. Every platform is positioned slightly differently. Nykaa Fashion is positioned differently - we focus on premium fashion online market, don't play mass market categories, so we go after a certain kind of brands and customers. We are also a much younger business compared to BPC and the headroom for growth is just much higher - TAM is $55 billion and we have a very small percentage. Irrespective of competitive intensity, we have a lot of headroom for growth and we remain focused on intrinsics.
Inflation - we've seen traditional media players cut advertising/marketing spend. Have you historically seen this when inflation plays out and FMCG companies step back? And on private labels in BPC, can Nykaa touch 30% without impacting health of independent brands?
On first question - it is a possibility that certain brands pull back on ad spends. The good news is no single brand or even brand company accounts for double-digit revenue to our platform - very low revenue concentration. Ad dollars are not as concentrated. We've spent the last several years making the platform more inclusive, allowing more brands to participate in advertising. We've diversified our base of advertisers. We're also providing a lot more consumer insights with AI helping share real-time insights on performance of marketing campaigns. There are a lot of things that could counter the desire for brands to possibly pull back on advertising. On second question - own brands don't account for 20% of our retail revenue yet. I don't know where you got that number.
Can AUTC growth more or less continue at the current growth rate over next 2-3 years?
Yes. There is headroom for growth on customer acquisition for sure.
Given the rupee depreciating - what's the salience of imported brands in your beauty business? Have you started to see translations-led realization increases?
Direct imports form a relatively small portion of our business - in that sense it limits our exposure both from forex volatility and potential supply chain challenge. Having said that, from a forex perspective, we operate on a fully hedged basis and at any point in time, the next 2 to 3 months' exposures continue to remain hedged. That also gives us a level of protection from near-term volatility as far as currency is concerned.