Fsn E-Commerce Ventures Ltd

NSE:NYKAA

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to FSN E-Commerce Ventures Limited 2Q FY '23 Earnings Conference Call hosted by Morgan Stanley India Company Pvt. Ltd. [Operator Instructions] Please note that this conference is now being recorded.

I now hand the conference over to Ms. Sheela Rathi Investment Analyst at Morgan Stanley. Thank you, and over to you, ma'am.

[Sheela Rathi, analyst]

Thank you very much. Hello, everyone. And on behalf of Morgan Stanley, I welcome you all for the FSN E-Commerce earnings conference call. Thank you very much Nykaa team of giving Morgan Stanley the opportunity to host your 2Q FY '23 earnings conference call.

Without any further delay, let me hand the call to Ms. [indiscernible], IR and Strategy, to take the call over.

[Unknown Executive]

Thank you, Sheela. Good evening, everyone, and welcome to the conference call. We will be covering this evening the results for quarter ended 30th September, 2022.

On the call with me from FSN E-Commerce Ventures Limited is Ms. Falguni Nayar, Executive Chairperson, MD and CEO; Mr. Anchit Nayar, Executive Director and CEO Beauty and E-Commerce; Ms. Adwaita Nayar, Executive Director, Co-Founder, CEO of Fashion; Mr. Vikas Gupta, CEO eB2B and International; Mr. Arvind Agarwal, our Chief Financial Officer; Mr. Vishal Gupta, Executive Vice President Beauty Brands; and Mr. Rajesh Uppalapati, Chief Technology Officer.

We will start the presentation with Falguni sharing an overview of our performance in this quarter.

Before we get started with the presentation, I'd like to draw your attention to the disclaimer for good order.

With that, over to you, Falguni.

[Falguni Nayar, executive]

Thanks, [ Anita ], and good evening, everyone. Thank you for joining us on the call, and it is always a pleasure to interact with all of you. I will begin with a short presentation, and we'll be happy to take questions after.

Our GMV for this quarter is at INR 23.46 billion, which is a recorded -- this is recorded a 45% year-on-year growth. Revenue has also grown at 39% year-on-year, and it now stands at INR 12.3 billion. We are happy to report our EBITDA growth, which has more than doubled year-on-year at INR 611 million, achieving an EBITDA margin of 5% for this quarter. Profit before tax is at INR 88 million and profit after tax is at INR 52 million.

Our Beauty GMV has sustained growth at 39% on a year-on-year basis, and the Fashion GMV has grown at 43% on a year-on-year basis. Visibility to business growth is strong, despite consumer environment normalizing as we have gained from our omnichannel presence. Our new business delivered INR 1.2 billion in GMV contribution, which is happening. These are early-stage businesses, so we believe the strong growth should sustain.

Just going one level lower to the breakeven of -- breakup of GMV across businesses. Consolidated GMV, as I mentioned earlier, grew 45% year-on-year. This is truly a commendable performance from our teams and a testament to the investments we have built into people, technology and capacity. Our Beauty GMV grew 39% year-on-year. Our online and offline presence in Beauty has delivered strong growth momentum while gaining from efficiencies across the value chain. Our Fashion GMV grew 43% year-on-year as we continue to stay committed to and investing in building a unique customer proposition in Fashion, aided by investment in a differentiated product, collaboration with global brands and expansion of breadth and depth of private label portfolio.

As you've seen for a few quarters now, we provide -- we separately provide what we call it other categories, which are new businesses that we are currently building, and that currently includes early-stage businesses like eB2B business as well as Nykaa Man. This business GMV grew by 240% year-on-year, and they now contribute to INR 1.1 billion in revenues. So overall, another quarter of yet another strong growth in revenues along with profitability.

I also wanted to take this opportunity to introduce you all with recent addition to Nykaa family. It gives me great pride to introduce our new Chief Technology Officer, Mr. Rajesh Uppalapati; as well as our other members, our Head of Private Label brand, Mr. Vishal Gupta; and our Head of eB2B and International business, Mr. Vikas Gupta.

So Rajesh brings over 2 decades of technology experience with proven record of delivering successful world-class, large-scale performance-critical software projects supporting multichain businesses. He has worked with Amazon for about 20 years across different roles and geographies with increasing responsibility. Prior to joining Nykaa, he's immediate previous employment was with Intuit India.

I would request Rajesh here to share a few words with our investors.

[Rajesh Uppalapati, executive]

Thanks, Falguni, for the warm welcome and the rich introduction. Good evening. As Falguni mentioned, I've been in the software industry for more than 20 years. We developed [indiscernible] and built large-scale distribution systems for Amazon supply chain technologies. We build product innovations to acquire and creating the next 100 million customers, ranging from video, voice and online shopping experiences to lightweight apps for shopping in congested networks and also gamification and content platforms that will create a fruitful engagement with our customers. Recently, as the Vice President of Product Engineering at Intuit, I was leading engineering for Intuit's TurboTax, developing main products, along with owning the India [ tight ] strategy.

As I joined Nykaa, I'm really excited about the opportunity. Over the next few weeks, I intend building relationships while also understanding where we stand across with 3 Ps: People, Product and Process. There are 3 strategic pillars, which have served us well as a tech leader in my career, creating a robust product infrastructure, essentially, the plumbing and everything that goes against the current that translates to offering best-in-class security, availability, performance and quality for our products.

And then the second lever would be how do we get fit, how do we do more with life, how do we dramatically improve our development velocity and the throughput of innovations.

And finally, embracing external technology trends. There are so many emerging technologies like crystal, [ metal bags ], and we will start to end these technologies and figure out use cases to apply them. Essentially, we went on behalf of our customers before our competition can do it.

Thank you so much.

[Falguni Nayar, executive]

So welcome, Rajesh, we are all very excited. In fact, now I come on to introducing Vishal Gupta with nearly 3 decades of experience in the FMCG sector. Vishal joined Nykaa after a celebrated tenure at Unilever globally, then he listed large-scale award-winning campaigns and teams. In its latest role at Unilever Russia, Vishal headed the beauty and personal care business comprising a large portfolio of international and local brands, including Lux, [indiscernible] and Sunlight to name a few.

With this, I request Vishal to comment his own innovative introductions and a few words to the investors.

[Vishal Gupta, executive]

Thanks, Falguni. Hello, everyone. As mentioned by Falguni, I bring to the table many years of experience in running businesses and building brands with high consumer love in India as well as in international markets. And honestly, that is exactly my mandate in heading the Nykaa Private Label brands business, which is to build a portfolio of brands with very high consumer love and scale across [indiscernible] so that we deliver sustained profitable growth for the years to come.

Based on my past experience as well as last few months at Nykaa, I can confidently say that our right to win comes from 3 things that we do well. First, our superior consumer understanding. Second, our ability to translate with superior consumer understanding into products that really wow our consumers. And third, our ability to create brand content that not only drives desire, but also drives conversion across channels.

So all in all, super excited with this opportunity to scale our house of brands into a large and profitable business for the years to come, which is really loved by our consumers. Thanks.

[Falguni Nayar, executive]

Thank you, Vishal. Thank you very much. We also have secured our CEO for eB2B business, and he also heads the international business, Vikas Gupta. Vikas Gupta has been spearheading the Nykaa eB2B business that currently holds SuperStore by Nykaa as well as Nykaa clothes, having held several leadership roles in the past, both at Unilever and also Flipkart just before joining Nykaa. Vikas is proficient in building businesses for data-driven digital first enterprises. Vikas comes with over 20 years of experience at Unilever, which builds in India, Brazil, Singapore and Indonesia. And then, as I said, more recently with Flipkart in Bangalore. Some of you may have heard Vikas speak in our annual Investor in July.

With that, over to you, Vikas, to give us an update on your new business.

[Vikas Gupta, executive]

Thank you, Falguni, and good evening, everyone. For my introduction, Unilever was my home and my school for more than 20 years. I joined Unilever as a management trainee back in 1998, and was caught enough to get opportunities to work on some of the most diverse source during my tenure in sales and distribution, in marketing and in general management. And it's transpired over 5 countries and 3 different continents. This included the global leadership of one of Unilever's biggest brands, Dirt is Good, for 5 years. In that period, we added more than EUR 1 billion top line, taking global market leadership away from [indiscernible] in establishing Dirt is Good as an iconic plan across most markets, including India.

I also had the opportunity to serve as the Executive Director and Board member at Unilever Indonesia, leading its Home Care business where we accelerated both the top line and bottom line growth. And the biggest contribution that I made there was getting the next line of leadership ready to take over. I left Unilever in early 2019 because I really wanted to participate in this brave new digital economy and learn how data and technology can be harnessed to shape consumer behavior and solve real-world problems.

I joined Flipkart to head its marketing and customer growth functions. And last year, I joined Nykaa to lead Nykaa Distribution and Nykaa International. I see there is a perfect opportunity for me to bring together my experiences at Unilever and Flipkart to disrupt the old somewhat framed distribution ecosystem in the country, service historically underserved parts, using technology, using data and create value for all stakeholders in the process. Most of all, our customers, which is essentially a small retailer on the road side.

Coming to the quarter 2 business updates. I will be taking you through the Others section, which you saw in the previous slide on the split of vertical performances. Just as a reminder, the Others business numbers include our eB2B business. It includes our International business. It includes Nykaa Man, and our new acquisitions like LBB and Nudge. I'm here to provide some insights on the scale up of SuperStore by Nykaa and the strategic partnership we recently announced with the Apparel Group in the Middle East as part of our international foray.

So talking about our eB2B business, this vertical has now established its right to win as a specialist, vertically-focused eB2B platform, allowing us to penetrate much deeper in the country. We are sailing this platform in a very measured and choiceful manner to ensure focus on the right unit economics from the very start.

Operating within that context, it is very exciting to see that in less than a year of launch, we have more than 70,000 retailers already transacting on the platform across more than [ 650 ] with above expectations, repeat rates and retention rates. In quarter 2 itself, we served over 173,000 [ quarters ] and almost 20x ramp up on a year-on-year basis. As you know, retailers have been solid for choice and [indiscernible] web horizontal B2B players in the last few years.

So within that crowded situation, we are resonating strongly as a specialized app and export in Beauty, Personal Care and Wellness segments, getting their rightful share of mind . Our key value position most valued by our customers is the selection and its discovery on the platform through relevant recommendations customized to their region and store type. We now have 182 brands listed on the platform, a 6x growth on a year-on-year basis, and there are several more in the offering. Our partnerships with brands are strengthening, and that is essentially because of the level of transparency we are able to bring to the promotion trends, ensuring high ROI that reaches its target audience without leakages and the data intelligence that we are able to provide at the most granular level.

Our key strategic wins, we are able to co-deliver with our brand partners is the premiumization of the off-line markets, just as we have done with the Beauty platform in the online B2C segment over the last 10 years or so. For several brands, we are already their primary go-to-market partner thus democratizing distribution in the country, especially in underserved channels and underserved geographies.

The next highlight of quarter 2 is the new partnership with the Apparel Group to undertake an omnichannel, multi-brand beauty business in the Middle east. We intend to build a strong business on the lines of Nykaa India in the 6 countries of Gulf Cooperation Council called GCC, namely UAE, Saudi Arabia, Bahrain, Kuwait, Oman and Qatar. We are very excited, first and foremost, with the market opportunity that GCC presents. It is one of the most valued end markets in the world when it comes to beauty. With a significant young population that is witnessing strong winds of positive change in terms of women's rights and women empowerment, the e-commerce segment is underpenetrated but growing rapidly, significantly ahead of the total market. We view this opportunity positively and believe we can build a strong sustainable business there with the Nykaa playbook and the Nykaa energy.

There is also a symbiotic, deep partnership with 2 partners in play here. The Apparel Group is a global fashion and lifestyle conglomerate in the Middle East. It is an off-line powerhouse with more than 2,000 stores across several categories with a growing play in e-commerce as well via fixed streams. Together, with Nykaa's expertise in omnichannel beauty retail, its strong brand partnerships, its unique content [indiscernible] and online tech capabilities, we believe we can create significant value with the joint venture. Together, the 2 partners share very similar values, a very similar growth ambition but with a frugal mindset.

As a quick update towards building our own brand presence internationally, I'm also happy to share that we opened our first exclusive brand outlet in Mauritius last month. We have also launched our brands across e-commerce marketplaces in the UAE and the U.S.A.

Over to Anchit to take us through the performance on Beauty and Personal Care verticals. Thank you.

[Falguni Nayar, executive]

Okay, yes. Anchit has not been able to dial-in in this business meeting. We have [ Ms. Paulina ] to take us all -- of his slides.

Over to you, [ Paulina ].

[Unknown Executive]

Thank you, everyone. I will take you through the BPC highlights for the quarter 2 financial year '23, which ended on 30th September '22. Yes.

In terms of our business, brand partnerships remain key to our strategy. And in this quarter, we have extended our strong relationship with Estée Lauder Group in a first of its prime partnership to identify and support the next generation of beauty and [indiscernible] from India. This is a unique partnership, which offers non-equity brands and mentorship opportunities for [ budding ] talent in the beauty industry.

We also launched -- we acquired [indiscernible] normally in India through an exclusive arrangement with Nykaa. This fits beautifully with our strategy of upgrading existing consumers to premium personal care products. We continue to remain a preferred partner for the largest FMCG companies in India, including Hindustan Unilever, which has launched its new sand-based skincare brand, [ Alchemist 4 ] on Nykaa. We also launched [ Indeval ], a global influencer-led skincare brand as well as Fable & Mane, which is an Ayurveda-based haircare that is now brought into the country.

Through quarter 2, we hope towards increasing the interaction with our audiences. It gives me immense pleasure to report that our hosting sales delivered the highest-ever unique monthly visitors at 25 million. The love and confidence of our customers has helped to deliver the highest hosting sale across e-commerce, as also thereabouts the fact that it has delivered on improving transaction in the offline retail network.

Our retail store expansion continues as we are now in 53 cities, and our footprint now stands at 121 stores. We expanded our BPC fulfillment centers to a total of 1 million square feet across 41 centers in 11 cities across the country. This has helped us manage our fulfillment costs and bring them down in spite of inflationary pressures.

On house of brand business within our BPC vertical continues to gain strength. The GMV of our own brand stood at almost INR 2 billion in quarter 2 of financial year '23. This now accounts for 12.1% of total Nykaa BPC GMV. This is a 54% year-on-year growth.

It gives me immense pride to update you on the milestones we have achieved this quarter. Kay Beauty, one of our brands in partnership with Katrina Kaif, Dot & Key, the brand that we had acquired earlier last year, they have both achieved the status of INR 1 million-plus brands. We already had Nykaa Cosmetics sitting at INR 2.5 million-plus levels. So we are building brands that are delivering to consumer expectations, and we are doing this whilst achieving scale and size of our own brands.

We continue to expand the distribution of our own brands through the in-house B2B vertical. This has helped us have our own brands reach 2,130 general trades as well as 130 to modern trade outlets in India. We are already serving about 2,314 retailers through our SuperStore brand.

We celebrated the third anniversary of Kay Beauty just recently, and it has also won the Best Beauty Award of the Year, which was awarded by the Vogue Beauty Festival, reinflating our investor confidence in the brand.

Continuing with regard to the house of brand business, we had a variety of new launches from Nykaa Cosmetics; our flagship brand, Kay Beauty; our Nykaa SKINRX, which is our premium skin care offering; as well as Wanderlust, which is our bath and body range. I'd like to highlight that our own brand, Shradh's, price points from very affordable Nykaa Cosmetics main point in the bottom left corner of the slide to the premium skin care base moisturizer at INR 1,400 for the combo. Even the Wanderlust brand that specializes in bath and body has stood us in a stronghold mass market, roll-on deos to the higher-end bath and body ranges.

We have some very interesting new launches by Dot & Key across super food-based serums and affordable face wash launches. Dot & Key launched a unique lip balm, created a price point of INR 249. We are growing the appeal and the marketability of the brand.

Earth Rhythm, another company where we have taken significant stake though not dominant, Earth Rhythm launched some of the unique bath lotions in time for the winter season rush for the body care products. Our off-line retail footprint has grown now across 53 cities to 121 stores. The segment now contributes to 7.5% of our BPC GMV and tracked healthy INR 3,640 per square foot per month. We now have 1.2 lakh square feet in retailing space, and quarter 2 has demonstrated a robust 20 -- 19% same-store sales growth. Four stores open until March 2021.

Finally, we'd like to talk about the key metrics we track for the Beauty and Personal Care business. Trailing 12 months, customers are at 9.1 million with growth of 31% year-on-year. Average monthly unique visitors of 22 million for the quarter, and visits were at least 3.5x in a month, a robust metric according to us for the category of Beauty. Order to visit improved to 3.6% in quarter 2 of financial year '23, almost a 73 basis point improvement year-on-year, demonstrating the attractiveness of the platform. The number of orders were at 8.4 million in the quarter, and we delivered a growth of 29% year-on-year, while DOB stood at 1,872 for the second quarter of this year. These metrics continue to undermine our testament to driving high-quality traffic to the platform, and also impacting sustainability of our business model.

Now I'm happy to hand over the presentation to Adwaita for the update on Fashion business.

[Adwaita Nayar, executive]

Hi, everyone. I really look forward today to talking to you about the Fashion business.

Starting with some of our highlights. First and foremost, we take great pleasure to announce the partnership with [indiscernible] is one of the world's most renowned fashion initiators known for bringing the best and the trendiest fashion to many consumers and [indiscernible]. And in many ways, they're positioning a very similar to what we're trying to do here at Nykaa Fashion.

So the other partnership, which we've been working on for over a year, we now have access to more than 400 international brands. We did expose a campaign recently with [indiscernible] in mind, and we have a reach of more than 51 million customers, majorly driven to a very strong influencer outreach. This business for our global store portfolio, which I spoke about last quarter as well. And then further, it remains in line with our ambition to bring the world's best clothes and fashion brands to the Indian consumer.

Moving on, the second thing we've done are these -- is gearing up all the best that even we launched the Nykaa Fashion brand-centric, [ Canvas ]. We have over 2,500 brands being incredibly interesting and exciting festive wear to the platform and really helped build and maintain our positioning from a creation point of view. And we did see the height of our monthly unique visitors for the sale, and we saw 18 million continuing visitors in our business site in September.

We remain bullish on exploring an omnichannel strategy in Fashion business. We do believe that there is this role, considerable role to play, so it remains all retail. We did open 2 stores on Fashion side of the business this quarter, one is from multi-brand fashion website, which will be moved under the label Nykaa Fashion. And then we also did open a store for our lingerie and innerwear brand called Naked. So early days, as I mentioned, for physical retail, but it is a start.

Moving on, we will talk about the citation and positioning. This is something I typically touch on every quarter, but I think it remains really incredibly important for me that, at first, building our business, we make sure that we have a differentiation. And so we do look at this very carefully, and [indiscernible] talked about 3 propositions of building that we do believe are contributing to our unique positioning in the minds of the consumer. The [indiscernible] global stores, which I did mention prior, bring SME into focus. We now have more than 400 brands across the world that we're bringing into the country. Many of these are exclusively available with us. And the global store merchandise now contributes 13% of our Western wear offering in terms of GMV. So this is an incredibly stock update in terms of your contribution, given that it's only been a couple of months since we launched the property.

Next, we have a property called Hidden Gems, and the whole idea here is to look involved and sign some of the country's best labels and emerging designers. And so we really do scour the country to bring 3 fine brands, and we have more than 220 brands now as part of this portfolio. It's been 18 months since we launched the Hidden Gems portfolio, and it now contributes 7% in Nykaa Fashion's overall GMV.

Finally, I've spoken about it, but I do feel that the very trend in fashion-forward platforms have to emphasize new season. We want to be known as the destination for new season. And therefore, this quarter, again, we posted a big event called First in Fashion where we have over 1,000 brands participate and provide us their latest and newest stock and newest launches, and that too is now contributing about 24% of the overall GMV of Nykaa Fashion for the quarter.

So all in all, these metrics are supporting some metrics that we track as you sort of prune the differentiation. Total [indiscernible] metric is at the bottom of this page, reporting average order value. Our average order value for the quarter is now 4,425. This is 10% higher year-on-year, and this part is a lot higher than what we've actually achieved on average. Similarly, in terms of conversion, our conversion rate has improved dramatically. It's 32% higher year-on-year.

I'm now going to talk about our own brand strategy. We continue to believe our own brands and very importantly and mostly in our fashion journey. Over the last 2.5 to 3 years, as you know, we've built up our own brand portfolio. On the left-hand side, you can see that we now have 11 owned brands. A part of these we required many of these to be built in-house. As of the GMV perspective, you can see that the GMV of these own brands reported to -- stood at INR 78 crores. This is up 169% year-on-year.

Highlighting a couple of the metrics on the same chart at the bottom, you can see that our own brand GMV now accounts for 13% of our consolidated companies are in fashion consolidated GMV. This is a really impressive expansion of percentage and share. You can see that a year ago, the same own brands accounted for about 7%. The 7% has moved up to 13% as this is on the back of consolidated efforts across 11 different brands.

On the right-hand side, you can see that we're continuing to add many fuels across our brands, and we're trying to cover all sorts of category [indiscernible], whether it's Western wear, whether it's lingerie, whether it's footwear. And Nykaa knows that, I have spoken about the scenario on repeat that we remain focused that to our own brand should have a life of their own beyond our platform.

In some of our brands, not all but some, we have fair distribution, whether it's in multi-brand outlets, whether its in general phase, whether it's with their own stores. And to date, there's INR 78 crores of own brand GMV, 45% of it comes actually from first [indiscernible] platform.

Moving on. On the next couple of slides, we give you a glimpse of our own brand's imagery, just so you have a start to what we're doing. So you can see the products that we are creating, all of it is created, designed in-house, shot in [indiscernible]. Hold on.

Earlier, I talked about the metrics for the fashion business. On the left-hand side, you see that the orders are now at 1.2 million for this quarter. That's a 41% year-on-year growth. On the right of that, you will see that the trailing 12-month consumers are at 2.1 million. This is 66% higher than the year before. Under that, I estimated this before that the average order value has gone up dramatically, and it is at 4,425 versus 4,000 or so a year ago.

And finally, the right-hand side, you'll see our GMV. The consolidated Fashion business GMV is almost INR 600 crores. This placed as 2 parts of our business, the same bar is what we call our multi-brands NykaaFashion.com and the other bar is our other platforms. So you can see that multi-brand business is going at 55%, whereas the sales on other platforms is growing at 1%.

With that, I'll hand over to -- sorry, I'll just add 2 more metrics. Two more metrics, which are mentioned elsewhere in the deck but are important, I think, to -- now down the conversation on the Fashion business. So what we do is continue to track that Fashion is at 26% of the consolidated business in terms of GMV, and it remains contribution margin positive. And in fact, the contribution margin for Fashion has gone up by 138 bps year-on-year.

So with that, I'll hand over to Arvind to take us through the financials. Thank you.

[Arvind Agarwal, executive]

Thank you, Adwaita, and good evening. I'm really glad -- this is Arvind Agarwal, really glad to talk to you about our quarter 2 performance. And why I say that? Because we have not only maintained the growth momentum, but also improve our EBITDA margin. And I think that's quite interesting in the operating context weighed down by inflationary pressure.

The core business, if you look at the revenue chart this quarter, we have grown 39% year-on-year, which is slightly lower than last quarter, but it's at 41%. But that also had a base effect on the comp of quarter 1 of last year, then there was the COVID-19 pandemic. So maintaining the gross momentum, B2B business has grown 35% year-on-year, but other new businesses have also [indiscernible] this quarter.

Talking about the gross margin, we are reporting 45.3% gross margin, which is about 259 bps improvement year-over-year and about 90 bps quarter-on-quarter.

Talking about the EBITDA. This quarter, we are reporting INR 51 crores EBITDA, which is more than double in absolute numbers for the quarter 2 last year. And then increasingly, the margins have improved 170 bps from 3.3% to 5% year-over-year. But it was also improved by almost 100 bps quarter-on-quarter.

In terms of EBIT, we have INR 8.8 crores of profit before tax this quarter, which is marginally better than quarter 1 last year -- or quarter 1 of this year. And this is quite better than quarter 2 of last year, almost the same of INR 154 crores last year same quarter.

And I think I'll go to the next chart and try and explain that, ultimately, we are doing quite well on operating efficiencies and related costs. Not only that, we are investing into building capabilities that will give us quite good operating leverage in the times to come. But these are really important investments. If you look at this chart of our store capacity by 70%, year-round capacity by 74% and then comparing H1 of last year to H1 of this year, like the [indiscernible] generally. So these particular investments have been really accelerated over the last 1 year.

We have also recruited almost 800 employees in last 1 year. And it comes across verticals, which are like really has come into business growth due to the internal trade, modern trade channels and retail stores rollout. But also some think about the implementation on our corporate, finance and support function, but that's just 20% of overall growth. And then we have also promoted, and we did not add office capacity much in 3 years. But now with the work-from-office environment and people coming back, we have added to office capacities also by about 80% from 0.9 lakhs for up to 1.7 lakh per bit. And obviously, these are adding to our fixed cost line, and it shows up in our results.

So let me explain you the next chart on how we should look at EBITDA margin at growth. So last year, we had 3.3% and now 5% this quarter. And if we look at the green movement here, the biggest movement, this green movement is coming from gross profit, which is quite good because coming out of advertisement revenue going up and favorable product mix, so that's quite -- while we have maintained the growth momentum and also improve the quality of business growth. Even the fulfillment cost line, we made some structural corrections and amended to raise the [indiscernible] last year, and that's paying back at 73 bps year-over-year improvement. It's showing up here.

In terms of marketing, we had high marketing costs last year same quarter and revenue improvement year-over-year. Part of it is driven by the efficiency, which shows us the order to convert in ratio and sometimes in digital marketing costs. But part of it is [indiscernible] this quarter, which we had done last year in the same quarter. So it's more of a seasonality industry.

Talking about the other lines. Selling and distribution expense has gone up by 150 bps, which is because, like I said, we have been expanding into physical economy and eB2C initiative and also general trade, modern trade expansion. So that fits under selling and distribution expense. [indiscernible] expense, we added almost 35%, 40% external power to support our business verticals in their growth ambitions, but also invested very strongly to our technical functions. So it is a cost which should pay back in form of operating leverage on time. But year-on-year, that shows an increase.

And then finally, other expenses, which is 108 bps higher because, as we said, we also invested into office, particularly in administrative expenses that will be in line with the employee headcount growth. In spite of these increases of fixed cost, we have delivered higher EBITDA margin at 5% driven by operating efficiencies as reflected variable costs, as I explained earlier.

I should move to the next chart. And just to give a little bit more color on how the infrastructure investment also impacts lines below EBITDA. So while EBITDA has more than doubled year-on-year to INR 51 crores, 112% year-on-year growth, many of the cost lines -- [indiscernible] cost lines in the nature are also showing similar kind of growth. So since we have invested into [ sports ] of this general expenditure, the appreciation has gone up by 96%. Even with the new reset coming up in these properties, it also shows in terms of needs that continue impact into like amortization and interest-only, so both have also gone up quite significantly year-over-year.

And then the cost on borrowing has gone up because our inventory investment in [indiscernible] has gone up to support the business growth. So this shows that each and every time, we have an increase in fixed cost. If you see the bottom table, it doesn't show because of the India's accounting. There's a straight line that had followed for all the lead costs in terms of the future costs, and then it is discounted and spread over the [indiscernible] methods. While the cash lease cost is INR 28 crores, but the P&L, it should become INR 34.6 crores. So the initial period [indiscernible], there is higher cost in the period. Of course, that will unwind towards the later part of the next period. So in that case, these are also some of the future costs, but that would have required to be booked as per the Ind AS accounting, which is the primary default.

Finally, next chart, when it comes to growth in [indiscernible] economics of different verticals, and I'm trying to compare 1 year generally for each of these verticals. Talking about the B2C cost, like I said, [indiscernible] grows 39% on GMV year-over-year and 35% on revenue. But if you also look at the economics and parameters at the bottom of this page, in the continuation ratio, it has -- just by being a large business, it has improved gross margin by 300 bps. And that's driven by EBITDA, income, own brand share going up and the [indiscernible] product mix, like I said earlier.

Only the fulfillment cost has come down from INR 10.5 crores to INR 9 crore, almost 100 bps improvement. And marketing cost is at 10%-plus kind of number. It has come down to [ 9.8% ] now this quarter, so almost 200 bps improvement year-over-year. And SMB contract is flat at 3.9%. So with this, Beauty has delivered almost 650 bps incremental margin on contribution level, which is quite significant for a large size business like this.

And if I look at Fashion business, even where the business has been growing effectively and hitting a core line of straight now. And with the revenue growth of 33%, if you look at the verticals and parameters there, gross margin has improved from 39.1% to 44.6%. So almost filed a 50% improvement in gross margin in 1 year. And it has also kept the fulfillment costs quite in check at 10.4% despite the reinflation of higher return. It has also kept the marketing cost on the check by [ 25.7% ]. And the only [indiscernible] increase SMB [indiscernible] because our own brands are not expanding to general trade, modern trade and various channel, third-party platforms. So there, the commission that will take home is 3%, selling and distribution expense.

So with that kind of [indiscernible] improvement in gross margin and investment to SMB, it has still managed to improve the contribution margin by almost 100 bps, so [ 1.3% to 2.3% ]. So it's a kind of a calibrated growth that we had targeted in [indiscernible] impact, and not really go super against with acquiring customers. But of course, that choice is always like this. But as of now, we followed the guidance of the contribution policies.

And in terms of others, this is a mix of business which we can't stop the growth. And I think there, the numbers will not be comparable year-over-year because eB2B has different modern line. It -- the business come up in last 3, 4 quarters, so getting on the numbers from a B2C alone, that kind of model has changed to a mix of B2B and B2C growth. So I'll not talk much about it. I think we should set it out due to the numbers so that we can talk about new technology experiences.

So next chart is a summary of what I said so far. And since I have talked mostly about year-on-year growth, I will try and explain the quarter-to-quarter numbers here. So this quarter, we are reporting INR 231 crores revenue, which is at 7% growth differential quarter-on-quarter. And in terms of the EBITDA margin, we are reporting INR 651 crores, which is 33% higher in terms of the sequential growth. And profit before tax is INR 8.8 crores, which is 5% sequentially higher and INR 5.2 crores, which is the [ test ] number.

I think in terms of H1, it seems on the right panel -- right-hand box, 40% growth on the [ amenity ] year-over-year for Q2. And then coming to EBITDA, which is for H1 is almost INR 170 crores, 92% year-over-year growth. So more than level that growth of revenue, which shows the operating efficiency. And INR 10 crores profit after tax, which is 117% year-over-year.

So I'll end the financial presentation here, and please move to Q&A now.

[Sheela Rathi, analyst]

Yes, sure. Thank you so much, Arvind. I now request the moderator to open the Q&A queue, please.

[Operator]

[Operator Instructions] First question is from the line of Nihal Jham from Nuvama.

[Nihal Jham, analyst]

Yes. Congratulations on the strong performance. Three questions from my side.

I'll start off with the B2C segment, where, as you've highlighted, the contribution margin is something that has seen a significant improvement, whether you look at it on a Y-o-Y basis or over the last 3 quarters, as we have the data available. I just wanted to understand that would be -- would this be the right unit economics to understand that the business can track going forward?

And also, Arvind, if you could ballpark, convert this contribution margin to what will the EBITDA margin for reference perspective?

[Arvind Agarwal, executive]

So I think that in terms of improvement in gross margin driving that contribution margin, that's quite good. And I think at least 200 bps to 210 bps is structure, and should sustain as an advantage to us because of both online, off-line channel and device, and own brand is also contributing well.

Very importantly, advertisement revenue is doing really well. In fact, if you look at the commentaries from various events, you need talk about different marketing technique, different share of their advertisement budget. So that's good news, so we should be able to continue to monetize it better. So I think gross -- healthy gross margin is something that we are definitely looking forward.

In terms of fulfillment cost, we might invest part of the savings or a few that's been put into better customer experience, but it should operate at a sub-10% kind of level. And marketing is a choice. In some quarters, we have the marketing spend special bank [ business ]. Like, quarter 3 is expected to be a big season. So we might not be there, but it should also operate with, let's say, almost 150 bps improvement year-over-year in that range.

And so I think out of the 650 bps, foreign-led to finance bps to something that definitely has structure, it should also vertically flow down to EBITDA as well. But yes, below EBITDA, we have added cost in terms of employee cost lines and some of them are also investment in features, especially technical functions. So capital will -- might come over time.

I won't be able to give more guidance on EBITDA number here because it's mainly dynamically -- I mean, people cost is something that we dynamically allocate across verticals depending on the mean quarter-to-quarter, so quite familiar with issues. And maybe when we come to the end of period, we will file second term EBITDA also for you.

[Nihal Jham, analyst]

Sir, that is helpful. Moving on to the second question on the Fashion business, this was a quarter where there was also some part of a festive period that come where we've seen a quarter-on-quarter fall in the orders that we service. If you could just give some highlight on any specific reasons for that?

[Adwaita Nayar, executive]

So yes, I'll [ talk ] in there. I think we are feeling pretty good about the Fashion business. From a year-on-year perspective, the Fashion business, the core platform which I mentioned earlier, we aim to be 55% year-on-year on a base, which is significantly higher. Within that, the orders have gone up on a quarter-on-quarter basis. Yes, the sequential growth is more flattish than the previous, right? But I think quarter-on-quarter, we are taking the right decisions in terms of how much to invest for this, how much to -- largely in terms of completion margin part of it.

So I think it's a quarter-on-quarter decision, but I can also say is that we did start amping up the sort of the marketing spend gearing up towards just by September, so we definitely had a difference in data from the previous trial, different outcome in September. And that was more us kind of mapping out other issues other than versus quarter 3. So we do know that the quarter 2 is geared on the Fashion side of the business, and for quarter 3 tend to be a little bit seasonal, a little bit better. So for me, it's always also a question of changing out the growth and when is the right time to double down versus not.

A couple other metrics I'll share, anticipating others may also in Fashion, is on Fashion, we're also starting to see very interesting and strong repeat behavior. For this quarter, we have released it to the exchange as well earlier today, but important to Fashion, so 66% of its revenue coming from repeat behavior. So it's also a quarter where we're seeing repeats really starting to kick in. And new Fashion acquisition is always something we can choose to accelerate. It's simply a question of how much we want to accelerate and what the pressure might be in terms of the profitability with that acceleration. So the choice, that simply was being made.

[Nihal Jham, analyst]

Just one last question from my side was on the international business. If you could just give a sense of the time lines of the launches and the potential investments, or maybe some losses that may come around as this business versus what might be done?

[Falguni Nayar, executive]

On the international business, we have just recently entered into a strategic alliance with the Apparel Group. It will -- it is now being rolled out in terms of setting up the subsidiaries and the operating entities needed to roll out that business in the region. I would think that the first one can be official within definitely next 12 months, and e-commerce website may take a little longer or maybe some other time.

So yes, we are in the execution mode. We will continue to build that business in our same proven style that Nykaa has always done and our partners are also aligned with that plan, so everything will be more organically almost being treated, like, a startup in the GCC country that is trying to execute an omnichannel, multi-brand particular strategy in the region.

[Operator]

We'll take our next question from the line of Percy Panthaki from IIFL.

[Percy Panthaki, analyst]

My first question is on the Fashion business. So the Fashion market size is like 5x that of BPC. We are a relatively new entrant, very low base, very low market shares. At this stage of our life cycle, the NSV growth being only 20% Y-o-Y seems a little surprising. I understand that a few other parameters that you mentioned are trending positively, but finally, they are means to an end and the end is the NSV growth. So can you comment on what really is pulling down this number? And what can we do to really push it up more aggressively? That's my first question.

[Adwaita Nayar, executive]

Maybe I'll comment and address this question in 2 ways. So the first is in terms of just talking about what part of the Fashion side we want. So we all know that Fashion is a massive market and we estimate at least the actual side of the Beauty market. However, we want to be extremely focused on what part of the pie we get. Absolutely, can we go a lot faster from a GMV-NSB perspective?

We can, but we want to be thoughtful on the quality of the customer we're getting, the average order value that we're getting, and certain premiums that we're being able to deliver on. I think this is a very tricky industry, and if you saw the range of what type of customer you want, I think the profitability can get impacted faster than one realizes.

So what I would say as an overarching comment is that it's actually easy to grow a lot faster, but we're sort of taking a more measured and thoughtful approach being that even if the Fashion market is so large, we want a particular flavor that makes sense to us, that makes sense for the Nykaa DNA and the Nykaa strategy, which is to build sustainable businesses with clear path to profitability.

I think the second point I'm going to make is, so keeping in mind that there's a choice-fullness in also the type of audience and type of customer we want, what I will also say is that comparing year-on-year, also bring in the past that last year has some COVID dynamics, which make it a base that is a little bit hard to compare to. There are 2 particular things that I want to highlight.

About a year ago and still even before that, we concluded Fashion, and Nykaa Fashion in particular, saw much lower returns than what we're seeing now. Both low returns, repeat orders in some quarters ago were actually deflated returns that were not sustainable. So as more normalized return rates are just going up back to normal and actual levels. So I think the NSV to GMV ratio right we're now seeing, show that it comes and it's just possible, and we're working on that. But this is a more realistic ratio that we see. And our understanding, from a competitive dynamics, is that the ratio that we have and the return percentages we have is still far lower than what competition has. So that's one thing, that the base effect is a little bit non-comparative.

The second thing is, again, in terms of the base effect. Last year saw very rapid customer acquisition on the Fashion side. And I think Fashion, Nykaa Fashion in particular, most of it's newly gains from the COVID phenomenon, because it was not easy for us to acquire customers last year, quite a lot of people weren't going out. They were online. So I think one thing we're struggling with our Fashion business -- not struggling, but it is an effect is that we're comparing constant year base, which show a lot of uniqueness, given the COVID scenario that existed.

[Falguni Nayar, executive]

Yes. But I just want to comment and also say that our growth should not be judged as is this all that is possible for this strategy. I think there is a clear plan at Nykaa to try and maintain a financial discipline, of trying to balance our profitability that we generate, and that is go back to acquire new customers, both for Beauty, Fashion or any other new business that we are building.

And again, yes, in that line, you could say that the new customer acquisition for Fashion would have been stronger or faster. We definitely do see a very strong return in consumer behavior and pretty much both for Fashion and Beauty business, we do feel that if we can acquire more customers, it will be good for the long-term business. But we are trying to be disciplined about the pace of growth, if I make sense there.

[Percy Panthaki, analyst]

Got it. Got it. My second question is on the international venture. So firstly, as you mentioned, GCC market size is quite high per cap. Consumptions are significantly higher than India, so it's a much more mature market there. So unlike India, where basically you are the primary driver of developing the BPC market in India, U.S. And Nykaa is one of the primary agents of market development, I would put it that way. In GCC, your role is going to be different. So how do you see your role in GCC?

And secondly, when the market size is so huge and it's such a lucrative market, how is it that the e-comm penetration is so low and people are mainly shopping online? So is this because it's a mature market? Is this an established behavior and that's how the market has sort of evolved and therefore, to shift people online is going to be something of a difficulty for you in your view? I mean, any thoughts? I know I'm asking too many questions. Within this question, there are many sub-questions but, I mean, you get my general drift as to what I'm sort of looking for.

[Falguni Nayar, executive]

So what I can tell you like the e-commerce penetration for Beauty business, and that is also going up. So I would not say that it is not -- it is a market that geographically was not very widespread. If we were to exclude Saudi Arabia, then I think it was not really, really widespread. A a result, a lot of retail was happening through physical retail. But still, there is already a lot of influence-led commerce there as well as a lot of penetration of e-commerce is increasing.

So we do see that it is, again, a very interesting market from adoption of Beauty, adoption of e-commerce. And ability, there is a huge socioeconomic changes happening in the countries. Every country in the region, especially Kingdom of Saudi Arabia. So we do feel that it doesn't feel that you are too late in the game. It does feel like early days where, yes, there could be a couple of players already established, but there seems to be room for more players, including someone coming out of India, taking a whole bunch of brands that would be interesting in the region from what the brands had to offer perspective.

That doesn't mean we own the global brands. There will be a multi-brand retailer that will retail both global as well as brands of Indian origin.

[Percy Panthaki, analyst]

And any guidance you can give on the total investment over a 5-year horizon and the impact on the company level EBITDA margin due to start-up losses of this venture?

[Falguni Nayar, executive]

It's difficult to give that because we don't have a very clear path spent out. A lot of early work is going on. But if we can build this business, in a way that our near-term profitability or physical retail business can help us invest for the online business, that is how we would like to do it. And finally, the population size is also limited, so I think it is more larger population countries that tend to be quite difficult in terms of building out an e-commerce platform.

It's easier in smaller countries, but it all depends on whether there is a community inherent consumption and are you able to appeal to that consumer and connect with that consumer. And we do believe that with the strength of ours as well as Apparel Group, which is a very large retailer with very extremely successful brands and they retail both predominantly offline, but also online. We do believe that together, coming of this partnership gives us a chance to succeed in that market.

[Operator]

Our next question is from the line of Vijit Jain from Citi.

[Vijit Jain, analyst]

Congratulations on a great set of numbers. I have 1 question specifically on the fulfillment expenses. Arvind, you noted that there was a bit of that Q2 increases owing to inflation. If I look at it on a per order basis for BPC, this looks like a 10% Q-on-Q increase in fulfillment expenses. But on the other hand, for Fashion, there is a decent decline on a Q-o-Q basis. So I'm just wondering, does that divergence have to do with your regionalization of warehouse strategy within BPC and associated investments within that? Or is there something else? That's my first question.

[Arvind Agarwal, executive]

No. I think first of all, BPC and Fashion are completely different state of maturity business. So they are not comparable in that sense, and also because the operating model is quite different in Beauty versus Fashion.

So I think if I explain the briefed number itself, yes, there is some decrease in Q2 because there is some inflation in the reshipment side of it, also because it's also part of the included premium. So we also make a type of investment that we are ready for the premium. So part of it will again combine into next quarter.

[Vijit Jain, analyst]

Got it, got it. Makes sense. And my second question is in the new initiatives, what you classify under Others, that EBITDA waterfall that you showed obviously shows about 460 basis points of EBITDA impact -- margin impact from investments in selling, distribution, employees, et cetera, expenses, et cetera. And obviously, there's a contribution margin for the other businesses as well.

So I'm just wondering, is it fair to assume that there's about 400, 450 basis points of cumulative EBITDA level impact with these new investments that's the basic level of investment you're doing in these new businesses? Or is some of that also reflecting increases in other -- in Beauty and Fashion as well?

[Arvind Agarwal, executive]

No, I think when I talk about the lines like selling and distribution, it's not necessarily our new business. Even our own Beauty brands and Specialty brands are also going into offline to modern trade and delivery, so even there, the costs go up. Even the Beauty advisers in the retail stores told us that cost also coming through here.

So it is -- to be frank with you, our reason for increasing for various businesses to get a stronger offline sales, an omnichannel play, so we should not try and create only a new business line. I think the overall impact of new businesses, we had given the contribution this quarter, it's about INR 15 crores, so even if you analyze it, total for the quarter's could be INR 17 crores, INR 17 crores.

That's the level we are operating at. But we can also in a high-growth scale. So as we clear them up, initially, the losses will increase. And then over time, they will come down. So I can't give you any specific number of our new business investment, but we are funding it from our internal accruals by '22.

[Vijit Jain, analyst]

All right. And my last question…

[Falguni Nayar, executive]

Like selling and distribution expense, just to say what Arvind said, that is coming from every business because we do believe in GT/MT distribution and a wider distribution. And that is what we are putting, indeed, for whether just Beauty private label brand, Fashion private label brand, as well as the new B2B business that we are building, both for our brands as well as third-party brand because we believe that if you look at any data, there was a large part of the market which sat outside of both online and modern trade, and we want to be players in that -- in the Beauty area. So I think that is the thing.

[Vijit Jain, analyst]

Got it. And one last question. Just on the working capital side, the net change in working capital that you have in the first half of this fiscal year, should we think of that as kind of inventory buildup before the festive season, and all the sales that you have in the post-Diwali sales that you typically launch? Is that how I should look at it? It's inventory -- partly inventory buildup and partly some of the other investments?

[Arvind Agarwal, executive]

Yes, I think because, actually so we have made investments that we enlisted, for sure. I had a [indiscernible] so that definitely, part of the maintenance should unwind in quarter 3. But also because we opened 3 new warehouses in Beauty, even eB2B method distribution, we opened many new warehouses. So as you open more fulfillment centers, we have to start them up to make the retail availability absolute. We did the -- we now have the investments to be done and then that gets stabilized over time, right? So before you can get quality capacity reach and also within the existing warehouses, we are talking much strongly before we hit October, same and November, too, same.

[Operator]

Our next question is from the line of Sheela Rathi from Morgan Stanley. Sheela Rathi, could you please unmute your audio and go ahead with your question? It looks like you muted your microphone. Can you please unmute and go ahead with your question? There seems to be no response, we'll check the connection from Ms. Sheela Rathi. In the meanwhile, we'll move to our next question. That's from the line of Sachin Dixit from JM Financial.

[Sachin Dixit, analyst]

Congratulations on a the green set of figures. I had a couple of questions. The first one was with regards to the marketing spend. So is it possible for us to get the -- I know there were some brand marketing spend there that will not go through to this quarter, definitely, to be minimal. Is it possible to break down the marketing spend to fuel the -- an influencer marketing, and what the customer acquisition cost or performance marketing expense would be?

[Arvind Agarwal, executive]

So we have not given the -- those data for, like, a cut and details into how we spend on marketing. But we can definitely say that 80% to 85% is digital marketing and digital channel, digital marketing and content marketing. 10% to 15% there is above line and design building kind of spend, but that varies quarter-on-quarter.

[Sachin Dixit, analyst]

Okay. Okay. And like there was -- okay, I'll pass on this. So on the next question, like, I've seen you are more and more leaner nowadays and remember, we used to share, like, how many orders were getting delivered within two days, next day, stuff like that. So is there any movement on those metrics as well, hence to the reason there also?

[Arvind Agarwal, executive]

So in fact, retail expansion of fulfillment center getting closer to customers, that metric is not improving. And we are an industry standard in terms of being able to deliver almost 98% shipment to -- in less than 5 days. And of course, we are much faster in urban, and overall, we are able to deliver 98% shipment in less than 5 days.

[Sachin Dixit, analyst]

Okay. So just one last question. This is our…

[Arvind Agarwal, executive]

Yes. This distribution there have only improved. So maybe next quarter, we'll share some numbers.

[Sachin Dixit, analyst]

Sure. And just one final question. There is a sharp drop in trade payables during the half-yearly balance sheet data. What's the reason for that would be?

[Arvind Agarwal, executive]

Yes. So it's like this. So while we have these suppliers, which are like good companies, and we have transportation and working capital, but we have a large B2C suppliers, and we want them to stock up subsequently or invest in a manufacturing line and then they supply to us. So we have been able to -- it really take them faster so that we can also ramp up by the end of the period.

[Operator]

Our next question is from the line of Sheela Rathi from Morgan Stanley.

[Sheela Rathi, analyst]

My first question was with respect to the initiatives you had taken last quarter, with respect to the everyday value offerings. So just wanted to get your perspective in terms of how we are doing on this space. And what is the kind of customer traction you're getting?

[Anchit Nayar, executive]

Yes. Anchit Nayar on the call here. I can take that question. So Sheela, what I would say is that it's been -- as we've discussed in the past, we wanted to -- given that we are already very well established and dominant either on the Beauty side of BPC, we also want to create a sizable business on the Personal Care side. Reason is that we believe our existing customers can transact with us at a much higher frequency if they begin to buy Personal Care products on our platform. And so that was really the genesis behind Nykaa Every Day.

What I would say is that it is very fluid. Obviously, we don't disclose -- we're not breaking it out in any real fashion. But what I can tell you is qualitatively, it is bearing fruits and we are seeing consumers who previously only looked at Nykaa as with beauty or as with cosmetics. We see they're now looking at us more holistically for their more personal care needs, including hair care and skin care and other categories. And I think that reflects in our category mix where now hair care, where now make up and skin care are equal parts of our overall business and other categories like hair care and [ children ], deodorants, wellness, oral care is also growing for us.

I would say that is playing out nicely, and we are putting a lot of effort in deploying that initially. And I do believe that with the regional rollout of warehouses that Arvind spoke about, that will only help further improve our commitment to faster delivery for our consumers, which is slightly more important when buying more personal care items than it is when buying more exclusively then. So I think as the regional warehouse strategy continues to play out, that will have additional benefits for our everyday strategy.

[Sheela Rathi, analyst]

Just a follow-up here. Do you have a number in mind with respect to the rollout of fulfillment centers or warehouses in the next few quarters?

[Falguni Nayar, executive]

No, it's early days. So at the moment, we are going into 5, 6 large states like Uttar Pradesh and in some of the other bigger states. And then based on that experiment, we may take our decision to go into further next [ season ].

[Sheela Rathi, analyst]

Understood. Just one more question -- yes. Sorry.

[Falguni Nayar, executive]

So I would really, like, we have added 3 different-capacity fulfillment centers. And generally, the price is following the revenue price, where a fulfillment center is a choice over we can really use them in H2 when the period picks up. So I think most of the investment for this year is kind of done. We know there's a couple of more. And I don't know with the Beauty side of, it. But yes, of course, in our distribution, we will have to keep adding still in the Beauty update.

I think if you look at our IPO, even how we raised our money and what we declared there, we have given that should be also, itemization of IT, for sure in the fulfillment center, and 1/3 of that is utilized by now, 2/3 will be utilized in the next 2 years. So that kind of gives you an idea how we are building out the capacity.

[Sheela Rathi, analyst]

Understood. Just1 question here on the Beauty side. With the complete reworking happening especially in the last few months, so what is the kind of customer traction we are seeing in the physical stores? And is there any shift with respect to demand move away from online to offline? And just a part of it in terms of delivery, are we still following the hyper local delivery model now where we're using inventory from the store to deliver to the customers in that locality? Just 2 questions, and that's it for me.

[Anchit Nayar, executive]

Yes, maybe I can give you an answer, and others can add. So Sheela, what I would say is that we did see some -- we did see a strong rebound in physical retail in the beginning of the quarter. And -- but to our pleasant surprise, it doesn't seem to be cannibalizing the e-commerce business. So both are growing at a healthy clip, and I think that's reflecting in the BPC vertical, GMV and net revenue growth numbers that we've seen year-over-year.

So we have to keep in mind that online penetration for beauty consumption in India today is still so low, less than 10%, and 90% of BPC consumption happens offline. So even if there is a rebound in offline, there is this macro trend in India, which is the move -- the shift from offline to online which is inevitable, and that trend continues to remain.

I think in some other mature markets where there is cannibalization and the demand does shift from online back to off-line, I mean, a very nascent market like India where penetration is so low, not only for beauty consumption, but especially with the BPC consumption online, this macro trend will be able and be the -- continue to play out. And it's reflecting in our numbers, both online and offline grew at a very healthy clip. But yes, I think retail has rebounded nicely with the pandemic clearly rearing out.

[Falguni Nayar, executive]

I just want to add, if you look at the Beauty growth chart as shown last year, it was at about 32%, and BPC has grown about 39%. So there is a step-up, which means that people are going out and shopping in offline. And -- but at the same time, they continue to shop online. So being omnichannel has really helped, and I think the government is coming with then COVID-free shopping. Our growth rates are actually improved in Beauty business.

[Operator]

Ms. Rathi, do you have any more questions?

[Sheela Rathi, analyst]

Anything on the hyperlocal delivery model?

[Falguni Nayar, executive]

Yes. So hyperlocal, it was during lockdown period and instead of getting the inventory -- because in our industry, like air conditioning is needed for many of the luxury products. So during that time, as the malls were shut, we used hyperlocal, and that is a capability that presented itself and just -- we developed from there. Because on an average, we have 4.5, 5 items in a car. It doesn't make sense for us to fulfill on hyperlocal. Plus, our stores are very expensive to stay there and not conducive to packing and shipping products from there. So this -- hyperlocal is being used only to manage certain slow moving inventory, and we really fulfill from our warehouses.

[Operator]

Our next question is from the line of Garima from Kotak.

[Garima Mishra, analyst]

My first question really is on the B2C segment. Now when you showed the contribution margin calculation, which in 2Q FY '23 was a 24% contribution profit margin to revenue, does this also fully account for the event that is stable for the physical stores that you operate?

[Falguni Nayar, executive]

[indiscernible]

[Garima Mishra, analyst]

Sorry, my question is…

[Anchit Nayar, executive]

Garima's questions go let…

[Arvind Agarwal, executive]

I'm listening. In case for the stores coming below EBITDA, like I showed you EBITDA to -- through the chart, right? So because these are long-term leases, we commented about these amortization costs and there's also the interest element to this. So if it doesn't come in composition.

[Garima Mishra, analyst]

Understood. So if I have to really see profitability, I understand the trend is a fixed cost. But to some extent, it is variable because the more stores we open, the more rent you will need to pay. So ultimately, some kind of an adjustment should be done to understand the contribution profit and EBITDA. So anyway, that is -- that point is clear.

Second question really was, could you help us understand the period under debt and cash? Because sometimes these items fit under multiple heads. And it does look like you've consumed a fair amount of capital during the first half of the year, so how should we look at this going forward?

[Arvind Agarwal, executive]

Yes, so cash balance at end of September is about INR 355 crores. And you are right that we made significant investment in first half of this year. But you see most of it is much more radical, issued on -- in H2. So there's CapEx also, but CapEx is not very big element. 2/3 of these investments are going into that mix.

[Garima Mishra, analyst]

So you're saying that there is definitely some system, in your case, [ burn ] faster here?

[Arvind Agarwal, executive]

Yes, absolutely. And there are some payouts for the acquisitions we made. So in the cash, we will see almost INR 70 crores that with no other reason other than these acquisitions.

[Operator]

Our next question is from the line of Jay Gandhi from HDFC Securities.

[Jay Gandhi, analyst]

So just a couple of basic questions that I had. This is on the unit economics in Fashion. Moving direct to marketplace, I'm yet to get a handle on it. So I would say you have a certain take rate that you charge, and then from that, you kind of higher expenses of fulfilling marketing and stuff. But I assume that in a marketplace model, costs are separately passed through. Just correct my understanding if I'm wrong.

[Adwaita Nayar, executive]

I think your voice is cracking, yes.

[Operator]

Mr. Jay Gandhi, if you're on a hands-free mode, can you switch to handset and speak, please? Your audio is a bit muffled. And if you could repeat your question.

[Jay Gandhi, analyst]

Yes, sure. Can you hear me now? Yes. Can you hear me now? Am I audible.

[Operator]

Better.

[Jay Gandhi, analyst]

So I'm saying in a marketplace model, I'm talking about Fashion. Isn't fulfillment expenses, the fulfillment costs are passed through? So I'm wondering if so, then why do we have a fulfillment expense line item in the first place?

[Adwaita Nayar, executive]

It's a mix of -- so there are any brands with whom we work kind of on a more holistic margin structure in which we certainly split it out. And then there is a small number of brands in which we split it out. So at least, in a way, to read the Fashion, if we can read it out on the page -- on the slide, I can walk you through it.

[Jay Gandhi, analyst]

Sure.

[Adwaita Nayar, executive]

So we will pull it up. Yes, right. So in the second column, you can see, if I can draw your attention to the bottom side rows, so this is kind of the apples-to-apples way of looking at things and not really on revenue, because it will not be impacted by commission and cash market-based mix structure that affects that number. But in the bottom side percentage point, you can see that 44.6% is the margin that we're getting typically from brands. This includes your product margin, which is added income and include services income.

But what I would say is that not all brands follow a very consistent structure, so sometimes, we get one overarching margin which include all -- or inclusive, with others being more itemized. So this is the all-inclusive amount that we get from brands, and then we [ seek ]our expenses, whether that's for business, further less marketing and so forth. Does that make sense?

[Jay Gandhi, analyst]

Yes, a bit confusing. I'll probably take it later. Second is on the eB2B store, I wanted to understand in steady state, what does the working capital of that the business look like? Is it a negative working capital business? Or is it a positive one or a deeply negative one, basically? Or a neutral one?

[Falguni Nayar, executive]

Yes. I think in the long-term focus, currently, it is in the build-up pace. Our inventory is around 45 days, and we enter into 30 days of credit from the suppliers so there is some investment there. But in the long run, India's business actually, it is possible to have negative working capital because we still enjoy 30 days till to-date, but we will build out a network which supply to the digital, let's say, almost every week or other week. Which means that you will be able to monetize it faster than what you stock up in 2 crates. So it's possible to have negative margin capital, but that is few years away in my view.

[Jay Gandhi, analyst]

Got it. And then there are no receivables, right, I mean, not meaningful?

[Falguni Nayar, executive]

There is no, sorry?

[Jay Gandhi, analyst]

No receivables, right?

[Falguni Nayar, executive]

So the long decline is -- even if we give credit to the trade, it will be financed by our NBFC partner. So we don't write out details on Fashion and Beauty. But should that result to enjoy on credit of, let's say, 15 days, and we pass it on to NBFC partner to fund them. So it's not our receivable at all. We do cash business.

[Operator]

Our next question is from the line of Tejash Shah from Spark Capital.

[Tejash Shah, analyst]

Am I audible?

[Falguni Nayar, executive]

Yes.

[Tejash Shah, analyst]

My first question pertains to BPC store expansion strategy. So we have now 130 stores in 53 cities. It looks like we are going forward with debt in this store expansion strategy. So I just wanted to know insights we are working with the same.

[Adwaita Nayar, executive]

Yes. Go ahead, Arvind.

[Arvind Agarwal, executive]

Arvind here now. So I don't -- yes. Our current strategy, today, we are specifically about 120, 150 stores across 50 cities. So we do believe that it is already quite a wide footprint, as you were saying. Now with regards to debt, certain cities like whether it's Delhi NCR, Mumbai or Bangalore, can have up to anywhere from [ 60 ] brands sold, whereas smaller cities might have just 1 or 2. So I think we're taking a very measured approach. We understand the market well. We know where the demand lies, thanks for e-commerce platform, and we know where the customer is. So our purpose is to build the stores where we know there is demand for the brands which we are selling.

So with the 2 formats we've got, the luxury store format as well as the entrée store format, we know which catchment requires which format of store. So given our current -- the current format we have as well as our current understanding of the market, we believe that, as we've said before publicly, about 300 plus stores are global in the next couple of years, so we're well on track to achieve that kind of rollout. And it should be across the top 100 cities. There were at 50 cities, so we will probably open the remainder of the stores across until we get to one of the top 100 cities where we do see strong demand from our online business as well.

[Falguni Nayar, executive]

But actually, we have a format where we are destination stores rather than neighborhood stores for now. And would we change that strategy as currently, we are very focused on Beauty and Design rather than Personal Care, and we are very focused on these businesses.

[Tejash Shah, analyst]

Got it, got it. Second question pertains to our inventory. In fact, I have slightly differently view in our inventory. Considering that Diwali and festive season is in 3Q, and then also the fulfillment centers' number are expected to also increased consistently, I thought inventory has actually not gone up much. So I just wanted to understand how seasonality plays between our, actually, Diwali and festivities? If you can let us understand how we should build inventory for the incoming quarter.

[Falguni Nayar, executive]

I think on the Beauty side, I can say more, but we work on about a 45-day forward-looking inventory. And we -- also, for imported brands and local brands, you may have as much as 50-days inventory. Within that, we keep trying to optimize and buy the right inventory. And for us, in fact, starting with Navratri, the busy season starts. So it's -- but at the same time, our peak event is in November.

[Arvind Agarwal, executive]

So I think there are 2 steps that sort of happens, let's say, September and/or beginning of October. The second step of our sales is end of October -- or rather than beginning of November, our decreased trading in November, and then that will unwind towards the December. So part of the step-up you will see in these numbers, part of the step-up, you won't see in quarter numbers because that will unwind during the quarter itself in Q3.

[Tejash Shah, analyst]

Sure. And last one bookkeeping question, if I may. Other current assets have increased INR 130 crore-odd from March balance sheet. So what does this pertain to?

[Falguni Nayar, executive]

Okay. So other current assets have increased because we have paid more advances to suppliers. And that's because, again, especially on our own brand, we need to invest in the supply chain from the import space, importing the raw material space. So -- and this own brand is now picking up as a business, so we have base advances there. I think more are going into investment and should unwind in quarter 3.

We've also increased in the GMV balance, which also sits under the same grouping, balance with the [indiscernible]. So in line with inventory going up, GMV balance built-in input also goes up. I think that's also a timing between monthly trend on inventories, and we'll be able to offset this input against output, likely.

[Operator]

Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments. Over to you.

[Adwaita Nayar, executive]

Thank you, everyone, for being on the call and patiently listening to our presentation and our sharing of our business update, so I very much appreciate it. Thank you very much.

[Sheela Rathi, analyst]

Thanks, Morgan Stanley, for hosting the call for us. This marks the end of the conference call. Thank you.

[Operator]

Thank you, members of the management. Ladies and gentlemen, on behalf of Morgan Stanley, that concludes today's session. Thank you for your participation. You may now disconnect.