Fsn E-Commerce Ventures Ltd

NSE:NYKAA

Earnings Call Analysis

Robust Growth and Expanding Customer Base

The company experienced strong profitable growth with a net sales value up 24% year-on-year, reaching INR 1,498 crores. Revenue from operations climbed by 22% to INR 1,507 crores, while GMV increased by 25% to INR 2,943 crores. The profit before tax and after tax grew by approximately 50%, with figures of INR 13.3 crores and INR 7.8 crores respectively. The Beauty and Personal Care (BPC) sector showed a 23% increase in GMV, while Fashion GMV rose by 27%, and the 'Others' category saw a staggering 54% GMV growth. Notably, the customer base for BPC grew to 10.7 million at a 24% CAGR, and the Fashion segment acquired 2.8 million annual unique transacting customers, a 47% growth over two years. The company is pleased with its progress in diversifying its Total Addressable Market, with Fashion now forming 15.5% of the NSV contribution and the eB2B platform 'Others' making up 6.6%.

Nykaa's Growth in Customer Base and Retailer Network

In a demonstration of sustained expansion, Nykaa has successfully processed approximately 1.5 million orders this quarter, marking an exceptional two-year compound annual growth rate (CAGR) of 36%. The business has notably deepened its B2B arm, seeing a retailer network swell by 73% to reach 130,000 active retailers, as well as enduring a remarkable 62% year-on-year order growth, with 280,000 orders recorded for the current quarter. This reach has fanned out to encompass an impressive 770 cities, depicting the brand's persistent stride towards nationwide accessibility and market penetration.

Strategic Tailwinds and Customer Retention

Nykaa benefits from significant industry tailwinds, such as a shift from unorganized to organized retail, particularly in beauty and personal care (BPC), where online growth is set to outpace other segments substantially. India’s BPC per capita spend is forecast to burgeon from a mere USD 15 to USD 50 over the coming eight years—potent evidence of the sector's robust growth potential. Encouragingly for Nykaa, a whopping 79% of its revenue hails from existing customers, a testimonial to its formidable consumer loyalty. With Nykaa patrons spending quintuple the industry average per annum, at about USD 80 compared to the USD 15 norm, such figures are indeed cause for investor comfort. This loyalty is further underscored by the platform’s reach exceeding 21 million consumers, a figure that places the company at the epicenter of the BPC market's paradigm shift.

Innovation and Category Leadership

Nykaa's innovation-centric ethos has it at the vanguard of beauty trends, notably spearheading the K-Beauty movement and implementing the Indian skin-tailored 'I-Beauty' skincare routine. These initiatives are proven growth drivers, as evidenced by year-over-year serum and sunscreen sales spiking by 35% and 85%, respectively. Moreover, Nykaa's role as a leading curator and educator in beauty has not only enhanced brand equity but also driven significant customer engagement, with the Nykaaland event attracting over 15,000 participants—indicating a burgeoning public interest in beauty education and experiences.

Fashion Segment: Positioning and Growth

Nykaa's fashion vertical demonstrates a clear strategic edge with a 32% year-on-year growth, contributing INR 232 crores in net sales value (NSV). Fashion is gradually carving its niche with a distinct positioning focused on premium, fashion-forward choices rather than discount-driven strategies, thus attracting a more upscale consumer base. The average annual spend by a Nykaa fashion customer is around USD 110, notably higher than competitors. These metrics paint a promising picture, underpinned by solid repeat customer rates and increasing conversion rates hinting at successful brand resonance and loyalty.

Brand Partner Synergies and Expansion

Nykaa's strength has culminated in a vast collaborative network of over 6,700 brand partners. From emerging to established brands, Nykaa's curated platform stands out as a powerhouse for visibility and growth. Its ability to scale quality brands is exemplified by the success stories that often attribute their rapid market recognition to the opportunities unlocked by Nykaa's robust ecosystem.

Financial Highlights

Financially, Nykaa has had an interpreting quarter—revenue grew by a solid 22%, gross margins steadied at 43.1%, and earnings before interest, taxes, depreciation, and amortization (EBITDA) margin saw a slight uptick to 5.4%. Additionally, the profit before tax (PBT) of 0.9% this quarter, while modest, represents an impressive 51% growth, reflecting a trajectory of improving profitability and bottom-line strength.

Conclusion: Strong Trajectory and Ecosystem Expansion

Nykaa’s strategic focus and execution this quarter strengthen its position as an industry contributor and innovator. The company’s multifaceted engagement with make-up professionals, the increasing base of over 1.9 lakh registered B2B retailers, and its burgeoning house brand business—all underscore a trajectory of robust growth and dedicated ecosystem development. Investors should note Nykaa’s momentum and its continued commitment to fostering value for both consumers and brand partners alike.

Earnings Call Transcript 2024-Q2

[Vijit Jain, analyst]

Hi. Good evening, everyone. This is Vijit Jain from Citi Research. Welcome to FSN E-Commerce Ventures Limited Q2 FY '24 Earnings Call. From the management at Nykaa we have Ms. Falguni Nayar, Executive Chairperson, MD and CEO; Mr. Anchit Nayar, Executive Director and CEO, Beauty E-commerce; Ms. Adwaita Nayar, Executive Director and Co-Founder, CEO Nykaa Fashion; and Mr. P. Ganesh, Chief Financial Officer.

Before we start, we would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. And we note that this call is made for investors and analysts only. If there are any representatives from the media, they are requested to drop off this call immediately.

With that, I hand over to Falguni for her opening remarks, and then we can take Q&A. Over to you, Falguni. Thank you.

[Falguni Nayar, executive]

Thank you, Vijit. Thank you very much. Good afternoon, everyone. It's a pleasure to be here again this quarter talking to all of you about the performance. I will begin with a short performance highlight. For the quarter 2 of financial year '24, we have seen a strong profitable growth. And as you can see in this very concise summary, you can see that our net sales value has grown to INR 1,498 crores for the quarter, up 24% on a year-on-year basis. I also want to just point out that the revenue from operations, it has come out at INR 1,507 crores, up 22% on a year-on-year basis. GMV, of course, has been at INR 2,943 crores, up 25% on a year-on-year basis. I think on the industry -- I think it's an industry first, but we have decided to talk about NSV more regularly than GMV. For sake of comparison, we have given the GMV number here. And sometimes in certain segments, it's more GMV comparison that becomes appropriate, and we will be giving it. However, what matters to the market is revenue from operations and NSV. And hence, I think the focus will be on that.

As far as the gross profit is concerned, you can see that at INR 649 crores. It's a 16% growth year-on-year and the margins are at 43.1%. It can look that it's down 221 basis points year-on-year. However, I want to point out that in a year ago period, our margins -- gross profit margin was highest ever with an aberration of about 100 basis points. And if we were to look at this percentage gross margin percentage on a quarter-on-quarter basis, it has been stable. Coming to EBITDA. I think as you can all see, our growth journey continues. EBITDA has come out at INR 80.6 crores, which is a 32% year-on-year growth, and the EBITDA margin is at 5.4%, which is a 38 basis point improvement year-on-year. And we are really happy that all of the effort that the firm has put in place over the years, be it fulfillment cost control, be it controlling marketing costs and in more recent times, controlling our employee costs, all of those have borne fruit and in later tables, you will see that we have been able to control our costs well where EBITDA continues to grow at a higher pace than our revenues.

On the PBT, picture is similar, where the profit before tax as well as profit after tax have grown around 50% year-on-year with profit before tax of INR 13.3 crores and the profit after tax at INR 7.8 crores for the quarter.

Moving on. If we were to look at the components of our business, and I just want to point out that Beauty and Personal Care, Fashion -- Beauty and Personal Care includes our dot-com business. It includes our physical retail business as well as it includes our beauty private house of brands that we have under our beauty business. Similarly, on the fashion side, the business includes our fashion.com business. It includes our little bit of fashion pop-up business that we do on the Beauty website.

And finally, it includes a house of fashion brands. And in the third bucket, which we call it others, but it should be a little bit more like a new business initiative, it consists of a number of businesses, which we've mentioned in the past. It consists of Nykaa Man, eB2B platform, which is called the SuperStore by Nykaa, our international initiative, which are even today a little small and not meaningful today, but going ahead, as you are aware, that this is going to grow. LBB, which was acquisition that we had made and Nudge, which is a subsidiary that we set up. Nudge subsidiary is a wellness brand that has been set up about a year ago.

As far as Beauty and Personal Care is concerned, you can see that the GMV grew at 23% on a year-on-year basis. And if you were to look at 2-year CAGR, it's at about 31%. And gross -- as far as NSV is concerned, the growth is similar, where NSV has grown at 19% on a year-on-year basis by about 28% on a 2-year basis. I want to just remind everybody that this was a quarter -- this is a year where the festive season has got delayed by almost 20 days to a little more than that. And as a result, the second quarter was impacted with hardly any days of festivals coming into the second quarter. And hence, at the margin, some amount of growth has got impacted both at the NSV level as well as at the GMV level.

On the fashion side, I think you all may remember that compared to the quarter 1, which was quite subdued for fashion, we have been able to increase the growth momentum. The GMV for the quarter in Fashion grew at 27% year-on-year, and the number -- and the GMV came out at INR 763 crores for the quarter. And if you were to look at net sales value, the growth was 32% on a year-on-year basis. In fact, on a 2-year CAGR basis, the growth is 26%. So there is an acceleration there. And again, the NSV stands at INR 232 crores.

Moving on to the last bucket of others. Just want to point out that our GMV growth has come out at 54% for quarter on a year-on-year basis. And if you were to look at 2-year CAGR, it stands at 129% growth over 2 years. And then a picture on the NSV side is better where the NSV has grown 105% on a year-on-year basis, and the 2-year CAGR is at 202%. In fact, this reflects some amount of improvement in shrinkages that were happening in our businesses earlier.

Moving on. I think we talked about how we have pursued diversification of TAM through entering new industries. And we started with BPC introduced fashion 4 years ago. Today, fashion accounts for almost 15.5% of our NSV contribution. And similarly, the others category, which predominantly has eB2B platform, SuperStore by Nykaa, is now contribute to about 6.6%. Though there are other businesses included in this, and as a result, this is not all of B2B business NSV. But we are really happy with how the diversification has been achieved.

Coming to BPC, the strong growth across key metrics continues. Looking at the composition of GMV, you can see that almost 79% of our GMV now comes from existing customers, which is the customers who existed on the platform before the year began and 21% comes from new customers that have been acquired during the year. And the GMV for the quarter stands at strong INR 2,000 crores. NSV picture is similar at 28% CAGR over 2-year period and NSV stands at INR 1,167 crores for the quarter. Interesting to note that annual unique transacting consumers has increased at 24% on a CAGR basis and now stands at 10.7 million customers. On the orders, we again delivered about 10 million orders in this quarter, which is a 28% growth.

On the fashion side, in fact, the picture is -- you can see the picture that existing customers are contributing more and more to the fashion business GMV. And today, 46% for this quarter, 46% of our business, GMV came from existing customers, which were at the beginning of the year and 54% of the business has come from new customers. The GMV for Fashion business was at INR 762 crores for this quarter. And that was about 35% CAGR over a 2-year period. On the net sales value, this quarter, we delivered INR 232 crores of net sales value. And again, interesting to note that on an annual unique transacting customers, today, fashion has 2.8 million annual unique transacting customers, and this is a 47% growth over a 2-year period.

On the orders, we did about 1.5 million orders this quarter, which is a 36% CAGR over a 2-year period.

On B2B, a significant progress has been made on path to profitability. From the GMV perspective, over last 1 year, the growth has been almost 70%, and the NSV growth is even better at almost 200 -- 2.3x, which is 130% growth over the base. On a transacting retailer basis, we saw a growth of 73% year-on-year with now 130,000 retailers transacting on Nykaa platform. And activation rate stands healthy at 66%. On the orders, this quarter saw 280,000 orders from this transacting base, which was a 62% growth year-on-year. And like we said in the past, we serve these retailers across 770 cities.

With that, I hand over to Anchit to take us through the beauty industry and how Nykaa has pioneered the beauty industry journey.

[Anchit Nayar, executive]

Yes. Thank you very much. So moving to the first slide, just a quick update for those of you who may be new to this call. Just reminding everybody on what the opportunity is on the Beauty and Personal Care side. I think the 3 major levers that are going to serve as strong tailwinds for our business are the following: first, is a large part of the current BPC market is currently unorganized retail and that is going to continue to move towards organized with the online segment of the BPC market to grow the fastest over the next 5 to 10 years. Second, India today has some of the lowest per capita spend on BPC in the world at about USD 15 that is set to grow to USD 50 over the next 8 years. The third major trend is the shift from personal care to beauty. And we are seeing and expect to see strong growth in beauty categories such as makeup, skincare and fragrances.

Now Nykaa's focused, I think, first and foremost, our focus is, we see ourselves as category creators. And as a part of that responsibility we have towards building the beauty ecosystem, that can be done in large part through education, experiences and events. Second, there is a strong focus from us on personalizing the discovery as well as curating the experience for our consumers on platform to ensure that we are doing the best possible art of retailing for the benefit of our customers. Third is Nykaa continues to be seen as a destination and partner of choice for the leading brands in the beauty space, both global and domestic; and fourth, a very strong symbiotic winning partnership between us as the retailer and our brand partners, 3,600-plus brand partners who we work with. And a large part of that is achieved through a very strong focus on what we refer to as the art of retailing to help our brand partners to build meaningful brand equity in the India market.

So what have we achieved so far? 79% of our revenue comes from existing customers. I think that is an indication of how sticky, loyal and highly engaged Nykaa's consumers are. Second, Nykaa's consumers spend close to USD 80 per annum on our platform. That compares to just $15, which is the average Indian consumer spend on BPC. So 5x the industry average is the spend of our consumers. Third, we today have over 21 million consumers have shopped on the Nykaa Beauty app. As I said, we work with 3,600-plus global and domestic brands, and we have today over 165 physical retail company-owned and operated stores across 60-plus cities.

So to my earlier point in terms of Nykaa's role in the ecosystem as a category creator. We just wrapped up the first edition of Nykaaland, which is India's biggest and first beauty and lifestyle festival, which was held at the Mahalaxmi Racecourse in Mumbai. We had over 80 brands participating in the event, 800-plus influencers, makeup artists and KOLs and over 5,000 pieces of unique content were generated across the 2-day festival.

Some of the new brands which launched at the festival include Urban Decay, which is an iconic cosmetic brand that is owned by the L'Oreal Group, which has launched for the first time in India exclusively with Nykaa and was launched at the Nykaaland event. Bath & Body Works, a global brand in the bath and body space also launched their most renowned collection of products with Nykaa at the Nykaaland event. There were master classes hosted by makeup artists, hair stylists and skin experts across the 2 days. These include some of the global icons such as Mario as well as local makeup artists such as Namrata Soni as well. In terms of celebrities, we had Katrina Kaif, Jahnvi Kapoor, Masaba, Kriti Sanon and many more attend the 2-day festival.

And most importantly, we were able to generate over 15,000 consumers who attended the event, which I think was quite a large number of consumers and it goes to show you the interest that exists in India for learning and experiencing beauty. This is just some imagery of the kind of content which was created at the festival. Highly experiential, highly education focused and a very unique opportunity for consumers to experience some of the best global brands for the first time.

Next slide, please. This is just a short video to give you an example of the sheer scale of the event. As I said, biggest of its kind in India and possibly in the world, very unique concept combination of brand experiences, master classes, yoga, lifestyle events, food and beverage, live entertainment as well. This is an event which we hope to continue to do over the years.

Moving on. In Q2, we also hosted our flagship Hot Pink Sale. As many of you know, we do 2 large flagship sales in the year, 1 in July and 1 in November. The July edition was a success this year. We saw 37% growth in omnichannel beauty GMV. Our reach was substantial over 525 million both through social media as well as through influencers. This was the first time we innovated very meaningful gamification on the platform as well and over 200,000 users engaged with some of the gamification upgrades, which we had performed prior to launching the sale. Importantly, we also launched early access for our Prive Gold and Platinum users. As many of you know, our Prive users -- our Prive program is our loyalty program and our gold and platinum users are some of our highest -- some of our most valuable consumers from an LTV perspective, and they were given 24 hours early access to the sale which proved to be a success with the consumers and is another moat for retaining and engaging with our highly loyal sticky repeat customer base.

Speaking a little bit about our physical retail business. As many of you know, today with 165 stores, we are 1 of the largest physical retailers of beauty as well, not just the largest online. Today, our off-line physical retail business contributes roughly 8% of our beauty GMV. We have 1.6 lakh square feet of off-line space, which is a 34% growth year-over-year. And we have roughly INR 3,250 is our GMV per square foot per month, which is, we believe, best in class in the industry.

Next slide, please. So just doubling down on a point I made earlier, which is we continue to be the partner and destination of choice for international and domestic brands to launch in the India market. They see us as much more than just a retailer but truly a marketing engine as well as an influencer platform and in all around partner who can help them to build and create brand equity in the India market, thanks to our specialization and 10 years of experience in this market. We do have a very good understanding and we have some of the most premium and highly engaged consumers of beauty and care today. Just 2 examples, we launched Redken, which is, again, a L'Oreal-owned brand, professional haircare brand, very successful brand in Western markets. It has launched in India exclusively with Nykaa Online.

We also launched the brand Uriage, which is a Derma cosmetic brand owned by the Puig Group based out of Barcelona. This brand, again, very popular brand in Western markets has launched exclusively with Nykaa. There were an additional 10,000 SKUs that were launched this quarter across 400 other brands on the platform. Some other brands, which we also launched this quarter include Formula 10.0.6, Novology. Novology is a brand owned by HUL, Versed and Juice Beauty. Natasha Moor, Lamel, Sugar Play and the Good Bug were brands that were also launching the platform. Natasha Moor, a very popular makeup brand launched exclusively again, only on the Nykaa platform.

So events and experiences, as I mentioned earlier, are crucial as we look to continue to grow awareness for beauty. We believe that awareness is a large barrier to consumption of beauty in the market and its events and experiences such as the Nykaa Beauty Bar, which will help to overcome that current lack of awareness. We -- this is an event which we do a few -- maybe 3 or 4 every month across different cities. So far this quarter, we hosted 7 beauty bars across 7 different cities. We had over 10,000 customers who register for these events, as you can see from the video, a very diverse selection of consumers who attend these events. These events also allow us to create incredible content and the content we created from these events generated over 50 million in terms of cumulative impressions across channels. On the right are just a few examples of some of the events which we conducted this quarter.

Next slide, please. So Nykaa is the platform where trends in beauty are identified very early on before they become mainstream. And one of those trends which we've seen emerge this quarter has been the trend of Korean beauty brands -- as you can see on the left-hand side, these are search terms on the Nykaa platform, and they are growing exponentially. So the number of searches for Korean skincare, Glass Skin are at 148% and 61%, respectively, showing that the Indian consumer, the Nykaa consumer is starting to gain a lot of interest in Korean beauty. As a result, to better serve our consumers and to stay ahead of the trends Nykaa has launched a dedicated K-Beauty store -- we are creating dedicated Korean beauty content on site and hosting Korean beauty events. As a result, we have the largest selection of Korean beauty brands available in the market today, and we are the destination of choice for consumers looking for this particular set of brands.

Just -- I think this is a very interesting case study of how Nykaa continues to focus on building the category of beauty. One of the big challenges in India today for skincare consumers has been that Indian consumers don't actually follow a skincare routine. And our skin is very unique compared to Western skin. It is very melanin rich. And as a result, our requirements are very different from other markets. Our consumers told us that they were very confused by the sheer number of products which were available and did not understand what was the right assortment of products for them to use. As a result, Nykaa collaborated with over 100 dermatologists across India, and we came up with the ideal regime, which is relevant for the Indian consumer in particular. This routine, we have called as the I-Beauty.

So on the previous slide, I showed you K-Beauty, which is Korean beauty, this I-Beauty, Indian beauty. And it's India's daily skincare routine. It consists of 4 steps: CSMS, cleanse, serum, moisturizer and sunscreen. It is specifically tailored for the Indian skin and climatic conditions. And this has been a great growth driver for certain categories within skincare and has helped us to expand the basket. It has helped us to expand the frequency of purchase as well as drive deeper penetration of skincare usage in the Indian market.

Next slide, please. For CSMS, we also did 360-degree awareness building for consumer education. We believe education will be the greatest driver of awareness and the once awareness is in place, that's when the consumption happens. So as I had mentioned already, we partnered with influencers and KOLs to amplify our CSMS routine and to create more awareness for this program. We generated over 123 million impressions across Nykaa's own platforms as well as off platform, including across third-party platforms like Google and Facebook, YouTube and Instagram. In terms of our brand partners and customer adoption, 60% plus of Nykaa's customers shops skincare on our platform. And because of this new routine, which we have created CSMS, we have seen a 35% growth year-over-year in serum sales and an 85% growth year-over-year in sunscreen sales.

Next slide, please. And with that, I'll hand the presentation over to Adwaita to take you through fashion.

[Adwaita Nayar, executive]

Hi, everyone. I'm looking forward to talking about the fashion business today. So as a reminder, we've covered this in previous sessions as well. We do believe that, obviously, fashion is a massive market. We're incredibly excited about the opportunity. But I think what was incredibly important to us was that we carved out a bit of a niche and a differentiation for ourselves because it was a crowded market. And so we've been very focused over the last 4 years in building a premium differentiated fashion forward platform, which shifts the conversation away from discounting and price and [ mortar ] style. We do believe that we have found product market fit, and we do believe that the consumers and brands are appreciating us for our positioning.

And so on the right-hand side, we have a couple of metrics that we measure, which ensure that we're staying true to our positioning. And those are things like the percentage of sales coming from new season collection, which stands at 26% far, far higher than what our competition sees. We do see a really strong cohort developing. So we're seeing very impressive repeat rates coming through. Today, 46% of our GMV is coming from existing customers, and it reflects a very strong cohort. Next, we're seeing that the order conversion is increasing very dramatically and quickly on the platform. And so now the order conversion per unique visitor stands at 3% -- up 3%.

And finally, in terms of the annual spend by the average customer, it's at about $110 which is 2x to 2.5x higher than what our competition sees. So some of these metrics give us confidence that our differentiated positioning is definitely clicking and we're trying to stay true to that.

So with that, we can move to the next slide. In the past, we've spoken a lot about assortment. I think assortment is at the heart of all e-commerce companies, and it's particularly important in fashion. Fashion platforms need to have a point of view, they need to stand for something. And so our platform chooses to stand for great selection, great curation, very trendy fashion. And so on that note, we've been aggressively onboarding brands. There are a couple of new properties that we've been building this quarter, which I'd like to talk about. So in the past, you might recall, I've spoken about properties like Hidden Gems and Global Store. This quarter, we've added 2 more distinct properties that we're building on. The first is the Gen Z Store, which you can see on the top right. And so this is basically just focusing on the younger consumer in a much more targeted way. Again, we're seeing very good traction of this new property that we just launched.

And the second right below that is what we're calling the Nykaa Fashion Luxe Store. So this is the luxury brands, both in Indian wear and Western wear that we're trying to pull together in a very concentrated manner and we have about 150 brands that we're putting together in this regard. So all of these are just different elements of assortment and curation that are coming together to make Nykaa Fashion an interesting and a distinct place to shop.

We can move on. So all of you have obviously heard how beauty has this very big Hot Pink Sale and we do these pink sales through the year. So Fashion has taken a call to align with beauty for these mega sales. And this past quarter, we held what was our largest sales till date where we saw 18 million visits, 9 million unique visitors and an order to conversion -- order to visit conversion of 1.3%. All of these numbers, all the metrics that we saw on this sale were the highest we've had till date, which gives us confidence that we are cracking the sale playbook.

Moving on. So I think something, as we mentioned, that was very important to me was that we were differentiated and we were truly adding value in what was a crowded and flattered market. And so this time, we've put together some quotes that we've gotten from our brand partners in terms of how we differentiate ourselves. And so I'll read out a couple of those. This first one up top here says Nykaa has always been a preferred platform for revenue as it helps us increase our visibility to a target audience that revenue caters to. It's because of great marketing collaterals were able to reach the targeted and relevant audience, making it easier to provoke genuine interest in the audience. So basically, the fact that we have this premium audience that is very serious about shopping is something that brands are liking about us.

I think right. On the right-hand side, you see a quote from Forever 21, another important brand partner of ours with Aditya Birla Group, which says Nykaa and Forever 21 have been working very closely to offer a very trendy and quirky fashion to the consumers. The intent shown by Nykaa and promoting upcoming trends has been significant, and as a result, it has highest contribution to fresh season sales for Forever 21 across all marketplaces. So it is the sort of qualitative feedback that we're getting consistently from brand after brand, which makes us feel that we are really becoming a preferred destination for brands and for consumers in this premium fashion forward segment.

We can move on. I think Fashion has been doing a particularly good job over the last quarter on introducing personalization into our app. So I think a lot of you know that fashion is the ultimate discovery problem. There are over 3 million styles that you need to help the customer discover and so personalization plays an incredibly important role. And I feel really proud of the work that the team has done over the last quarter, bringing personalization into the app experience. So now about 20% of people see a completely personalized homepage where they will see which it paces their interests, what they've been exploring, what they've been buying, -- and we do believe that some of the conversion uptick that we've seen has come from this personalization efforts, which is on the back of a lot of strong technology and data science behind the scenes.

Moving on. I think this is an important part of the presentation. Over the last couple of quarters, a lot of you are asking that when is fashion going to see sort of a meaningful uptick both in growth and profitability. And I do think this is a quarter where everything has lined up. And so we're feeling pretty good about the trajectory fashion is on and what we've delivered in Q2. So starting with the left-hand side, you can see that the order to unique visitor conversion has hit almost 3%, climbing really beautifully quarter-on-quarter, year-on-year.

The next -- the middle chart here is NSV. So you can see that the NSVs hit INR 232 crores this quarter. The growth has significantly come back. It's a 32% year-on-year growth. It's a 1.6x over 2 years. And in other parts of the deck, you'll see that this is also on the back of improving profitability. So I think this is the quarter where fashion has delivered both meaningful top line growth as well as improvements in the P&L and profitability. So truly been able to impact the top and bottom of the P&L.

And finally on the right-hand side, you can see -- sorry, yes, on the right-hand side, you can see that the contribution margin has climbed to 4.7% from 2.3% last year and 1.3% the year prior, and this is on the back of a whole bunch of efforts, which we'll cover some on the next slide.

So I think this really talks about what's helping the P&L shape up nicely. On the top left-hand side, we can see that a lot of you know fashion is plagued by things like returns, RTOs, cancellations, discounts. We've done a lot of very targeted effort over the last 2 to 3 quarters to bring this down. So from 2 years ago, our leakages are down significantly. So it's about 0.8x of what they were 2 years ago, which is really creating a lot of goodness in the P&L, and it's leading to much higher NSVs versus GMVs than ever before. And so you will see that in the P&L reflected from an NSV to GMV ratio point of view. And you'll also see it from the fact that NSV is growing faster than GMV.

On the right-hand side, I think the teams have done great work to finally see a breakthrough in marketing expenses. So marketing expenses have come down from 28.4% last year to 24.9%, and we're feeling confident about the trajectory -- and as you all know that this is a very important line item in improving fashion P&L going forward as well. There's a lot of [indiscernible] here that will give us some leverage on a contribution margin line perspective going forward.

On the bottom, we talk about a couple of other shifts we've made to the business, which are shaping the P&L nicely. So the first is premiumization. We have been focusing on attracting a more premium customer, and we have been doing that by 1 of the metrics that's reflecting that is the fact that the iOS share has gone up by 1.4x. Next, you'll see that the return -- the repeat customers coming back well. And so you'll see that the business from the repeat customer is going up from 13% to 46% over 2 years. And lastly and importantly, our own brands, which I'll talk about a bit later, are also growing very fast. They're growing faster than the platform. They're gaining share on the platform, and that's also helping both the profitability as well as making Nykaa Fashion a more interesting place to show.

Moving on. So just before I wrap up on fashion, I just wanted to close with the remarks that I do feel that it has been a bit of a turning point in terms of fashion journey. And the trajectory that we're on, does give us confidence that we will be able to get to profitability in a nice timely manner as well as continue growing in a very strong manner as well. So a lot of our experiments, a lot of our investments. And most importantly, our commitment to our positioning has been finally paying off, and we're quite pleased with the Q2 performance.

So moving on, I'll be talking about Nykaa's House of Brands, both across beauty and fashion. So in prior sessions, we've spoken about how we have this intent of cultivating a beautiful bouquet of our own brands. These are not private labels. These are our own brands. And many of these are now quite sizable, and we really poured a lot of our heart and soul into building beautiful brands. So we have 13 brands of our own on the beauty side and 16 of our own on the fashion side.

And on the next slide., We'll talk about the top line of the beauty side of our own brands business first. So you can see that the GMV has grown to INR 243 crores for the quarter that has just ended, and this contributes to about 12.2% of the overall BPC GMV. On the chart below, you can see that where this business is coming from. So 56% of it is from sales on our own platform, 13% is what we sell in our own stores. But importantly, 31% of it is also what we sell in other third-party channels. So we truly are trying to build brands that can stand on their own 2 feet.

Similarly now, talking about fashion in terms of size -- sorry, before we get to fashion. So I think we'll double click on 1 beauty brand. So 1 of the brands that we're really excited about is this beauty brand that we have with Katrina Kaif, called K-Beauty. It's actually India's first celebrity beauty brand and definitely 1 of the most successful. And on the bottom left, you can see how the top line has been growing. So it has grown 4x in the last 4 years and has now crossed INR 150 crore annualized run rate.

On the right-hand side, you can see that it's won several awards. It has over 300 points of sale. And again, it does do about 75% to its business on Nykaa platforms, but 25% is being sold via other channels.

Next, on fashion. So similarly, it's a newer business, but it is already about INR 100 crores per quarter GMV business. in terms of NSV, that's after discounts, returns and so forth, it is a INR 44 crore business for the quarter 2. I think I want to draw your attention to this 19.2%, which is the fact that this business contributes almost 20% of the overall fashion NSV. So even though it's only 13% on GMV, it actually translates to 19% on NSV and that's because our own brands actually show better behavior in terms of lower returns, lower RTOs, lower cancellations. So it's quite meaningful from an NSV point of view. And if you actually look at it from a profit point of view, it's even more meaningful. So on both sides of the business, our own brands are important to us, both from plugging consumer gaps but also from a profitability point of view.

We can move on Yes. So 1 brand here, in particular, we'll talk about is Nykd. We've spoken about in the past. It's a brand that we're incredibly proud of. It's a lingerie brand. We started it 3 years ago. Today, it's a INR 140 crore annualized run rate brand. It does about 80% full price sales. It's not a discounted brand. It has over 1,000 points of sale. It's the #1 bra category -- it's a #1 bra brand -- sorry, it's a #1 bra in the bra category on Nykaa fashion, and it's a top 3 bra in 1 of the largest marketplaces in India. So what it is finding traction both inside Nykaa as well as outside Nykaa and we're quite proud of this trajectory.

Moving on. So Nykd has many points of sale. It has 7 exclusive stores. We've started a franchise model as well, which is scaling up well. It does very well on Amazon, and we try to focus very much from a marketing point of view and truly from Brand Love this brand which you can see a little bit on the right -- bottom right-hand side some of the collaborations we've done.

Moving on. So with that, that wraps up the own brand section, and I'll hand back to Falguni to take us through the ESG section. Thanks.

[Falguni Nayar, executive]

Yes. Thank you very much, Adwaita. I think we are really happy to introduce this section in our presentation where we're talking about how we are impacting the society at large. Nykaa works with more than 6,700 brand partners today, both in beauty and fashion every upcoming brand in the country wants to be on Nykaa platform. I think the discovery and the kind of early stage growth that the brands can get if they are built well is immense. We are not an open platform. We are a curated platform. So in some ways, we look after our customers and don't allow wrong quality products to be sold on our platform. But at the same time, if the brand is good and delivers quality to the consumer, our platform is very open for brands to scale up and get recognized in the country.

So time and again, many of our brand partners tell us about the role Nykaa has played in enabling the direct enabling the beauty and fashion industry's growth in the country where many D2C brands are able to reach the consumers in a very cost-effective manner, thanks to a platform like us. We also work with a number of influencers more than 6,000 influencers are on our NAP program where they could create content and put links directed to our websites and our apps, and that leads to a steady store source of revenue for them. And this is also a way of contributing to the entire ecosystem.

Of course, we have more than 10,500 employees, about 3,500 on roads and others, which are off road, creating a large employment in the country, both in our warehouses as well as in our stores as well as in our -- what we call as beauty advisers that work in our various stores as well as in GT/MT. On the supply side, we work with more than 7,000 suppliers who are supporting our ecosystem. Also, another interesting thing is we've enabled Nykaa Pro users. These are makeup artists and our -- and the beauty service providers who go into people's rooms and provide services and these guys are registered users on our platform and they get special benefits, which are passed on by the brands to them. So really building an ecosystem that benefits everyone in the industry.

More than 2,500 MSME vendors who operate on our platform, again, helping create a robust economy in the country. And finally, now with our B2B platform, we have more than 1.9 lakh registered retailers. I think in this world where everybody talked about how e-commerce, how a physical retailer needs to be protected from e-commerce platforms, I think we have been very inclusive and taking our brand collection to retailers who could then cater to the customers in their area. And we only -- we do believe that this will only grow the ecosystem for beauty and it will benefit all rather than -- because we do believe that beauty consumption will grow in the country, and it doesn't need to only go through 1 channel and the right optimum mix would be if beauty reaches -- beauty as well as passion reaches its customers through multiple channels. And in each of our businesses, we are pursuing such multichannel approach.

Moving on. I think, again, some amount of quality work that we do in this area. I think since for a long time, we've had -- 2 special collections highlighted on the platform. One is what is called Conscious at Nykaa, educated customers on vegan brands, cruelty-free brands as well as clean brands and provided this knowledge to our consumer for our entire catalog on our website where they are able to select the right conscious brands on our platform. This has been an effort over the last 2 years, we put in place. On the fashion side, similarly, we've always highlighted the responsible collection. And this also has more than 650 brands, which are disclosing what they mean to the customer in terms of whether certified or organic and a whole category of sustainable criteria that the customers like to choose from.

Moving on. We also -- I mean, with our vision to have protected our planet. We came up with a 10x10 initiative, where we have said that over the next 10 years, we will move to improving our usage -- I mean reducing our usage of plastics and moving more on to recyclable materials. And today, we are proud to present that almost 323 tonnes of plastic is being recycled in 2023 as well as 80% of our packaging is now sustainable packaging. We've also introduced paperless picking which obviously, even in spite of increased order fulfillment capacity by improving picking process, but we've also achieved 0 paper utilization in how we process our orders.

Moving on further. From -- in terms of Nykaa Foundation is focused on our CSR efforts and our CSR is focused on empowerment. So there are a couple of initiatives that have kind of achieve deep penetration in the last year, and there will be more that will come. So first being that we now have a Nykaa chair at IIM-Ahmedabad the bad which is focused on consumer technology and a role that consumer technology, including digital marketing place in today's consumer brands. And this learning chair is focused on doing research as well as education on campus.

From a transforming lives perspective, we also have partnered with Labournet, where we are helping marginalize young women become skilled beauty professional and this also too is being done at scale. On the education front, we have partnered with Rangeet to launch an app-based learning program called SEEK, which is benefiting more than 15,000-plus students and also very much focused on children's health through our collaboration with Anushkaa Foundation to enable the skilling of doctors in treating clubfoot.

Our values have always been the ones of sustainability, inclusivity and community being part of Nykaa's corporate identity. Be bold, but be good. Corporate governance is extremely important to us. Also, the customers champion and believe that the customer is sitting on the table while they are negotiating with us. One, Nykaa and a culture of belonging where every Nykaa belongs to the organization and sustainability in every action are philosophically -- our key values and our philosophies. Also very diverse and inclusive workforce. 67% of our committees are chaired by women. 63% of Nykaa leadership is under the age of 40. 43% of our women employees are -- women employees in our workforce, 40% are women directors and 33% of Nykaa leadership are women. So pretty much, a pretty strong inclusivity based on gender as well as age at all the levels.

And in terms of mix, you can see that in terms of years of experience, in fact, the younger -- lesser number of years of experience, we have female population is better represented at 46%. So at entry, we are kind of almost taking near equal gender diversification. It is -- we -- I agree that we all have to learn to retain women, especially as they go through the young [ goals ] in their family. And that's why you can see that this erodes to about 41%, but we are doing a lot of effort to change that and to improve that. And pretty young organization, like you can see, almost 19% of our employees are under the age of 25, 36% in the age of 25 to 30, 27% in the age group of 30 to 35 and just about 18% are over the age of 35 years. So we are extremely proud of being a young organization and young talent getting to take critical decisions throughout the organization. And this data is for the on-roll employees which are 3,216.

So with that, I hand over to Ganesh to take us through our financial performance.

[P. Ganesh, executive]

Thank you, Falguni. Good evening, everyone. Before we get into the financial performance for quarter 2. I would like to highlight that this quarter has been impacted by the shift of festive season to quarter 3. However, in spite of the same, we have been able to drive strong growth across our business verticals. So with this, let's actually get into the financial performance.

Next slide. Yes. As you can see, our revenue has grown strongly at 22% for the quarter, our gross margins came in at 43.1%, which is in line with the long-term trend for gross margins. We achieved an EBITDA of 5.4%, which is an improvement of 40 basis points over the corresponding quarter the previous year, and our PBT margin was at 0.9% for the quarter, with PBT growing 51%.

Yes. So in this slide, we have the one Nykaa income statement. And as I mentioned earlier, gross margins were impacted during the year versus quarter 2 last year, but in line with the long-term trend because last year quarter 2 numbers, had a onetime aberration and came in higher than the normal trend. Also what you would like to see is that the fulfillment expenses have been smartly improving quarter after quarter, and there's more than a 210 basis points improvement of the same. And this has been driven by regionalization strategy with our expansion of warehouse locations and capacity in FY '23. This has, in turn, resulted in lower air shipment ratio along with shift optimization. All of this has resulted in a smart reduction in fulfillment expenses.

Our marketing expenses have been slightly higher, so also other expenses, while selling expenses have been more or less in the same line, you will also see that employee costs have started moderating as we have indicated in the earlier quarters. And on a Y-o-Y basis has about 90 basis points reduction. Overall, through scale efficiency and improvement in expenses control, we have been able to drive strong profitability and with EBITDA growing at 32% Y-o-Y and PAT growing at 50% YoY.

Moving ahead. So in this slide, you can actually see the EBITDA margin waterfall. And what you can actually see over here is that, as I mentioned, while gross margin has contracted on a Y-o-Y basis, marketing and other expenses, expanding marginally. Fulfillment expenses moving up is something which has actually helped us improve our profit margins. And selling and distribution expenses have also been marginally higher. So broadly, cost optimization and cost control has actually resulted in a strong uptick in terms of margins and profit margins coming in at good levels and therefore, registering a high profit growth.

Moving ahead. So here, we see the vertical performance. And as you can see, I would like to focus on the bottom part of the table, where we have put all the costs on a comparative basis and therefore, expressed as a percentage of NSV. This is what will make all the businesses comparable. The key point to notable here is that there's been improvement in contribution margins in fashion as well as in eB2B business, while as far as the beauty and personal care business is concerned, this has already been at a healthy place. So Contribution margins in the fashion business has improved to 4.7% this quarter versus 2.3% in the corresponding quarter of the previous year and driven mainly by reduction in marketing expenses, which had been sticky for some time, but which is now starting to moderate. Similarly, the eB2B business, which is the major part of the others vertical has also been consistently reducing the EBITDA losses with increase in scale.

So I would like to -- with that, I would like to thank all of you for joining the call. And I would like to move a request Vijit to initiate the Q&A session. Thank you.

[Vijit Jain, analyst]

[Operator Instructions] Operator, can you please unmute Sachin Dixit?

[Sachin Dixit, analyst]

This is Sachin from JM Financial. Congrats on like hitting the ball out of park completely on fashion. I just wanted to understand by looking at how this business has trended. Can we talk about EBITDA profitability now in terms of how soon can we achieve it?

[Adwaita Nayar, executive]

So yes, I think we're not going to give an exact timeline, but it's definitely, of course, on all our minds, and we're working towards it every single quarter. So what I can say is that we'll just every single quarter deliver better and better P&L line items. But we won't be able to talk about exactly when that breakeven will be coming through.

[Falguni Nayar, executive]

Yes. But I think main item that matters is basically the marketing expense, like all of you can see. And as that improves with a mix of new and existing customers improving with every passing quarter and with every passing year, we remain confident that, that should not be an issue. It's just a question of the timing on how many quarters it's going to happen is the only question that we don't want to commit to at the moment. .

And as far as the orders of those businesses are concerned, this business are concerned, they are quite reasonable. I don't think we've shared. I think we promised that by the end of the year, we'll start giving EBITDA for both beauty and fashion, and we hope to live up to it and start disclosing that by the end of this year, and you'll be able to see them that it's not so much the issue on overheads, but more about how quickly we can bring down the marketing costs. And it won't be magic that will happen overnight. It just needs a lot of painstaking work acquiring and retaining the right customers and -- but the benefits will [indiscernible] to flow.

[Sachin Dixit, analyst]

I'm sure. On the beauty side, right, while we do understand that margins are not comparable to last year. But even with Q1, this seems like a 60 basis point dip in gross margin. What's happened there?

[Anchit Nayar, executive]

Yes. So maybe I'll kick it off and then I'll hand it over to Ganesh. So look, what I can say is that last quarter, we had spoken about there was a little bit of softness in advertising revenues. But that has improved quarter-over-quarter sequentially, that has improved meaningfully, I would say. It is still slightly below where it was exactly a year ago, but it has improved to almost being at a similar level. So we're happy about the way that the ad income has come back. And in fact, going into the second half of the year, especially Q3, which is when a lot of brand partners choose to really market heavily and they tend to save a lot of their marketing budgets for the Q3 festive season. We are quite optimistic that, that will recover nicely. So that's my comment on the gross margin for beauty.com. What I would say is please remember that the BPC segment includes our own brands, business, it also includes our physical retail vertical as well as the dot-com business.

So with that, Ganesh, maybe you want to explain the rest of the delta.

[P. Ganesh, executive]

I would also just like to add to what Anchit mentioned, just highlighting that on a quarter-to-quarter basis, there is actually a small improvement in gross margins from 45.2% to 45.4%.

[Sachin Dixit, analyst]

Sorry, I'm seeing gross margin declining in beauty from 42.1% to 41.5%, not sure if I'm missing something. Anyways, we can take this off-line. Another question quickly or more like a housekeeping question. I saw borrowings having gone up by almost INR 260 crore. Can you explain the nature of the borrowings and why do we need that?

[P. Ganesh, executive]

Yes. So the borrowings have gone up in line with working capital requirements and quarter 3 happens to be the largest quarter for us and in line with -- we are building up of inventory, et cetera, for both the peak quarter, working capital has gone. I mean this is on the basis of established lines of credit that we have. So it's purely working capital.

[Vijit Jain, analyst]

Operator can we please take Kapil Singh next please.

[Kapil Singh]

Just wanted your comments on a couple of points mentioned in the press release. So we've talked about discounting in BPC category increasing due to proliferation of number of homegrown brands and increasing number of international brands as well. So just if you could talk us through what exactly are you planning to communicate here in terms of the external environment? And what does -- what does that mean for Nykaa?

[Falguni Nayar, executive]

Sorry, first, I think some reporting has been wrong about -- it's not discounting by Nykaa. It is an additional discounts that are being given by the brands that operate on our platform. There has been a little bit more of a competitive landscape, both from D2C brands as well as international brands that are coming into the country. And in terms of trying to hold on to -- each of the brands trying to hold on to their market share. They are sometimes doing little extra discounting, especially in the second quarter. So it was more a comparison of a difference between GMV and the NSV growth that we were trying to explain.

[Kapil Singh]

Okay. Sure. But as far as competitive intensity is concerned, there is -- are we observing any change there? Or it is pretty much under control?

[Falguni Nayar, executive]

It's pretty much under control, no change.

[Anchit Nayar, executive]

I think I'm sorry, if maybe that came across is confusing in the press release. I think the only point we were trying to make is that the environment for brands is becoming more competitive because of the brand proliferation that's happening as well as, I think, because it was a soft Q1 for the brands, for consumer brands as well, especially for them, I think there was an effort by them to drive more top line through discounting. And that was the limited point we were trying to make it -- it's not retailer-funded discounting, and it is not a reflection on the competitive environment for us as a retailer.

[Kapil Singh]

Second, we've also mentioned that we lost around 20 days of festive season during this quarter. So any estimate of how much revenue we would have lost or whether the growth in the third quarter can be much higher compared to the second quarter because we'll have higher number of festive days falling in the third quarter this time?

[Falguni Nayar, executive]

I think difficult to -- I mean, we wouldn't like to indulge in forward-looking statements. So unfortunately, I can't talk about that. But you can safely assume that if the festive season has shifted, it should probably lead to some bump up in growth in the third quarter. As far as the second quarter is concerned, I think, again, it varies depending on certain number of days. But theoretically, one can assume that it would have taken off at least 200, 300 basis point of growth from a retailer, but it can be varied depending on the whether beauty for fashion or some different subsegments.

[P. Ganesh, executive]

And just to add, there is no loss of sales per se because it's actually a shift of the festive period from quarter 2 to quarter 3. So it's more of a shift, not really a loss.

[Falguni Nayar, executive]

It's more a year-on-year comparison that become difficult because in the previous period, there was festive and this period, there was no festive.

[Vijit Jain, analyst]

The next question is from Nihal Jham. Nihal, please also introduce yourself for asking question.

[Nihal Jham, analyst]

This is Nihal Jham from Nuvama. My first question was you did mention about the increased competitive intensity where brands are obviously increasing the discounting for the BPC segment. So did that not lead to maybe potentially higher advertising spends on your platform because maybe that's another way of targeting the increased competitive intensity. And I believe it is a tailwind if there are more brands proliferating.

[Anchit Nayar, executive]

Yes. So we've always said that brand proliferation is a good thing for a retailer like ourselves and having that competitive intensity between global, local, B2C, FMCG, that is a good thing for retail in the long run. So yes, to your point, it is beneficial to retailer like ourselves from an advertising income perspective. And as I mentioned, qualitatively, as we mentioned, because we don't disclose the number, but there was an improvement in Q1 -- sorry, in Q2 versus Q1 when we look at our advertising income, which we received from brand partners.

[Nihal Jham, analyst]

Any specific reason maybe they choose to discount more than advertise? Any trends that may be happening that you want to highlight on that?

[Falguni Nayar, executive]

I think these are very complicated questions and they vary by brand. But I think coming on back of a slower quarter, the previous quarter, the first quarter was generally slow for the industry. So it's very difficult to predict. But yes, I think while you can see interpret the number.

[Anchit Nayar, executive]

Yes. I think it's different, as Falguni said, it's different for different brands. Some brands have taken a price increase, which they've obviously pulled back. Others have not pulled back the price increase yet, so they are able to provide more discount. For some brands, they feel that discount gets immediate sales, whereas advertising, the benefit of advertising is slightly more longer-term. And each brand has their own objectives. And as we said, because Q1 was so soft for the industry and even Q2 hasn't been great for the broader industry, there is probably a little bit of near-term objectives that some brands are trying to achieve. But it's too difficult to paint all brands with the single brush stroke.

[Nihal Jham, analyst]

Sure. on. My second question was on the fashion bit. It's good to see the kind of a growth turnaround, especially in the order side that fashion has seen. At least from the numbers we see, the sales and marketing expense have not moved too much. If you could just highlight what are the specific steps that you've taken that has led to this growth revival, especially after 2 quarters of growth, I think, was single digit in terms of growth in the order side of it.

[Falguni Nayar, executive]

Adwaita do you want to take this?

[Adwaita Nayar, executive]

Yes, yes, I'll take it. So your question is what's causing the growth really, right?

[Nihal Jham, analyst]

Very much.

[Adwaita Nayar, executive]

Yes. So I think in terms of what's causing the growth, there's a whole bunch of strategies at play in first, obviously, I'm a big believer that everything begins with assortment. And we've just been continuously adding to our assortment, strengthening a lot of our unique propositions. I keep hopping on these propositions we're building like Global Store, Hidden Gems our private labels, but truly. And now we see it and what people are searching for on the website. It's these unique propositions that are making the platform an interesting place to shop and people are coming there for that. There have been also a lot of mainstream national brands that we've been collaborating with a lot more closely.

So that's another level. So yes, I would say 1 full bucket is better assortment. I'd say a second bucket is very focused product level features to improve conversion whether that's improving the checkout funnel, the payments, whether it's the personalization I was talking about, whether it's differentiated product strategy on MWeb versus app, just like meticulously line by line, going after every opportunity we see on conversion rate. And then finally, there's a whole lot of good work that we've been doing on marketing. So just working as a very close net team on delivering really end-to-end marketing.

So everything from getting new customers, our new customer acquisition is back in a very strong way to going out and getting the repeat customers back. Our CRM team, our retention team is doing some really good work on targeting and bringing back different cohorts of customers in a very focused way. So I wish I could say it's 1 thing, but it's really not. It's probably 5 or 6 different things spread across assortment, marketing and product tech that are coming together.

I will also say like more thematically, we've decided to focus a little bit more on women, and we decided to just lean in a little bit more into our proposition and do that with confidence. So those are 2 sort of more qualitative inputs that we've been focusing on, and we see that that's paying off. We do think premium womenswear is our right to win, and we've kind of been refocusing on that. So even if you were to look at our share of women's business, that's been going up, our share of premium business that's been going up, our IOS share that's been going up. So just shaping the business a little bit more.

[Vijit Jain, analyst]

Will take the next question from Abhisek Banerjee. Abhisek, please introduce yourself before asking your question.

[Abhisek Banerjee, analyst]

This is Abhisek from ICICI Securities. My question to Adwaita. So in terms of further improvement in contribution margin, and you've actually mentioned that there are some leakages you have plugged. Could you give us some more insight into exactly what that means? And Also, in terms of your spending decreasing on existing users, may I just know how do you define an existing user as in till what timeframe they must have ordered in the past in order to qualify as an existing user?

[Adwaita Nayar, executive]

So yes, I think in terms of the reducing of leakages, taking your first question, I'd say that 2 distinct legs to this answer. The first is that we've actually worked on reducing things like RTOs that's like the deliveries that could not be delivered to the customer, and we worked on reducing things like returns, and we've done that again through a lot of micro efforts. So for example, black listing customers who have very bad behavior on blocking certain pin codes, which show very bad behavior. We've started introducing some charges at the cart level, which dissuade some of these bad behavior.

So there's been a lot of just identifying unique kind of use cases on how we can change from this behavior. We're working a lot more closely with courier partners, seeing how we can do a better job to work with them to kind of increase some of these metrics. That's what we've been doing on 1 leg. And I'd say the other leg, and this goes back to my prior question, is you can sometimes pick the right categories, which show better behavior. So again, womenswear is a category that shows better behavior from a leakage point of view than, let's say, men's footwear. So there are certain choices we're making from a category mix perspective which is also allowing us to deliver better NSV. And yes, so I would say both those things. One is like category shaping but the other is also like very discrete efforts that we're making line by line into plug. Any kind of -- anything that's controllable from a leakage point of view, we're trying to attack and reduce. And I didn't actually follow your second question.

[Abhisek Banerjee, analyst]

So in terms of marketing expenses coming down as a proportion for NSV, you say that it is because your existing users or old users are buying more, which is where it is coming down. So I just want to know how you classify an old user as in how many times must they have purchased in the past?

[Falguni Nayar, executive]

No, no. Sorry, can I just comment on this? I think for us, the definition of existing customer is someone who was before this financial year started. And that number is at 46%. Actually, there is a repeat user customer definition, which is when the customers bought the second time. I think that what happens is if you acquire a customer in the year they may have, again, many of them may have bought the second time, but I think we have chosen over the years to disclose the repeat customers in this manner, where we call them existing customers. It means that they were on the platform before the year began, the financial year began.

[Abhisek Banerjee, analyst]

Understood. Just 1 last question from for Anchit. So you've actually mentioned the rupees per square feet in your off-line stores. So could you give us some guidance of, say, what is the number for stores that are older stores vis-a-vis the newer stores so that we have some idea of where this number can go up to GMV per square feet.

[Anchit Nayar, executive]

So I don't know if we disclose it, so I don't want to get into that right now. Maybe we can just talk slightly more qualitative what we can say is, generally, as the store tends to mature, the productivity improves and increases so older cohort of stores tend to have better productivity. Of course, there's many variables like sometimes if the location is wrong or it's a high street versus the mall. So I think there's a lot of variables. But generally, we do see that the longer the store has been around the better productivity. And we continuously churn and update the brand mix in the store to ensure that we're maximizing the productivity in the store footfalls as the store matures and the local catchment is aware that the store is in the mall or on the high street than there is, it tends to be higher productivity as well. So I think various factors, but what we can say is as the stores will mature, we do tend to see better productivity. I don't know Ganesh if there is anything like that.

[P. Ganesh, executive]

Yes. I think you have summarized it well, Anchit. And again, in terms of a breakdown between older stores, new stores, et cetera, while that's not something we've given in the public domain as Anchit explained by and large, as the stores mature. This is a number which tends to go up yes.

[Vijit Jain, analyst]

I'll just take in -- jump in with a question of my own, if that's okay. My question is just staying on the beauty side. I understood your comment that the ads have recovered somewhat Q-o-Q but still remain weak on a Y-o-Y basis. But if I take those numbers into account, it does look like the e-commerce business gross margins stepping out ads is also somewhat weaker on a Q-o-Q basis Y-o-Y basis. So just trying to understand if that's -- that's because own brand makes us more or less stable? Or is there something to do with the sale event that you launched this quarter.

[Falguni Nayar, executive]

I think -- yes, I think all I can say is that I think own brands they do a little more discounting like we told you that between GMV and NSV, the discount for most of the brands had gone up in that quarter. And to that extent, our own brands also probably had to participate in slightly higher discounting than they would have done in the past. And there is some amount of factor, but it doesn't move the needle in a very meaningful way. So it's a lot of small, small things. So all we can say is that [indiscernible] sale treated like an aberration rather than a huge trend or anything.

[Vijit Jain, analyst]

The next question is from Sheela. Sheela, please unmute yourself and introduce yourself before asking, thank you. Operator, can be we unmute Sheela Rathi please?

[Sheela Rathi, analyst]

Adwaita, my first question was to you. Would it be fair to say that the worst is behind us with respect to the fashion business from a growth perspective and as well as in terms of operational metrics point of view?

[Adwaita Nayar, executive]

I think the way I would frame it is I think the peak loss is definitely behind us. And I think that the P&L is just going to improve from here both from a percentage of NSV point of view, the contribution margin is just going to keep increasing as well as from an absolute of last year versus going forward, that number is also going to keep decreasing. So I feel like I said this in a prior call that building any new business, there's a year of peak loss, and I think that year is behind us. And from here, the loss will keep going down. I do also feel that some of the challenges we faced in Q4 and Q1, the last 2 quarters were pretty unique from a growth point of view. So yes, I don't see that coming back. I do find that Q2, Q3 and onwards, both the growth as well as the profitability will be moving in the right direction. But yes, I think as you guys have probably figured out by now, we have a lot of discipline in terms of not growing if we're not seeing the right unit economics or the cost structure is stacking up.

So yes, for Q2 and from what I can see right now, everything is stacking up well, so the growth can be continued. But we will always bring that discipline of just making sure that our unit economics are constantly improving and moving in the right direction. So I think what I'm trying to say is the growth you're seeing now is the growth we want to keep steady at. We want to keep growing at this level. And we feel like at this level of growth, we will also be able to keep improving our unit economics and our contribution margin line quarter-on-quarter.

[Anchit Nayar, executive]

Yes. I think if I could just add to what another thing. I think to phrase it as the worst behind us is probably not correct because the reality is that you have to invest in a new business, right? And the biggest unlock is on marketing and as a repeat versus new mix as that evolves and as existing and repeat customers start to account for a larger share of GMV, then the marketing spend as a percent of sales will start to trend downwards which will obviously reflect well on the profitability. But I think any business has to first build that base of repeated existing customers. And to build that base, you have to acquire the customer and customer acquisition is going to cost money regardless and especially so in a competitive business like fashion.

[Sheela Rathi, analyst]

And that brings me to my second question. Like we have seen improvement on the GMV contribution with respect to the fashion business now at 46%. Obviously, on the beauty business is much higher. But from your perspective and also what we see at the industry level, from that lens, what do you think is a sustainable level with respect to the GMV contribution coming from existing customers?

[Adwaita Nayar, executive]

I honestly think that just year-on-year it keeps climbing. I think what that eventual number like sort of stabilizes at differs from every market to every market depending on the -- where that particular business is in terms of their journey. But I think more directly. What I can just say is that I think every year, you'll see this percentage coming from existing buyers increasing. But it's not like next year, we're going to jump to where beauty is, but it will just keep increasing sort of sequentially every quarter.

[Anchit Nayar, executive]

I think the way we look at it is, it's not about -- we're not trying to solve for a mix. I think we have very -- we have very clear goals in terms of what should be the growth in new customer acquisition or what should be the growth in repeat customer and we try to maximize both. And wherever the mix shakes out -- it shakes out now naturally beauty as the business has been around for 10 years. So they've had 10 years of customer acquisition that has allowed us to build a very large base of existing users. And in fact, I would say the -- if you see a business that's been around for 10 years, but has a low share of repeat or existing customers, that to me is indicative that they're not doing a good job at customer retention and customer retention is an output of the kind of customer experience that you're able to deliver.

So I think better the customer experience, better the retention, higher the share of existing customers. And that's kind of how we look at it. That being said, new customer acquisition is an investment for the future and has to be done. And therefore, we look at the 2 many separately, and we invest in both and try to drive growth in both pockets.

[Sheela Rathi, analyst]

Fair enough. Just if you would give us some ideas in terms of where the industry would be on this number?

[Falguni Nayar, executive]

No, it's very difficult to comment each platform will be different, and it all depends on the pace of growth also. I think it also depends on the quality of growth in the past. If you have periods of very poor quality customer acquisition, then you would have difficulty having good cohort.

[Sheela Rathi, analyst]

Understood. And my final question was very bookkeeping related question. But in the fashion business, the NSV growth is higher than the GMV growth. The gap is about 5 percentage points. What could be the reason?

[Adwaita Nayar, executive]

Yes. I think I tried to allude to this, but it's all the efforts on reducing the leakages, right? So when you're able to reduce your returns, RTOs, cancellations and so forth, then your NSV looks better. So because this quarter versus a year ago, a lot of those leakages are looking far better. You'll see that the NSV on a year-on-year basis is growing better than what the GMV is growing at. I think you've understood.

[Vijit Jain, analyst]

We'll take the next question from Aditya Chandrasekar. Aditya please introduce yourself before asking your question.

[Aditya Chandrasekar, analyst]

This is Aditya from UBS. Just a kind of follow-up question on the marketing spend on the fashion side. So obviously, it's come down sharply because your repeat kind of customers has increased. Just wanted to get a sense of as the repeat -- share of repeat customers kind of or share of existing customers keeps inching up and maybe heads closer and closer to where beauty is, where can we see this kind of 25% of NSV go down to? Do you have some kind of target in mind for the medium term? Just wanted to get a sense because structurally, it would be higher than beauty I'm assuming. But what kind of a number you're kind of targeting that would be helpful.

[Adwaita Nayar, executive]

There's no like explicit number that's in our head. Obviously, every quarter, we just want to do as well as possible. We set sort of 3 months, 6 months kind of targets, we keep gunning for those. But we do feel that there is significant headroom to bring this significantly, right? So if you see the number for Beauty, it's so very low at the moment. So I think between where beauty is today and where fashion is today, there's so much room for us to continue optimizing. We see a lot of low-hanging fruit. We think that this number is not only related to the repeat existing mix. Of course, that's 1 big element. There's a lot of other optimizations that we continue to do, which can bring this down significantly.

So again, I can't give you an exact number and by what quarter, but what I can say is that the -- the goal is to every quarter, bring this down in a meaningful manner. And there's a lot of room and there's a lot of flex on this number. And most of the contribution margin expansion will come from this number going down.

[Vijit Jain, analyst]

Can we take the next question from Latika Chopra. Latika please unmute yourself.

[Latika Chopra, analyst]

First of all, congratulations. It's very encouraging to see so many efforts to scale up the both beauty and fashion portfolio from a consumer lens. My question was on contribution margins for the Beauty & Personal Care business. It's hovering at pretty healthy levels of 26, 27-odd percent. Just wanted to understand how should we think about progression of these contribution margins over the next 2 to 3 years? Can they reach, in your view, a high 20s level?

And the question is in the context that I guess you will need investments behind your own brands and also on the off-line stores. So how should we think about how this number is going to move? And what will drive that?

[Falguni Nayar, executive]

So are you asking for the number for Fashion? Is that what you're asking?

[Latika Chopra, analyst]

For Beauty & Personal Care. The contribution margins are hovering at about 26.5 now. These are good levels. But just trying to understand, should we see scope for further improvement here considering that you have to make investments behind scaling up your own brands and behind the off-line stores?

[Falguni Nayar, executive]

I think there is a certain amount of off-line store growth already built into our current numbers because if you remember, we've been -- we accelerated the off-line stores -- sorry, I wanted to point out that we accelerated the -- it's built into our financial numbers because we accelerated the offline store count after the COVID. However, it is not above the contribution line. So actually, our store expenses, if I'm not mistaken, come below the contribution. And so that's 1 thing I wanted to point out.

And secondly, we also have a fairly large critical mass of our own brands, where again, while we don't, I think, invest in our brands in a way that can lead to large investment. We kind of own and then invest in the brands. I don't know what the right or wrong approach, but that's the 1 we follow. But -- so it's more measured. However, we -- it can go up. I think marketing expense to a certain extent towards brand building as well as some amount of brand building spends for our BPC brands -- I mean, beauty as well as fashion brands can go up in future, if we see conducive environment.

[Latika Chopra, analyst]

All right. So Falguni, does it mean that we should, for the time being, assume that contribution margins are going to hover in this 26%, 27% zone. And it's going to be a more gradual expansion from these levels for BPC?

[Falguni Nayar, executive]

See, the point is like you've always seen us that we will try to deliver the best margin possible. So I don't want you to tell me to not try to improve those. So what can I say? I don't want to promise that I won't improve it. But yes, you can resume. It's been a huge effort to tighten the fulfillment costs and a lot of benefit of that you've already seen. We work towards improving marketing costs over the last few quarters. But right now, like you can see that we do believe that we do need to create and build a market like you saw that we are doing work towards market creation. And I think -- so we'll do the right thing for each quarter rather than worry about the contribution margin. But overall, we don't see a huge need to spend too much.

[Vijit Jain, analyst]

That was the last question for the day. Thank you, everyone, for joining the call. I'll hand this back to the team at Nykaa for any closing comments. .

[Falguni Nayar, executive]

Sorry, I just forgot to mention that while we discussed contribution margin at the EBITDA level, we have improved our employee costs quite substantially over the last year from 9% -- 9.9% to around 9% level. And I think that has been a big focus during last year, and we are happy to report that. And like you can see in other expenses line also it's been flattish, and we think we can improve it slightly more there, too. So yes, overall, at the EBITDA level, trying to work towards improving EBITDA margin will definitely be a possibility because many of our businesses like fashion as well as the new businesses can see improvement in EBITDA margins.

[Vijit Jain, analyst]

Thank you, Falguni. Thank you, everyone, who joined this call. On behalf of Citi, that concludes this earnings call. Thank you for joining, and you may now disconnect. Thank you.

[Falguni Nayar, executive]

Thank you.

[P. Ganesh, executive]

Thank you.

[Anchit Nayar, executive]

Thank you.

[Adwaita Nayar, executive]

Thank you.