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Fsn E-Commerce Ventures Ltd
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Hello, and good evening, everyone. This is Michelle from Chorus Call. Welcome to FSN E-Commerce Ventures Limited Q2 FY '25 Earnings Call.
From the management at Nykaa, we have Ms. Falguni Nayar, Executive Chairperson, MD and CEO; Mr. Anchit Nayar, Executive Director and CEO, Nykaa Beauty; Ms. Adwaita Nayar, Executive Director and CEO, Nykaa Fashion; Mr. Nihir Parikh, CEO, Nykafashion.com and Nykaa Man; Mr. Vishal Gupta, CEO, Nykaa Distribution; 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.
Kindly note that this call is meant for investors and analysts only. By participating in this event, you consent to such recording, distribution, and publication. [Operator Instructions]
With that, over to you, Falguni ma'am, for opening remarks. Thank you.
Thank you very much. I thank dear investors and everyone on the call, really happy to be here today with our second quarter for financial year '24-25 results.
I'll start with performance highlights. And just happy to say in the second quarter this year, we've had a strong GMV growth of 24% year-on-year. And revenue from operations now stands at INR 1,875 crores, which is again a 24% year-on-year growth.
Taking it further, the gross profit has improved in terms of the margins and the gross profit margin now stands at 43.8%, which is 70 basis point improvement year-on-year and gross profit stands at INR 821 crores.
Talking about the EBITDA. EBITDA has also grown at about 29% year-on-year with EBITDA coming in excess of INR 100 crores for this quarter, and it stands at INR 103.7 crores. Profit before tax is at INR 21.3 crores, again, a 60% year-on-year improvement and with PAT at INR 13 crores with, again, 66% year-on-year improvement.
Moving on further. I wanted to -- this breaks it up between Beauty and Fashion, where you can see that the Beauty has had a strong growth of 29% on a year-on-year basis. This is under our definition of beauty, which includes omnichannel beauty. It includes our beauty private brands as well as our eB2B business. And this -- on the first half also, the growth has been 28% year-on-year. So we've had a strong first half and the growth momentum has only accelerated in the second quarter.
On the net revenue also, the picture is similar with 24% year-on-year growth, both in quarter 2 as well as on a first half basis, where the first half net revenue for Beauty stands at INR 3,296 crores.
On the Fashion, I think the growth has been slower, as many of you are aware that the Fashion had a little bit subdued first half. And from a seasonality perspective as well as unique reasons why this year the Fashion demand was a little bit subdued due to more festivals being more weighted in the second half. So we have come out at about 10% year-on-year growth for this quarter on a GMV basis for the Fashion business and even the first half growth is subdued at 12% year-on-year.
On the revenue, of course, the results are good with 22% year-on-year growth for the second quarter with the net revenue at INR 166 crores, whereas for the first half, the net revenues have come out at INR 314.7 crores, which also is a 22% year-on-year growth.
I wanted to point out that the strong content revenue in LBB, the subsidiary that was acquired by Fashion business, is responsible for strong growth in revenue growth momentum in the Fashion business, which has topped up the growth on top of the fashion business.
Just some of the summary headlines. We now have 37 million cumulative customer base, which is a 31% increase on a year-on-year basis. We also have 210 stores. With this, we are the largest beauty retailer network in the country. And we've also added 2 new flagship stores, and it's a clear flagship stores are bigger stores with more brands in premium location, and there is a clear direction to grow some more of these going forward.
On quicker delivery, as we call it, we have a big focus on consumer delight through faster delivery. And we are proud to say that 70% of our beauty orders are now delivered within same or next day in the top 110 cities in the country. So instead of focusing on just few metros, I think on a wider network of larger cities, we are trying to improve our delivery to either same or next day. And we have this definition where orders placed before 12 noon are delivered the same day and the orders placed in the afternoon are delivered by next morning. So it is less than 24 hours. But almost 110 cities are delivering 70% of the orders in this manner.
We now have 6,800 brands across Beauty and Fashion, and we've launched 170-plus brands in Beauty this quarter and another 260-plus brands in Fashion this quarter. So it was a big quarter for expanding our catalogs, and we are quite excited that the platforms are growing bigger and stronger. With all this, the consolidated GMV stands at $450 million for this quarter.
With that, I'll hand over to Anchit to talk about Beauty Multi Brand Retail.
Okay. Great. Thank you, and welcome, everybody. So I think as FN mentioned, it has been a strong quarter for the Beauty vertical with a 29% growth in GMV, taking the total GMV for the quarter to INR 2,783 crores.
In terms of what were some of the key highlights in the quarter, the first has been that the investment in new customer acquisition is paying off. This is something we've spoken about in previous quarters, and you can see that in the fact that the growth in customers -- new customers has been at 31% year-over-year.
We've also spoken about the focus which the company has put on growing and expanding the premium fragrance market in India. And that has also played out well for us this quarter with that particular category growing well ahead of the overall platform growth of 29%. In July, we host our flagship Hot Pink Sale. That sale this year had over 23 million unique visitors to the sale over the 10-day period and continues to grow from strength to strength.
In terms of our physical retail footprint, today, we are 210 stores across 70-plus cities, making us the largest beauty specialty retailer offline now as well. And this business has grown again at about 37% on a GMV basis year-on-year.
The other parts of the Beauty vertical, as you are aware, includes our owned brands, which had a standout performance this quarter with a 48% growth year-on-year as well as our eB2B business, Superstore, which has grown at 80% year-on-year, showing a very strong momentum as it continues to expand the retailer network.
So Nykaaland 2024 is a flagship event, which we've hosted in November. So it is technically part of Q3, but since it was something that just occurred earlier this month, we thought it quite relevant and top of mind to share with our shareholder and investor community. This is the first of its kind and the largest beauty festival in the country, and it was a resounding success. We had over 25,000 customers who bought tickets to attend this event, which is a 70% growth over last year. Over 1,000 content creators attended the event in addition to the 25,000 customers who helped to create content that was then used to amplify the event on social media as well as digital platforms.
We had master classes that were hosted by Sofia Tilbury and Patrick Ta, who are some of the biggest makeup artists globally and over 5,000 beauty enthusiasts bought tickets to attend these master classes. We had 80 brands who participated this year, both international and domestic. And there were new launches that were dropped for the first time at the event from global iconic brands such as Clinique, Sol de Janeiro, GHD, Obagi, Eucerin, and more. So I think this is a testament to the consumer love for brand Nykaa as well as consumer love for the category and interest in learning more. And this is an example of some of the on-ground events and experiences which we do, which we believe help us to drive further market expansion. And as market leaders and category creators, it's our responsibility to continue to invest behind these category expansion activities.
And we will just play a short video for you to get a sense of what it was like to be at Nykaaland.
[Presentation]
Yes. So I think that video encompasses well the sheer scale of the event. And as you could hear from some of the attendees, this was an event that is not only best-in-class in India, but it's quite unique in terms of its scale even on a global -- at a global level.
Now moving on to some of the new brands we launched this quarter. As mentioned, over 170 brands were launched, but I just want to highlight a few that are, as some of you may know, are marquee brands at a global level.
First is Yves Saint Laurent, which is a luxury beauty brand that is owned by the L'Oreal Group. This brand launched only on Nykaa in Q2 and continues to be available on nykaa.com as well as Nykaa stores.
Kerastase, which is again owned by the L'Oreal Group, is a global luxury hair care brand, a professional hair care brand that has been available in salons in India over the past several years, but this is the first time that they have launched on a dotcom platform, and we were the partners of choice for that launch as well.
Third is Eucerin. This is a premium derma cosmetic skin care brand that is owned by the Beiersdorf Group. And this brand was launched, again, only on Nykaa in the second quarter. And, again, a testament to how we are really convincing brands to enter the India market and take -- and look at Nykaa as the partner of choice for their India expansion plans.
And last but not least is Dr. Jart, which is a Korean skincare brand from the Estee Lauder Group. And this brand, again, launched in Q2 with Nykaa, only available on Nykaa, in our physical retail stores and dotcom.
So we continue to bring the best global brands into India and global partners see Nykaa as the partner of choice given the sheer scale of our consumer base, but I think even more importantly, the expertise, which we've developed over the past decade in helping brands to build their brand equity in the market and localize themselves for a go-to-market strategy.
As I mentioned earlier, Fragrance has been a standout category for us this quarter and in the first half of the year, a lot of it being driven by what we like to call the art of retailing. So creating demand, creating aspiration for this category through awareness and education. And here are just some examples of the kind of on-ground events as well as on-site experiences which we create to drive that demand. So you can see that the category grew at 65% year-over-year on Nykaa.com, which is more than double the growth of the beauty vertical. And in stores, the growth was even higher at about 105% year-over-year.
Moving on. Finally, just a quick recap. We have 210 stores, which currently account for about 2 lakh plus square feet of retail space, and this is a 25% growth year-over-year. We currently are present in 72 cities. So a very wide network of retail distribution. And in terms of contribution to our overall omnichannel beauty GMV, that number is at 8.2%, and it is up by over 70 basis points year-on-year.
In terms of the split of stores, 91 stores are On Trend, 73 are Luxury and 46 are Kiosk. And the last 3-year GMV CAGR for this physical retail business has been about 40% and EBITDA CAGR has been even higher at about 60%. So physical retail continues to be a fast-growing business and incredibly important to our overall strategy, which is to expand the beauty market in the country and to give consumers access to the best brands and the best products in a physical setting, which as a highly tactile category is incredibly important.
Now coming to our delivery speed. As we mentioned earlier in the presentation, this is something that is incredibly pertinent and relevant, especially in the current circumstances and situation in the country. I would say that we are quite happy with where we are today. Just to reiterate, in the top 12 metros in the country, 80% of our orders are being serviced already either the same day or within the next day. And if I look at the top 110 cities, 70% of the volume has already been covered through same-day or next-day delivery. So even with the wide assortment which we have, which is over 150,000 SKUs and close to 3,000 brands, we are able to provide a very quick timely delivery with a very wide assortment as well.
With that, I will hand it over to Adwaita to take you through the House of Brands.
I'll take it. I think Adwaita may not be in a zone where she can speak, so I'll just take it for her. I think from the perspective of Nykaa's Beauty House of Brands for beauty -- House of Brands for beauty brands, we are really happy that we have registered a 50% year-on-year growth in this quarter, 48% GMV growth. And now the quarter 2 GMV stands at INR 360 crores. This was driven by strong growth in both Dot & Key and Kay Beauty for the quarter.
And if you look at the mix also, the brands are going beyond just the Nykaa's own platform. So while the platforms remain strong, contributing to 51% -- totally contributing to 63% of our brand sales, the brands are also increasingly being distributed through what we call as general trade channels, albeit more selective distribution because of the nature of our brands, which are more premium and in categories like Makeup and High-End Skincare, but some beyond that also. And increasingly, we are also going into third 3P marketplaces as well as international forays. So this -- I mean, this is a tribute to the fact that these brands can stay and find success even outside the platform.
Next. So talking about Fashion House of Brands also, we've registered a healthy growth of 10% year-on-year. And these now stand at about INR 108.8 crores in terms of the GMV. These brands, again, are similarly being distributed both on the platform. And you can see that here, in fact, the owned brand share has increased on the platform to 57% of their sales coming from Nykaa platforms. As you're aware, we don't have too many fashion stores except EBOs for Nykd. So about 4% of the fashion brand turnover comes from Nykaa's own stores.
However, similar to Beauty category, we do believe that as brands go wider, they get greater momentum. So the GTMT distribution for these brands is about 20% and then the 3P channels on which they sell is about 19%. And some of these were brands we had acquired along with 3P channel distribution like Dot & Key and also Twenty Dress. So we allow for that to continue and build on that.
So with that, I hand over to Vishal to talk about the Superstore by Nykaa.
Thanks, FN. We had another quarter of sustained top line growth as well as significant improvement in our unit economics. As you can see from this chart, we had 80% year-on-year growth in GMV and over 2 years, 3x growth, driven a lot by our increase in distribution reach with 60% increase in our transacting retailers. And we are now in over 1,000 cities, which shows the kind of scale that we have developed in the last couple of years.
Next. And importantly, the growth has also come with better quality because our AOV is also growing by 16% due to increase in the share of premium brands and our high-margin brands. So the physical expansion growth as well as we are getting more from our existing customers, which is a great sign for loyalty.
Next. And all that ultimately translates into 862 bps better contribution margin, driven a lot by gross margin improvement. As we get scale, we get better ad income and like I said, better quality of orders, therefore more premium and profitable brands. So 334 bps improvement in profitability and a reduction in fulfillment cost as well as our sales and distribution cost. So overall, a really good performance in both scaling up top line and improvement in our unit economics. Thanks.
And I'll take over.
Next slide. So fashion GMV, like we discussed earlier in the challenging market, has been a 10% growth. What's good is our repeat customers, existing customers are seeing strength in our platform and are coming back in larger numbers and really valuing what we have built at this point in time. So that growth has been really encouraging for us. While our revenue has grown faster, as Falguni mentioned earlier, which is a mix of LBB's marketing income as well as higher service-related income on the platform.
Next, please. One of the biggest wins and actually an honor for us was winning the Foot Locker's online rights in India. This is one of the world's largest footwear retailers, and they obviously spoke to all the Indian players, and they chose us. We have online rights to run footloocker.co.in. plus we are building and running the Foot Locker India social handle as well as the shop-in-shop for Foot Locker on Nykaa Fashion as well as Nykaa Man. The early traction on this launch is pretty interesting, and we also have the CEO of Foot Locker, Mary Dillon, joined Falguni and our team for the launch event as well in India. So we're pretty excited about this start. And overall, this unlocks a lot for the overall athletics and footwear market as well because in the premium space, we would be leading the conversation for the consumers in India.
Other new brand launches, again, we are always hunting and finding amazing brands in India and across the world to bring to the stylish consumers of India. So we've got many brands as well as styles as well as key collections that were launched. Some of them were only with us and some of them -- so for example, we have the Jodi and Nykd collection, which was on the platform as well as Twenty Dress and Happi Space Collection as well as a number of other cool brands that we brought to the platform.
Next, please. And again, one of the most important things Nykaa Fashion stands for is style as well as new launches. We've doubled down even further on this conversation. And again, our customers are really valuing the selection as well as curation that we provide on our platform. So a lot of updated UI/UX conversations across the site and relevancy of giving the consumer the right product that they're looking for in their journey. So we've had a solid 25% GMV growth of just the First In Fashion selection that we have on platform, much faster growth than the platform.
From a financial perspective, our gross margin growth has been really good at 567 bps. Part of it is coming from LBB marketing income and service income and as well as on the platform, the service income has done really well, which has led to a gross margin growth.
Strategies across fulfillment expense, fulfillment side, where we've had certain legs where we optimize from air to land as well as improved packaging costs has led to improved fulfillment expenses. Marketing expenses on the higher side, one of the -- we showed you guys the Stay Stylish videos last time we met, which was the branding videos. So some of those investments were made this year -- in this quarter to really help increase the brand awareness of Nykaa Fashion, which will help us in the long term as well.
So overall, sum of parts, the contribution margin has increased, slight increase in our cost of employees as well as G&A, including some of the tech costs that we've had, again, good investments for the long term. But sum of parts, our overall EBITDA has improved by 307 bps in the Fashion business. Again, as we've been saying, our quarter-on-quarter and year-on-year improvement in quality of business, quality of customers, and quality of P&L is continuing in the right direction as we continue to add value to consumers in India. Thanks.
Thanks, Nihir. We'll have a quick look at the financial performance now. So as we can see, top line delivered good numbers with a 24% GMV as well as revenue growth, which is in line with the 2-year CAGR. The profitability momentum also continues with a 29% growth in EBITDA and with PAT growing 66%.
Next slide. Yes. So here, we have a snapshot of the P&L. As we can see, gross margins and most cost elements have shown improvement. This has resulted in EBITDA and PAT expansion even after a 174 basis point increase in our marketing and S&D investments.
Going to the next slide. This is a snapshot of our vertical performance across our Beauty and Fashion verticals. The highlights of the same are covered in the next slide, so I'll go to the next slide.
As we can see, gross margin expansion has been seen across our Beauty, Superstore, and Fashion businesses. Marketing investments have increased by 134 basis points, led by accelerated new customer acquisition. S&D expenses increased by 37 basis points due to higher salience of our eB2B business as well as owned brand penetration into 3P channels. And also what we can see is that scale efficiencies have been kicking in, in other expenses.
So going to the next slide. To add some color on our marketing investments in new customer acquisition, our cumulative customer base grew 31% to 37.1 million at the end of the quarter, while AUTC stood at 16.8 million.
Next slide. In this chart, we can see the acceleration in our new customer acquisition in Beauty. AUTC stood at 13.7 million and new customer growth stood at 31%.
Next slide. Here, we can see some examples of marketing investments.
So also in the next slide. That's our Stylish campaign in Fashion.
Moving ahead, here, we'll have a look at our capital expenses. So coming to CapEx, as all of you are aware that coming out of COVID, we had significant investments, which were made in office space and warehousing capacity as well as in stores, both in FY '22 as well as in FY '23. What this chart shows you is that it has now considerably moderated and with now key investments happening in stores and in tech.
Moving ahead. Overall, as you can see, the balance sheet ratios have improved over time with both fixed capital as well as working capital turns improving and with the resultant uptick being seen continuously in ROCE.
So that really summarizes the financial performance and the floor is open for Q&A.
[Operator Instructions] The first question is from Avi Mehta.
Hello. Am I audible?
Yes, sir.
I just had 2 questions. One, I wanted to understand the beauty discounting pressures. If you could update us on that and whether have they moderated from levels seen in the last quarter in 1Q FY '25?
Anchit, you're going? Okay.
Yes, I can take that. So I think you can see it also from the numbers that it has moderated slightly, but it continues to be -- there continues to be some elevated discounting, especially from the horizontal platforms that are in the beauty -- that are also playing the beauty category. So there is retailer-funded discounting from horizontals that continues, I think, because there is softness in their other core categories like Fashion, there is an aggressive play on the Beauty side. But it is starting to moderate slightly from the peak, and we are optimistic that this will continue to moderate over the coming months and year because, of course, as I've mentioned in the past, the brands are against the concept of retailer-funded discounting on their products because in the long term, that tends to commoditize the category.
Anchit, sorry, I just wanted to understand if any expectations by when the logical way I would see this is as discounting -- discount moderates, we should see ad income growth kind of also rising. So I wanted to just get your thoughts on when do you see that panning out?
So I think, Avi, firstly, we don't discount. So you're talking about the market. I just want to be clear.
I obviously mean from the brand perspective because that should flow into your P&L as well.
No, no. So I think maybe I'll just clarify. As I said, we are seeing elevated retailer-funded discounting from horizontal platforms. Brands are already looking to moderate their discounts and have already moderated the discounts meaningfully. So now a lot of that is being funded by retailers. So I don't know when the horizontals will stop that and how long they're able to sustain it. It is not a very good practice for the industry. But I don't think the 2 are linked.
I don't think that -- because, as I said, as brands have started to moderate their own discounting, there is definitely more openness to spend on advertising. They realize that longer term to build real brand equity and real demand, they need to advertise and they need to market and create awareness for the brands, which is happening and has improved. And -- but I don't know when -- unfortunately, I don't have an insight into when the other platforms plan to stop the elevated discounting.
Very clear, very clear. And sorry, if I may, the last question on the growth environment in the Fashion industry. How is that behaving as we enter the festive season in 3Q? Any update on that would be useful. That's all from my side.
I think Nihir can take it, and I'll add to that after Nihir has taken it. Nihir, do you want to go first?
Yes. I think the first half of the year, generally, from an industry perspective, has been a little slower. I think we've seen that across the results across various companies as well as the stuff we've seen in Nykaa Fashion. Having said that, what we do see is continued customer love on key areas of value add, which is definitely helping us. And I think the second half, we'll have to -- we'll move forward, but I think the first half has been a little slow, and we're excited about the platform strength.
Falguni, do you want to add?
Yes. What I wanted to say was that, clearly, there's a lot of talk that industry didn't do well in fashion in the first half because this year, all the festivals were shifted. There were more weddings and festivals in the second half. So it was seasonally weak. And there was definitely some pickup in October. And I don't -- I mean, in terms of even in Fashion, we haven't seen any increase in discounting.
So I think the main thing everyone is hoping for and because it's only 1 month post the quarter, and we also don't want to guess going forward. But the industry is hoping for better growth outcomes in the second half of the year linked to wedding season.
The next question is from Kapil Singh.
Hello. Can you hear me?
Yes, sir, we can hear you. Please proceed.
Just one question I had on the last slide, if I see the key operational metrics, the visits and MAUV, there's a stark difference between Beauty and Fashion. So just want broader perspective from you why there is so much difference?
I think you're talking about really the last slide, which is the KPI slide?
Right.
So first of all, all the comparisons are a little bit difficult to make, but are you talking about the year-on-year growth versus -- that's all you're talking about, right? The year-on-year growth on visits in Fashion is slower?
Yes, visits, MAUV, orders, all of these, it seems like there is a stark difference between the 2 businesses. I understand operating environment is tough, but if you have any perspective here, why there is so much difference?
So like you could see that the AOV did improve in Fashion. And clearly, you can see that AUTC also has improved in Fashion. So I think the main reason was that we did see the cost of customer acquisition go up at certain points because the conversions were poorer. And we chose not to chase growth by spending more marketing. And obviously, when the results -- obviously, so that's how the visits didn't grow. But the long and short of it is that we couldn't deliver better growth given the marketing budgets that we wanted to spend. And we don't think it's the end of it all. I think we see it as an adversity for the first half due to maybe some wrong -- I mean, part of it was market adversity, but also some things we may not have done as well. And we do believe that the growth -- we will -- we are working towards reviving the growth and visits and October clearly was better.
Any more insights like what you can do differently in second half compared to first half?
I mean, no, I mean, in terms of everything, so I think any kind of like efficiency in marketing is desirous of assortment growth. And I think we are chasing a lot of assortment growth, key long-term relationships or strategic relationships that can help us drive the growth like Foot Locker is just being rolled out and there'll be similar in future.
Third is managing for better supply on the platform, which also sometimes in India suffers in the first half because it's off-season and a lot of new supply and fashion comes in, in time for the season. So a number of things that are important for better conversion, which is a lot of assortment build, a lot of unique collections and partnerships.
And thirdly, obviously, efficiency of marketing. And yes, I think those -- and then obviously, availability of supply in terms of what the customers are looking for and making sure that is available on our platform. So that's also an assortment.
So I think we'll continue to do all of that better. I think from the superiority of platform in terms of discoverability and how good the platform engages with the customer, there is not a question. I think a lot of that investment has been made by our business. So you can see that. And I think a lot of customers see that we also get that through as feedback from the customers.
So finally, it's all about what is customer looking for? Do we have those brands and at the right prices and also are we able to help facilitate discovery? And then do we have ability to fulfill that demand?
And just the second question is on margins. They've operated in a band for various reasons, let's say, roughly about 5.5% for last many quarters. So just wanted to understand, are we -- do you think we are still in investment phase and they could remain here for some time and we -- or how should we really think about it? Just qualitatively, your thoughts on this, that would be helpful.
I think all we can say is that we've also given somewhere in the presentation, we have given the margins, which would have been if we were to remove both the ESOP charge, so adjusted EBITDA without the ESOP charge as well as our GCC expansion that we have embarked on, which is in very early days to really be able to judge. So that has come out at 6.2% compared to 5.5% a year ago. So there is a core improvement in profitability. But like any organization, sometimes one sees the need to invest in people, sometimes we see the need to increase in marketing expenses.
If you can see like we've improved most of the elements of costs, except marketing. And we do feel that that's a very conscious effort to acquire more customers, and that's what we've also shown in terms of our customer acquisition, how we've accelerated it in the first half so that we are ready for it in the second half. So this is for Beauty and there is similar investment made in Fashion. But within the guardrails of marketing being within a certain percentage of our net revenue.
It is different for Fashion than Beauty in terms of percentage, but we observe guardrails for each of the businesses in terms of how much we are ready to invest.
The next question is from Sachin Dixit.
I hope you can hear me now.
Yes.
Yes, sir.
So my first question is with regards to the investments that we are making in terms of our same-day and next-day delivery stuff. So largely on this piece, obviously, we have highlighted multiple times that quick commerce is not a like-to-like replacement for Nykaa. The user base is different, customer experience is different. Why are we still gunning for a 30-minute or, let's say, an hour, 2 hour sort of deliveries then?
Your question is why are we not trying to do that?
My question is why are we still trying to sort of match up with quick commerce speed? Obviously, we are not going 10 minutes, but we are still trying to do a 30-minute or a 2-hour delivery. My point is…
Sorry, just to explain this initiative, what we are trying to say is that Nykaa has improved its delivery performance by 45% on all our orders. And within that, at least in 110 cities, which is a very wide network all over across India compared to quick commerce, which is just chasing a few top cities. In 110 cities, we are able to deliver 70% of our orders next day. And this has come not due to any extra investment we put in into the first 6 months of this year. It has come because of all the network -- I mean, warehouse network rollout that we had done in the previous 2 years where we went closer to the customer through our warehouses being located in each of the state capitals and then the delivery was happening through that. So I think that's what we are highlighting.
Maybe I can address the question. So look, I think you have a very valid point, which is Nykaa is catering to many different consumer journeys. A lot of them are not a good fit for quick commerce, like there is a lot of discovery that needs to be done when making a purchase in certain categories within Beauty. There is discovery, there is assortment with is also very important in Beauty. It's a very long-tail category. If you're trying to buy a foundation, there are 30 different shades that suit the Indian skin, tone and color. So I mean, Beauty is a long-tail category. So there are large parts of our business that are not addressable by quick commerce, at least not in a very affordable and sustainable way.
So we are not looking to do quick -- to try to do 30-minute delivery for that part of the assortment. But there is a part of the assortment, which we do have, which is also an important part of our overall business, which we call as fast-moving everyday SKUs. These are products that consumers buy more like everyday essential products rather than as a more deliberate beauty purchase. And for us to continue to dominate market share in those SKUs and in those subcategories, we do think it is important to be competitive in certain metros for certain parts of the assortment from a quick delivery perspective, meaning 30-minute to 3-hour.
So that is the part of the assortment, the part of the business, which we're looking to address via the Nykaa, now quick delivery initiative, which we've spoken about with you in the past. We also realize that we have the assortment, we have the brands. And actually, the investment from a setting up of what we are calling as the rapid warehouses or the rapid stores is not going to be meaningfully large. We think we can do this in a profitable way. As you know, our average order values tend to be quite high. And so on an order basis, we feel that this business can be actually profitable as well.
So it's not going to be -- at this point in time, it's not going to be margin dilutive nor is it a large capital investment. And so if we have the ability to do it, we know how to run our supply chain. We've been doing it for years. We know how to manage warehouses, mini warehouses as well. And we have the assortment. So we think that in the interest of always being better every day and always providing a superior experience to the consumer, there are parts of the portfolio for which we are looking to build these capabilities. But as we've said in the past, at this point in time, basis our estimates and our forecast, this should not be a very large CapEx nor should it be a drag on the overall P&L.
Second question on Nykaaland. Obviously, Nykaaland was a great hit this year. I just wanted to understand like how does it impact our P&L? As in -- I understand there is minimal monetization that Nykaa is doing on Nykaaland as of now. So are there any plans to monetize? Who is bearing the entire cost of running this huge event? Can you break that down for us?
I will answer it. So I think most of the -- I mean, all of the cost of Nykaaland is recovered from brand partners and sponsors. So it's something that adds to our marketing income. It's not in this quarter. It will be in the quarter in which it is executed. And obviously, we spend to deliver this experience.
And the spend is on 2 sides. It's part of the spend that Nykaa does, and part of the spend is by brand partners who spend additionally on the boots that they create, the free products that they give. So it's a great -- we call it upper funnel activity to create education and desire for Beauty category. And all of it is kind of funded by our brand partners and sponsors. And obviously, the benefit to Nykaa is more about -- I mean, basically supporting the marketing activity for the Beauty category. We call it a category-building activity.
Yes, go ahead.
Yes, Anchit. Do add.
Yes, maybe I…
Just to clarify, could that be the reason why our marketing expense went up this quarter, like because you are investing into Nykaaland happening in October?
Nykaaland expenses would come only in the next quarter. It's not part of quarter 2.
Sure, Anchit. Please continue.
Yes. No, I just wanted to add that, see, the reality is a lot of brands, they realize that the only platform that can pull off an event of this size and scale where they can get those kind of eyeballs and the kind of consumer engagement that any brand would love to have. It can only be done by a platform like ours because of the whole multi-brand concept, right, bringing together 80 brands under one roof. It's a very unique consumer proposition. So I think brands are very, very keen and willing to participate. And every year, we have more and more interest from brand partners. It's better. They find it a better investment to do -- to be a part of Nykaaland and try to do these events on their own.
Secondly, there is, of course, every year, as this is only the second year we've done it. But as we're seeing incredible consumer love for this event, there is not only the ticketing sales, which we are collecting or the sponsorship, which helps to offset the cost, but this can start to become a much more of a commercial activity as well. So to give you an idea, this is the first year when we actually had a store, a Nykaa retail store at the event where consumers could actually buy products as well. And we were -- we sold out of everything we had pretty quickly.
So maybe we didn't expect to see as much retail sales at the event as we did, and that's a learning for us. We'll continue to improve over the years. And the other element is, in a way, this is a very large sampling activity where consumers receive samples from the brands, and we know the consumers who bought tickets, who attended the event. So our ability to use CRM to retarget those attendees who receive samples and nudge them to make a full-size purchase in the normal course of business is also a huge opportunity.
So I think there is -- one is, of course, the cost is being offset by participation from our brand partners and sponsorships. But I think commercializing this event further now that we have a proof of concept will also improve over time.
The next question is from Harit Kapoor.
Can you hear me?
Yes, Sir.
So my first question was on the marketing investments in beauty. Is there a -- when you're looking at the market context right now, is cost of customer acquisition in your view kind of going up versus what it was, say, a year back? I know you've added a significant number of new customers. But just wanted to get your sense on how cost of customer acquisition has trended over the last maybe 6 months -- at least 3 to 6 months for sure.
No, I think our cost of customer acquisition in Beauty is not going up. I think it's -- the additional costs are due to 2 reasons: One being that we are acquiring more customers. We accelerated customer acquisition. And secondly, we are also doing this amount of upper funnel activity to create branding both for -- because see the Beauty business includes our Nykaa's own Beauty brands also. So there are other case scenarios, our own Beauty brands as well as for the retailer also to do a little more upper funnel so that we can create branding.
So those are the 2 main reasons why it has gone up. If you compare during COVID times, compared to that, the cost of customer acquisitions have gone up, but not…
And you mentioned a range that you're comfortable with in the Beauty business for marketing and advertising expenses. If you could just highlight, are you at the upper end of that range now? Just so that we understand what -- where exactly this cost should land given you are doing a balance between revenue and EBITDA?
No, I think it's all based on number of new customers that we can acquire and continue to upgrade them to a level of consumption that we have always enjoyed and not allowing that to get diluted through acquisition of marginal customers. So that's what we are trying to balance.
Yes. Also, if I can add, you should just keep in mind that the Beauty vertical is a combination of 3 very different businesses. So one is, of course, the dotcom and the physical retail business, which is a B2C business -- retail business. The other, of course, being the owned brands, the Consumer Brands, which we own and operate, and the third being B2B.
So I think the appetite and the ability to invest in marketing is higher naturally for Consumer Brands than for a retailer because they have much higher gross margins. And also vice versa, it's lower for a B2B business than it is for a brands and for a retailer business.
So I think each -- you can't look at the Beauty vertical as a whole. I think FN's point on new customer acquisition refers more to the retailer arm for whom the largest cost is on customer acquisition. But for the Consumer Brands business, there is brand awareness work that needs to be done, and they can afford to do it because they have higher margins.
So finally, also where the aggregate marketing expense as a percent of revenue shakes out is also a mix -- is also a result of the mix of those 3 businesses within the vertical. But as you can see, I mean, the Beauty vertical, even with the eB2B business that is now included in the reporting, is at a very healthy EBITDA margin. And the eB2B business is still EBITDA negative. So despite that, we are putting up a healthy number.
So each business has its own appetite and thresholds in terms of what they can spend on marketing and how it rolls up and plays out finally at the aggregate is what you're seeing.
Just one bookkeeping. Was this ESOP expense impact, Ganesh, when would this come into the base? Would this be from Q3 onwards? Because I guess this is the largest piece of the adjustment from reported to adjusted EBITDA, right?
So the reason why we are showing this as adjusted is both this ESOP as well as the GCC expenses have started coming in from Q3 at elevated levels.
So at least the ESOP part starts to come in the base from Q3, right?
And also the GCC.
I think both will start coming into the base. But because on ESOP, I think post IPO for a bit, we hadn't done much of ESOP issuance because the pre-IPO ESOPs are still vesting. So I think we've done some now.
No, the reason I asked is there is a 70 basis points differential on the reported and adjusted? If bulk of that gets covered from Q3, that's the way we should look at it, right?
I'm sorry. I'm not exactly understanding your question. Maybe I will request Namrata to come back to you with exact whatever she can -- guidance she can give.
Just also to clarify, it will come in the base. It was not there in the base currently. So from a -- so this adjusted EBITDA, which we are showing is for a like-for-like comparison. So going forward, if you look at it, bulk of it would be in the base.
Yes, that's what I wanted to know because then I can do a year-on-year expansion trajectory changes.
The next question is from Vijit Jain.
Can you hear me?
Yes, sir. Please proceed.
So my first question is just looking at the House of Brands business and the growth you've seen within that. I think your other -- you’re channel mix there shows other channels has done materially well. I think in that channel, house of brands and BPC would have been up by about 150%, 160% odd Y-o-Y. Is this primarily Dot & Key and on quick commerce channels, would you say? Because I do notice that Dot & Key products are available on quick commerce channels. That's my first question.
Yes. I mean, Dot & Key has always had a very wider distribution, including on Amazon and other channels, some on quick commerce, but before that, always on other 3P channels.
So yes, you can say that as the Nykaa brands are growing, there is some amount of -- and especially acquired brands, there is some amount of focus on other channels besides Nykaa. And this also includes, to a certain extent, exports, albeit small now, but going forward, it will also -- that will also be the focus.
So Falguni, I guess my question is for your owned brands, you would be -- and especially because in some of your owned brands, this also caters into personal care category, which is probably, as Anchit was mentioning earlier, more amenable to some of these quick commerce platforms. Should we expect this segment and this channel for you to grow alongside where, let's say, the quick commerce vertical itself in India is growing?
No, I'm not sure about quick commerce, but I definitely feel that the wider 3P platforms that allow for discovery on a wider basis is something that is needed for personal care type brands beyond makeup and high-end skincare. And many of the brands may pursue that once they achieve a certain size. So I think the brands would stay in-house up to a certain size. And then beyond that size, they can.
So for example, here we are -- if you talk about even modern trade, like some of our brands are also found in some of the other shops like, for example, some are also there in Shoppers Stop.
Yes, I think…
I think brand evaluates their choices. And then if the channel is working and is profitable for them, they may consider it. If it's not, then they will not do it.
Yes, I think also it's -- so I think FN's point, we've allowed the brands to really think like true third-party consumer brands and decide their own distribution. And some of our brands like Dot & Key have very wide distribution across multiple horizontal marketplaces across quick commerce, across wide general trade and modern trade outlets. So it's -- in part, also, please keep in mind that it's off of a very small base, right? Only 12% of the mix is coming from other horizontals and other horizontals are multiple. And now that's about 20%.
So I think it's a healthy mix, and you can still see 50% plus of the business is coming from Nykaa Online, which itself is a very, very competitive platform. So it's a healthy -- I mean, we feel quite comfortable with this mix. It's a good way to be diversified, but also not overly reliant on any third-party channel.
And my second question is for the fashion business, 2 questions there, really. One, with the launch of Foot Locker, is there a specific opportunity you see within footwear for -- I know some of these assortments available on Foot Locker can be unique. It can be those higher AOV products from even brands like Nykaa, et cetera. So is that something that you think is what Foot Locker will be geared towards for you? So higher AOV niche sneakers and stuff?
And second question is just trying to understand the role of LBB within the whole thing. Your -- the presentation did mention some service income from LBB, but also some marketing spends related to that. So just a little bit more color on that would be helpful.
Yes. So I think on -- I'll just say a few things, and then I'll ask Nihir to add.
I think on Foot Locker, I just wanted to also point out that what we are really extremely proud of is that we also run footloocker.in website. And I think this is a new -- you can say that it's the first Software-as-a-Service extension that we have done and come up with an ability to roll out a lot more dotcom for our brand partners. And first one has been executed with footlocker.in. And similarly, even entire Nysaa tech stack is being developed by Nykaa's tech team, and we will recover revenues on a -- as a revenue -- percentage of revenue basis like how the SaaS companies do.
So we are very proud of what we have executed here for Foot Locker. And yes, absolutely, they have great assortment, and I think it will help us achieve more higher AOVs. And Foot Locker is going to be sold not just on footlocker.in website, but also on Nykaa Fashion and Nykaa Man.
But with Nihir, do you want to comment on Foot Locker a little more?
Yes. Just to add, they are the world's largest sneaker retailer, right? And they stand for sneaker culture. So in sports, the sports footwear and sneakers, they dominate sneakers as a category and the sneakers trend across the world is going through the roof. In other countries as well as in India is looking very promising. And they're the first serious sneaker multi-brand retailer to enter India. And I think that gives us a huge advantage, both unlocking for consumers in the country, but also the big brands, the Nike, the adidas to bring their Foot Locker international collections to the consumers of India, which is pretty interesting. So I think it helps the whole country and is one with Nykaa's DNA of bringing the best of the world to the consumers of India.
And if you could answer the second question as well on LBB, how should one think about what that has -- yes.
Yes. So when we acquired LBB, it had very little revenue and it was a distressed kind of situation that we acquired. And I think the main thing was we saw their ability to do high-quality content creation and marketing at scale. And we're really happy that it has panned out in that scenario where the income that LBB is able to get from all kind of content creation that they do, not just for Beauty, but Fashion and also third-party brands that they work for. But because they're so large in Beauty, they end up doing a lot of work for Beauty players also is very value accretive to the brand partners. It's very value accretive to Nykaa also. And because that business is acquired and sits in fashion, both the revenues and expenses of that business are in the fashion business. But it is a business that has high revenue, high gross margin. And of course, marketing is a key cost item.
The next question is from…
Just one last thing, marketing and also employees that they have in their team.
The next question is from [ Mithun Soni ].
If you can throw some light given that as -- on the CapEx, what we highlighted is almost there, we have done, and now the trajectory has also come down. How would it translate into the other expenses, both in the fashion as well as the BPC category because now whatever the other expenses, what we're doing is for the new GCC and the other segments. But how we should look at the trajectory of the expenses, other expenses in these 2 verticals for us?
May I request Ganesh to take that?
Yes. So one thing which I'd like to just highlight is while CapEx per se has moderated, typically, the write-off which you will see in the P&L happens over a 4 to 5-year time frame. So in terms of peak depreciation, there's still a couple of years because the CapEx, which was done in FY '22 as well as FY '23, it will still run its course. So although the cash outflow in terms of fresh CapEx has come down meaningfully. In terms of depreciation, we'll still see elevated levels for a couple of years before it starts moderating.
And how about the other expense, which is the contribution income minus the EBITDA, which is the fixed expenses, what both the verticals are taking care of, which was approximately about INR 210 crores in the Beauty segment?
I think in some of the previous quarters, we have deep dive on those expenses, and they essentially are -- I think they tend to be more -- a little bit of everything, including office expenses and all, and they are all on downward trajectory. But some part of that is also travel, some part of that is also other sundry activities. So I wouldn't say -- it's under control is the best way to read it.
Is it like they have now -- so from here on, the growth is going to be more just an inflation with marginal additional growth or there will be some more investments which will be further required?
No, let me just comment on this. Since they are primarily your employee cost, your G&A expenses, et cetera, as a scale grows, the leverage benefit of that would come in because this would not necessarily go in line with your revenue growth. There would be pockets of time when you are investing ahead of the curve, whether it's in people, et cetera. So those are times, and we have seen that in the past where this growth would be disproportionately high because you are in an investment phase and investing ahead of the curve. But over a period of time, these expenses tend to be lower than your top line growth, and that's where as the company grows and scale, the leverage comes in. And that's exactly what you are seeing over the last few quarters.
I think I want to point out the other expenses slightly differently. I think in this, which is a vertical reporting, the other expenses are large at 14.4%, and they include both employee and G&A expense. But if you go to the financial results, there's a further breakdown of employee and other expenses. And there, the other expenses are a smaller component, much smaller component.
And the second question…
5% there in terms of -- in that.
So -- and the second question is on the working capital side. So the BPC -- Beauty Care category for us is where we deploy capital. We are seeing good savings. How we should look at this? So what is the outlook you have over a period of next 2 years -- next 1 year or 2 years? What -- is there some more potential opportunity to, say, bring down the working capital?
Ganesh, I think…
Yes. Again, there would always be incremental opportunities. So even in the half year just ended, working capital has come down by 2 to 3 days. So as we look at building greater efficiency, whether it's in terms of your supply chain, in terms of your collection efficiency, et cetera, there will always be incremental opportunities. So the way I would say is that this is an ongoing process. And then over a period of time, we'll still see some small improvements coming through. At this point, I would say it's not a large potential in terms of seeing a large reduction, but it's an ongoing exercise where we'll keep looking at efficiencies.
Ladies and gentlemen, that was the last question we can take today. You may reach out to Nykaa's Investor Relations team for any additional queries. I would now like to hand the conference over to the management for closing comments. Over to you.
I think just thank you very much, everyone, for being on the call with us today. And I hope we've answered all your questions. But if there is anything further you need, please reach out to our -- to the Investor Relations team. With that, thank you very much to spend this hour with us.
Thank you, members of the management. Thank you, sir. On behalf of FSN E-Commerce Ventures Limited, that concludes the meeting. Thank you for joining us, and you may exit the meeting now. Thank you.