Fsn E-Commerce Ventures Ltd

NSE:NYKAA

Earnings Call Transcript 2022-Q4

[Vijit Jain, analyst]

Good evening, everyone. This is Vijit Jain from Citi Research. Welcome to FSN E-Commerce Ventures Limited 4Q FY '20 Earnings Call. For the management of Nykaa, we have Ms. Falguni Nayar, Executive Chairperson, Managing Director and Chief Executive Officer. We have Anchit Nayar, Chief Executive Officer of Beauty E-commerce; Adwaita Nayar, the Co-Founder and CEO, Fashion and Arvind Agarwal, CFO, will also join the call shortly.

I'll now hand over the call to Falguni for opening remarks and the presentation, and then we'll open it up to [indiscernible].

[Falguni Nayar, executive]

Yes. Thank you, Vijit. I just -- I'm really happy to be here in front of the investor and analysts for this call today. And while I take you through our detailed presentation. I just wanted to say that we have made an extra effort to share additional information on a number of additional area, including separate unit economics for Beauty and Fashion as well as our new business growth as well as some additional information on our new businesses -- I mean, on businesses like physical retail and others. So I hope that enables better understanding of our business for each of you. And some of the KPIs that we normally share have also been shared and there are a few more KPIs which probably will be shared on an annual basis.

So with that, I'll start with the fact that we do believe that it's been a strong performance through the year with our GMV growth at 71%, which is a year-on-year growth of -- which has taken a GMV to INR 6,933 crores, and our revenue growth has been 55% at INR 3,774 crores. Gross, I want to point out once again that -- our business -- in Beauty business, we are inventory-led and hence, we book sales, whereas in case of Fashion, we are a marketplace business, and we only book our commission income. And it was this need for differential accounting that we saw that we need to share additional information, which we see -- we should see later.

As far as gross profit is concerned, our gross profit is at INR 1,644 crores, which is a 73% year-on-year growth, and our gross margins have come out at 43.6% which is a very healthy growth of gross margin for the consolidated form.

On the EBITDA side, our EBITDA has come out at INR 163 crores, just about a 4% growth year-on-year and the margins are at 4.3%. We believe that there are 3 big reasons for this. One is accelerated customer acquisition, leading to higher marketing costs. Some adversity on fulfillment cost during the year, and we've had strategies to come to that, and I'll talk later about those. And also emerging mix where we are investing in new businesses where fashion, we have clearly made an investment as well as in our new businesses of the SuperStore and Nykaa Man. And I think that's also clearly spelled out in later slides since we're talking about it here, I'll come to it then.

On the PAT side, our PAT came out at just INR 41 crores, almost 33% degrowth. However, and the margin is at 1.1%. But this is also reflective of the fact that we have now accelerated store rollout with -- and also warehouse rollout with its associated it in terms of depreciation and amortization.

Next, this all -- we believe that it is a great performance in the midst of macro challenges like rising inflation, reduction in discretionary spend by the consumers as well as COVID uncertainty. There were 2 rounds of COVID uncertainty first being in April, May, June, all of you are aware, that the Delta variant was very, very adverse, and there were lots of fears in India suffer. And Nykaa continue to do business in that adverse condition. There will impact on supply chain as well as warehouse network and further rollout of our warehouses during that period affecting some amount of fulfillment costs in the beginning part of the year.

Similarly, in January, again, there were COVID fears for Omicron and a lot of celebratory weddings and many other things were canceled, leading to, again, some amount of demand -- subdued demand in that quarter. Rising inflation is affecting to a certain extent and consumer companies are passing on higher prices to the consumer. We do believe that there is some impact of rising inflation and reduction in discretionary spend in consumer distribution spend in our categories also. However, we do -- we feel that we've come out with strong results in spite of that.

This is a very big point that Nykaa is pursuing diversification to address larger total addressable market. If you look at our business in 2019, we had 98% of the business coming from Beauty and our GMV was INR 1,650 crores. We have grown it since then to almost INR 6,933 crores, and total addressable market has also grown. Our growth has accelerated to 71% year-on-year. This has been achieved through Fashion, which now accounts for 25% of our GMV. And now we are doing a similar growth ambition by introducing our SuperStore business as well as Nykaa Man.

If we go to the next slide, I will talk a little bit about this diversification strategy. So like you can see that in beauty, we are going deeper, Beauty [ TAM ] likely time in 2025 is $28 billion. composition is not just [ dotcom ], but also organized retail will also grow from 19% to 30% to 35%. And towards that, our answer is through our own store rollout, where Nykaa retail stores under 3 formats are servicing and catering, and we are again expanding our network. And we also entered GT/MT distribution space, though it will grow -- de-grow from 72% to 41%, 50% of the market, but it is still a large business. And to that effect, we have entered into SuperStore, which is selling -- which is allowing our brand partners to sell their brands to GT/MT network throughout the country. And this -- we'll talk more about this later.

On the Fashion side, entering fashion market was addressing a larger TAM. And we, of course, started with dotcom business, which will address almost 22%, 27% of the market going forward. So even if we have a small market share, it will be a substantial business and we have only one store on Nykaa Fashion side right now, but we will be going into some amount of physical retail with the right format that makes sense. At the moment, we are not considering the GT/MT business on the fashion side, except for some individual brands like [ NA-KD ].

Next. So this has led to a very strong growth in merchant -- on GMV. And like you can see, our consolidated GMV came out at 71%, highest in last 3 years, and CAGR is also 61%. On the Beauty side, our GMV has grown 49% this year. And we do believe that Fashion GMV, which grew at 168% allowed us to deliver superior growth. So we are scaling very well in a highly competitive category like fashion. In Beauty also, we do believe we are strengthening market share because this is a very healthy growth in GMV in the beauty business. And on a consolidated business through diversification, we're accelerating our growth. Others includes the new business verticals where we are now at INR 183 crores of GMV, but these will grow going forward. You can see that on a small base piece business are growing rapidly.

Coming to our key growth strategy, I think you have to say our #1 growth strategy has been driving customer acquisition and retention across the funnel journey. And I'll come in into the details of those. So here, you can see that we continue to grow our app downloads, which are now for beauty alone, they added 47.3 million app downloads in aggregate. On the visit side, again, we have accelerated the visits, and they have grown at about 34% on a year-on-year basis. Our monthly active users have grown very nicely to almost 20.8 -- at 20.8 million monthly active users on Beauty alone, a huge growth of 54% from the previous year and number of orders have also grown to 58% year-on-year from a year ago.

I think just will comment on 2020 to '21, the number of orders do small, like you can see hardly any growth. And a lot of investors ask me for that. But I think at that point, I can took a conscious decision to make our shipping policy and our minimum auto policy is stringent because COVID impacted here where we wanted to preserve both our expenses as well as our physical warehouse capacities were limited. We took a conscious call to not allow marginal low [indiscernible] orders. However, it does have some impact on customer acquisition and now our shipping policies are back to normal levels -- pre-COVID levels.

On the new customer acquisition, I think that has accelerated in Beauty where we had a 4.4 million new customers acquired over -- this is a 49% growth over last year. Our trailing 12-month customer numbers have also grown [ biosimilar ] 49%. It now stands at 8.4 million customers have bought on Nykaa platform over the last 12 months. On the [ AOV ] side, there's a slight dip because of the shipping policy now going back. We obviously had huge gains during over time, like you can see where we have gone up by 36%. We have tried to maintain most of that gain. And in spite of lenient shipping policy, it's just come down slightly. And our existing and new customer mix, and this is not a new versus repeat, but it's new customers are all customers acquired within a year. They have accounted for 27% of our GMV share in Beauty business with 73% coming from pre-existing customers.

If we go back further, I mean move further to Fashion business, your app downloads are now at 25 million lifetime app downloads from 10.9 million a year ago and visits are up 56% to 441 million visits and monthly active users stand at 15.3 million versus 5.8 million a year ago. Again, a very healthy growth. All of that resulting in order growth of 120% from 2.4 million to 5.2 million.

Moving forward, on the new customers, we acquired 1.6 million new customers in Fashion compared to 0.6 million last year, and the trailing 12-month customers now stand at a healthy 1.8 million against 0.6 million last year. again, growth of 182%. AOV in fashion continues to improve even on a high base. And all of you know that this is far higher than the competitive -- competitors AOVs. Even in [indiscernible] or AOVs are higher than the industrial AOVs and on existing and new customer mix, 74% of the business, GMV came from new customers with 26% coming from existing customers.

Next, we also wanted to develop deep relationship with diverse set of domestic and international brands. May I request Anchit answer to comment on this? Or I'll just take it for now.

So we have more than 3,000 brand partners on the Beauty side, and we are continuing to bring international brands into the country. We have introduced more than 22 global brands through our imports business and more come through other distributors and retailers. We are also very focused on what we call as ESG strategies, and we now have a conscious at Nykaa catalog. We have a [indiscernible] Nykaa curation on the website where conscious products, which are classified into whether they are -- they're [indiscernible] as free or whether they are animal or not tested on animals and a number of those strategies are being reflected on each of the products.

So there is this conscious of Nykaa [indiscernible] on all our brands and their [indiscernible]. We also are helping customers discover new niche brands to [ hidden gems ] as well as through Beauty Bazaar, we are helping them discover median India crafts. And what is interesting on the right-hand side is that our GMV mix has been very healthy, and each of our categories growing very nicely. So makeup, which is our biggest category has also grown by 40% year-on-year. Skin is grown by 50% year-on-year. It's become a very large category, sometimes at par with make up and on the hair side, we are growing at 60% year-on-year, including bringing professional offering to the customers and many other categories like fragrance, mom and baby, health and wellness and appliance, which we cater which we add together, they have grown by 80% year-on-year.

With that, I think on the Beauty -- on the Fashion side, may I request Adwaita to come in on the [indiscernible].

[Adwaita Nayar, executive]

[indiscernible] jump in. So folks, it's been about 3 years of really trying to build this business. A large part of our strategy over the last 2 years has been very aggressive brand onboarding, making sure that we have the absolute best assortment for our customers. So we continued with that momentum of aggressive brand onboarding last year. I think another big pillar for the Fashion business remains curation. That is one of our big differentiators.

So we launched a couple of different properties that helps us bring very interesting pegs to the customer things like hidden gems where we travel the country to get very interesting unique brands to the customers, a huge emphasis on sustainability and responsible fashion and also plus fashion.

The table on the right just gives you a sense of the sheer size and scale of the catalog, that is one1 of the differences between Fashion and Beauty. There's just a lot of products and styles out there that proliferate across a whole bunch of brands in subcategories. A big decision we took this past year was beyond women, can we also have a [indiscernible] in men, kids and home, all divisions that we ramped up this past year. And today, we see that those new divisions, as we call emerging divisions within our teams is growing very fast, much faster than the women's business. And so while women's remains the majority, we're pretty confident that these will be good growth levels in the future, that is man, kids and home. Moving on.

[Falguni Nayar, executive]

So I think going on the team of penetrating through the value chain, I think we are expanding our physical store network. This is just an image of one of our stores. And you can see that Nykaa expanded the physical store network 205 stores by the end of March 2022. And these are in 49 cities. Our physical retail has grown at 72% GMV year-on-year, and the GMV share of physical retail has ended at 7.5% in the quarter 4 of '22 -- 2022. Full year is still at 6.6% because as I pointed out, there were many factors that impacted the physical store performance in the first half of the year, mainly COVID-related.

We've also, for the first time, shared our GMV per square feet in our stores, which runs at INR [ 3,420 ] per square feet per month, and the average size of our stores is about 940 square feet per store.

The second strategy has been to continue to expand our fulfillment centers. We had -- we now have 23 warehouses in 11 cities with 8.2 lakhs square feet of capacity. We have added almost 2.4 lakhs square feet in financial year '22, which is about 40% year-on-year growth. This regional warehouse capacity expansion is a strategy which will help us save fulfillment costs through savings in air shipment as well as faster order to delivery for the customer resulting in better customer experience. And we are now able to service almost 98% of [ PIN ] codes in the country. and almost 90% of orders are delivered within 5 days. And in fact, in metro and other areas, a lot of orders are delivered within 48 hours also.

Next, I think this is about our SuperStore business, which we launched about 6 months ago. I think here, we are trying to be vertically focused on Beauty and Personal Care and Wellness brands, where we are China play a distributor and a wholesaler role selling these products to retailers with the margins that is passed on to them. And here, we are trying to [ observe ] underserved retailers like beauty stores, pharmacy, salons and [ Kirana ] stores -- more premium Kirana stores. We already have about 18,800 transacting retailers on this platform by the end of quarter 4 in 302 cities, and the number of brands listed I would say that these are very early days. We've just launched it, and the platform seems to be doing well and lies a growth, a long journey ahead as the addressable TAM is very large.

I think all of you are aware that Nykaa has believed in creating, acquiring and scaling a portfolio of independent and new age consumer first brands. In [indiscernible], you know that Nykaa has a number of own brands that we were launched over the last 5 years, 6 years, beginning with Nykaa Cosmetics, later [indiscernible] Beauty, which is our first celebrity beauty brand. On the skincare side, we now have a derma-based skincare brand called [ Nykaa SkinRx ] as well as the Korean beauty brand for [ Nykaa Skin Secret ]. And on the hair care side, we are -- in the Nykaa [indiscernible], we have an extensive hair [indiscernible].

Going to the next page, we also have a [indiscernible] range, which is our Bath and Body range. And we've gone in for acquisition of 3 businesses on the Beauty side. One is a [indiscernible] where we now own 51%. It's a premium skin care brand and with very specific solution for customers. We have also invested in a sustainable skincare and Personal Care brand called [ Earth rhythm ]. We have a smaller share your -- and we are jointly promoting a nutraceutical beauty brand calling [indiscernible], which is towards Super Foods. This is in -- with the company called -- this is with a partner.

On the -- these brands, our own brands account for more than 10% of GMV of BP Beauty and Personal Care business under in the year -- financial year '22. This doesn't include the acquired brands, just the brands. This is the first time we are sharing this number. On the Fashion side, we have a number of brands like we have a brand called [ 20 dresses ], which was quite a while ago, and we have scaled it up. RSVP has been apparel, footwear and bag brand that has launched in variable. Naked is also an in-house brand for [ lingerie ] and [ Agnico ]. And we had acquired earlier Jewelry brand called [indiscernible] [ Bella ] and the Indian wear brand, the [indiscernible] Jagan was launched last year.

Our gain fashion GMV from our own brand is now at about 7%. Yes, this list continues with the car [ curated ] [indiscernible], a bag and footwear brand called [ Kick ], which has had a good acceptance. And we recently acquired a brand called [ Kicka ], which is a premium women's active here.

So we are not going and acquiring any brand, but I think we have a clear strategy towards the market gaps and the -- and a brand perspective that we'd like to fill, and it's those brands that we have gone ahead and acquired or created ourselves.

Next I think we are also very focused on new ways of selling and holistic Consumer Connect. You are aware of a number of TV campaigns that were done last year to again bring larger number of customers who are funnel marketing. We also continue to do tech implementation of virtual makeover tools like [ Loreal's ] virtual tool that was integrated on Nykaa platform as well as live streaming is very much part of the Nykaa platform. And on the content side, all of you are aware that we have more than 13 million social media followers through a number of handles both on Instagram as well as YouTube and Facebook. We also have a very large influencer network and connect, and we have a network to pay them on for the contribution of the business to Nykaa platform. And we have another Explorer watching by feature where customers can watch the videos and based on the education they can buy. So there has been a number of new ways of selling that has been introduced by Nykaa.

And then I would like to request Arvind to take on the financial performance rides?

[Arvind Agarwal, executive]

Thank you Falguni. So I'll talk about the financial performance, and I'll first talk about the full year performance. Talking about revenue, you can see that in FY '22, we have reported revenue of INR 3,773 crores, which is a growth of 55% year-over-year. And in fact, this is fastest growth in last 3 years despite 2 COVID waves. So it's quite impressive and strong growth momentum. And if you look at 3-year CAGR, it is at 48%.

Added to that, if you look at gross profit chart, in fact, the growth in gross profit is even higher than revenue growth. It's about 73% in terms of absolute to absolute growth. And the margins have actually improved from 38.9% to 43.6%, close to 400 bps improvement. Part of it is improvement because our B2B revenue, which is advertisement has scaled very well this year versus last year and also because own brand share has bounced back to pre-COVID level. but also part of it is also mix effect because of Fashion, which is reported differently.

Talking about EBITDA, we have reported EBITDA of INR 163 crores FY '22, which is a margin of 4.3%. And it appears that EBITDA is kind of flat or just 4% growth in terms of absolute number, and it appears that EBITDA margin has dipped by almost 200 bps.

Let me explain you the levers in terms of investment that we have made this year, and Falguni spoke about some of them. So in terms of nonlinear growth initiative, we continue to invest into fashion, which is scaling very well. But we have also started investing into new initiatives such as SuperStore by Nykaa and Nykaa Man and International. I have a slide to give you some breakouts, which we are sharing for the first time. So that's one reason that some of our internal accruals generated out of beauty verticals have been invested into these nonlinear growth initiatives.

Added to that, we have also accelerated our new customer acquisitions, which is also supported by high investment into marketing, which is again impacting our EBITDA. And the third one is we have also expanded our fulfillment capacity and moved closer to customer. So some of these are ahead of the curb investment. In fact, we have also started expanding to physical retail. Last year, it was kind of a muted expansion that we have done due to cover disruption. So all these investments are funded out of internal accruals, which is why at a blended level, EBITDA margin have dipped to 4.3%.

Talking about the PAT number, we have reported INR [ 41.3 ] crores of profit after tax this year, which is 1.1% of the revenue. Again, the impact of EBITDA is of 200 bps is partly offset by better leverage on financing costs and also on depreciation and amortization. So net PAT margin is about 140 bps versus 200 bps in EBITDA.

I have a slide which I want to take you next, which is to talk about these verticals. And as you can see here, we have given the breakup of 3 verticals BPC, which is our largest business, Fashion, which is already scaling up very well and others here comprises of new initiatives such as SuperStore, which is the [ eB2B ] vertical and Nykaa Man and some initial investment into international. So these new initiatives are all bucketed under others as they scale up, we might set them as well over time. But as of now, they are bucketed under others.

So if you look at this chart, in terms of GMV, we have grown 71% year-over-year, which is quite healthy growth in the [indiscernible], which was disrupted by COVID. If you look at revenue from operations, I already spoke about it. We grew 55% year-over-year. In terms of gross profit, we grew 73% year-over-year at a blended level and the margins have improved from 38.9% to 43.6%. Part of it is also mix effect due to fresh and growing faster than BPC because it is reported on a marketplace model, it is margins are reported as revenue. So the reporting framework is a bit different. So there is a mix effect in that.

If I talk about EBITDA, and I wanted to invite attention here to the breakup of EBITDA numbers. If you look at Beauty as a vertical, the EBITDA margins are 8.2% which is quite similar to last year. Last year, it was 8.3% as a percentage to revenue. So it's kind of flat despite making heavy investments into marketing to accelerate the customer acquisition and despite making significant expansion into fulfillment network, which in the short term brings more costs to the P&L, but the benefit of freight costs coming down gets realized over time. So despite that duty has maintenance EBITDA at [ 8. ]2%.

And in terms of Fashion, because it is reported differently, we have also given a different metric here, which you can see at the bottom and that's NSV, net sales value because net sales values net of returns, taxation and cancellation. And at that level, it becomes quite comparable to BPC. so you look at the gross margin professional, it is about 44.6% similar to BPC. And in terms of fulfillment costs, it is 11% versus 10.6% in BPC. If you look at marketing cost, that's significantly higher versus BPC because fashion obviously is an early stage of building the business and the ratio of new customers a contribution to GMV is much higher than the repeat customer. And we did acquire 1.6 million customers this year.

And in terms of employee benefit expense, I also want to highlight that if you look at BPC, the employee benefit expense is 8% versus 9.2% last year. So there's already an operating leverage, which is playing favorably here. you look at fashion, it is 11.3%. And again, that will get scale over time and start playing as operating leverage. And if you look at others, which are new verticals, they are really kind of a seed investment this year. So obviously, the ratio of employee cost is much higher than versus the revenue and NSE.

So the net the impact of investment into Fashion and other segments, incrementally, we have invested almost INR 80 crores from our internal approvals, which shows up as a in the blended numbers, it shows up almost 200 bps kind of investment and therefore, our EBITDA has come down as a margin percentage from 6.4% to 4.3%.

Moving on. This is just to show the long-term trend and why we feel so confident about continuing to invest into Fashion, which is already scaling very well in a very hyper competitive market. It was launched in FY '19, but it started scaling up post COVID. We see that Fashion has reached to the same scale as Beauty in 4 years versus, let's say, BPC is to same scale in 5 years. So it's really building up well.

Moving on. I also wanted to give a color on marketing costs a bit. And there are 2 charts here BPC in fashion. If you look at cost as a percentage to NSV, which is the net sales value. In case of BPC, it is at 9.5% FY '22 last year was actually an aberration, and we spent only 5.9% to NS ratio. That was because in H1, we were quite conservative in spending marketing money due to COVID environment. And if you look at the increase in new customer acquisition versus last year from $3 million to $4.4 million, so almost 49% increase in new customer acquisition. And if you look at this long-term trajectory, marketing cost as a percentage to NSV is actually quite better versus FY '19, 13.7% versus 9.5% and that goes back to the chart that Falguni's been earlier that 73% of our business in BPC comes from existing customers.

So while we continue to acquire many new customers, but our cohort is quite healthy. And over time, we get a leverage in marketing costs. So versus 55% share of repeat customers in FY '19, we are at 73% in FY '22, and that shows in marketing costs as a percentage to [indiscernible] leverage. But if you look at Fashion chart, this is scaling up last 2 years, and this has required 1.6 million customer versus 0.6 million customer last year, which is a 157% growth. And in terms of marketing spend, we have consciously stepped up spend and it is a 27.4% to NSV ratio and that also obviously has a mixed impact in our overall marketing cost to revenue and marketing costs to ratios as well. But these are conscious choices looking at future growth prospects in these large categories in last 10.

Moving on. This is a summary of our results. I already talked about annual results. So I will probably talk about quarterly results here. So in this quarter, we have reported revenue of INR 973 crores, which is year-over-year growth of 31%. Although sequentially, it is lower by 11% versus quarter 3, but that was expected because quarter 3 is seasonally the best quarter in peak quarter in terms of sales because of festive season, and it was also free from any COVID disruption. [indiscernible] this quarter when in January due to Omicron there was some impact on sales, especially in physical retail stores. So 31% growth there, but we believe that we have grown ahead of the market, and we are strengthening our market share.

In terms of gross margin, we have reported 43.7% gross margin for this quarter. which is better by 254 bps versus last year's same quarter, although it is lower by 263 bps previous quarter sequentially, which again is a seasonality last quarter was benefited due to higher advertisement income from brands because brand to spend aggressively in quarter 3 from their marketing budget. So we got benefit at out of that. And talking about EBITDA margin, we have reported 4% EBITDA this quarter, which is 200 bps lower than last year due to the investments that I already talked about in terms of fulfillment, in terms of customer acquisition and some of the percentage cost is shown in the table below. So those are the trends which you already spoke about. But I also wanted to highlight that in terms of fulfillment cost, and marketing costs versus previous quarter, you can see that versus 10.6% last quarter, we had spent 9.7% in fulfillment costs.

So the benefit of expansion of warehousing capacity regionally has started playing in terms of lower freight cost, and that shows up in these numbers. So that's a healthy trend. And in terms of marketing, also, it has come down from 13.7% to 12% because we did spend on brand building last quarter, and it was also a sale quarter. So obviously, marketing spends were at much higher level. So it has come down to 12%. Employee expense, though, has gone up as a percentage from 8.5% to 9.3%. But that's more a leverage -- deleverage because of lower scale of revenue. If you compare the absolute cost, it is at INR 90.8 crores versus INR 93.3 crores last quarter. So no major change in terms of this fixed cost aspect.

So that's on financials. In terms of P&L, I can quickly talk about balance sheet. In terms of noncurrent assets, we have made investments in expanding physical stores and fulfillment centers. So that shows up in our [ PPE ] line. There also -- there is also impact on [ ROU ] assets because of the lease liability as well as assets that come in the balance sheet due to long-term nature of these leases. We also did investment in Dot & Key. We acquired 51% stake. So that shows in goodwill, and part of it is also sitting in other tangible assets in form of brand value. And deferred tax asset is a function of losses in like fashion, and we believe that we can offset the losses against future profits. So we have recognized deferred tax asset. And it's a continuing position which we had last year as well.

In terms of credited assets, you can see the investment is almost double of last year, but it's primarily coming from inventories, which is a function of natural business growth as well as we also built up a longer inventory to offset some of the supply chain disruptions that we have seen. So it was a strategic call. We believe we are at a healthy level of inventory with 66 days versus 71 days last year. And overall other part of the current [indiscernible] cash -- increase in cash balance. So we are almost INR [ 700 ] crores of cash in the balance sheet, which has benefited from primarily in the IPO as well as some pre-IP placement we have done.

Talking about the equities, our network base has gone up from INR 490 crores to INR [ 1,345 ] crores. And in terms of noncurrent and current liabilities, there are no major movements, except that borrowings -- bank borrowings have gone up from INR 15 crores to INR 332 crores. That is in tandem with working capital investment that you have done and I have a cash flow to explain how we have funded the increase in current assets. But we are good on receivables, payables and overall working the cycle is maintained last year [indiscernible]

Let's move. In terms of cash flow, I want to highlight in call operating profit before working capital changes. So which is at INR 183 crores, which is almost similar to last year in terms of absolute value. And that is despite making investment into growth verticals, which I spoke earlier, there is almost INR 80 crore incremental investment into fashion and new businesses put together. And despite that, we have generated same amount of operating cash flow before working capital. Of course, we have made higher investment to working capital, which I explained earlier as part of the balance sheet explanation.

So we are paying our suppliers faster, but we are also securing inventories so that we don't face any supply chain disruptions and there's no out of stock. Due to that inventory investments have gone up during this period.

And talking about investing activity, because of investment into stores and warehouses, we have invested INR 94 crores versus INR 42 crores last year. So that's more than double of investment. And rest of the cash flow is more a representation thing. We have a cash balance of INR 705 crores, which is shown in different lines due to the maturity period. So we have some deposits which are longer than 12 months so that those are shown in investment in fixed deposits, but we also have some short-term deposits. And we are at a healthy cash balance of INR 705 crores.

Moving on. So this was my last slide. Maybe I relate back to Falguni for Q&A.

[Falguni Nayar, executive]

Yes. So just to summarize, really, we do feel that -- we've really worked hard to deliver good results, which are a balance between long-term growth and a good eye on our unit cost economics for each of the new businesses that we are building so that eventually there is part to profitability in each of the business. This is being done while supporting and maintaining our profitability on the main Beauty business, the larger business. And -- but yes, we are clearly investing in customer acquisition. We are investing in new business initiatives and we are investing in greater fulfillment capacity going closer to our customers so that we are more future-ready in terms of our customer promise unreliable.

So this has been the big trend and these results have to be seen in light of slight adversity in the environment. Clearly, we had 2 waves of COVID during the year, and they have impacted to a certain extent whether our physical retail business are taken slightly off the table in certain segments of our Beauty business or Fashion business.

So I think overall, we do believe that companies worked hard to respect and deliver to the investor capital, and we will continue to do the same approach going forward.

[Vijit Jain, analyst]

Thank you, Falguni. We'll now open it up to Q&A. Anyone who has a question, please raise your hand, and we'll take your questions in order. Please limit yourself to a maximum of 2 questions so we can accommodate as many as possible.

Operator, can we unmute the line of Sachin Salgaonkar from BofA first?

[Operator]

Yes, sure.

[Sachin Salgaonkar, analyst]

Falguni and team, thanks a lot for those incremental closures definitely helps. A couple of questions. First question, just wanted to understand 4Q. Apart from seasonality and Omicron, did we face any impact from, let's say, higher inflation and related issues?

And of course, the same question is around going ahead, which is rising inflation at some level has an impact on discretionary [ spends ] as well as an impact on cost, especially the fuel cost impacting the delivery charges. So just want to understand how you guys look at it?

[Falguni Nayar, executive]

So I'll take that question. To be honest, one -- I mean this whole 2 years of it has been very, very difficult to really read into the trends. And if I may say so, April, May, June of 2021 was -- sorry, 2020 was massively affected where we could only do essentials only business. And as a result, the first quarter of April, May, June '21 was very, very strong on growth. You can see that in our quarter-on-quarter growth, very strong growth. Even though that the strong strength in growth, it came little bit differently for different sectors. Skin care grows at a certain point in time, person care grows at a certain point in time. And then suddenly, stores open up and you see a huge revival in makeup demand.

So to be honest, even if for someone who's watching for year-on-year growth trends quarter-on-quarter, not -- I see quarter-on-quarter is not the right way to look at it because our business clearly has seasonality but year-on-year numbers for a similar quarter, also exact comparisons are not available.

But what we've done in this deck is we've told you that, I think company is working very hard to grow each of the categories. So while makeup is our largest category, it has grown at 40% year-on-year, skincare has grown 50% year-on-year. Hair care has grown 60% year-on-year. and all other categories have grown 80% year-on-year.

So I think company is definitely making an effort to continue to tap into the market opportunities and deliver on growth is what I would say. Is it easy? I don't know how to translate that because there are clearly periods of very strong demand that you can see in terms of physical retail, I think October to December quarter was quite strong from a consumer demand perspective, but it was also strong from a competitive activity perspective. And then you find that yes, there are certain months when demand is strong and certain months when demand is not strong even within the quarter. And sometimes the demand shifts from e-commerce to physical and physical to e-commerce.

And similar transient fashion, we had very, very strong growth in the first quarter of last year. And this first quarter this year -- first quarter of last year to this year was a very strong growth. And then they go a couple of quarters where we feel that marketing was too high, and we were trying to control our marketing costs to a better level.

So I wouldn't say it's easy. I wouldn't say that things are very bad, where we are not able to grow at all, but it is a tricky environment.

[Sachin Salgaonkar, analyst]

Any thoughts on the [ discretion ] spending? Do you see that getting impacted for Fashion and Cosmetic?

[Falguni Nayar, executive]

See, there is a certain amount for you distributary spending that comes in line with wedding season in both these categories. And clearly, the wedding season came out very strong in the October to December quarter because it was like after 2 years, the weddings were picking up. And then suddenly, the threat of Omicron came in, a number of weddings, which were being planned in -- from Jan to March were either downsized or pushed out, many of them downsized rather than pushed out and some pushed out to the summer season.

So at the margin, if you say that is it impacted some amount of demand is definitely being impacted. If you ask -- it's very variable for the highest income category, which many of the Nykaa customers are. There is not that much of a difference. But we also see big changes from category to category. But I won't call it any of it is toward worse that you can't grow or you just don't achieve the numbers. And -- but it's very variable and there are periods of strong demand and followed by periods of a little bit weak demand.

[Sachin Salgaonkar, analyst]

Second question is on Fashion, both on AOV and marketing spends. Your AOV Falguni is inching up every quarter, and it's almost all-time high. So at some level, do you guys see a risk that it's turning out to be perhaps a niche high-end market for Fashion? And the related question is on the comment that has been made, which is on marketing spends, there is a conscious effort to spend a bit higher. Globally, we are seeing most of the company is actually pulling back on selling and marketing discretionary spend. Just wanted to understand the outlook out here.

[Adwaita Nayar, executive]

So I can take the Fashion question at least. So starting with that, in terms of AOV, yes, I think we're sort of pleased with the high AOV of 3,200, which is far higher than what we see in the market. There are a couple of things at play here. The first is something the components of what we were selling is shifting. So you could see that clothing and apparel is becoming a lot larger as a portion of sales and in the early days of fashion, there was a lot more accessories and laundry and sort of cheaper items that we're selling. So not that the assortment is getting more premium. In fact, I feel that the assortment is getting more accessible. It's just that the types of products that are selling are skewing to higher average selling price products, point number one.

Point number 2 is we're definitely seeing basket sizes go up. So that is, again, something that's affecting average order value. And that is the nature of just adding a lot more categories. So there's just a lot more for the customer to add to that part. You also mentioned on marketing, you wanted some sort of insight. Yes, the marketing numbers are bearing less efficient this year compared to last year. But again, last year was COVID [indiscernible], I do believe that the marketing numbers were not sort of representative really what the situation is now. And number two, I think one thing is that this year, we spent a lot on brand building. It's the first year we did TV commercial. It's the first year we did celebrities. So a lot of that is baked into the marketing numbers that you see, which wouldn't be comparable year-on-year as well.

[Sachin Salgaonkar, analyst]

Are going ahead also, there is an inclination to spend more in marketing?

[Adwaita Nayar, executive]

I think we're very focused on driving fashion to a profitable state. There is a strong profitability D&A here. And so what I'm really focused on is really nailing that dynamic between growth and profitability. And I do feel that we'll remain focused on getting to that right mix of growth and profitability.

[Falguni Nayar, executive]

I have to comment on the marketing cost. What I find is that if you acquire the right customer very often in beauty, again, the breakeven on the second order and typical customer buys 3 to 4 orders in a year. So I think as far as you're doing marketing at an efficiency -- efficient scale, which I think on Beauty, we are clearly doing, then I feel that there is a certain customer acquisition strategy we want to follow because Nykaa has never chased just customer acquisition for sake of customer acquisition. But at the same time, we are at a very early growth stage where Nykaa may have only like around 15 million customers who may have ever bought on beauty, whereas the size of e-commerce customer base is larger.

So in a very prudent manner, we want to continue doing customer acquisition but in an accretive manner with a big focus on long-term value of those customers that we are acquiring. In fashion, we are a little bit at an early stage of growth, where the mix of repeat to a new customer to repeat customer issues are still low, and they will pan out over time. The fashion as a platform will grow much wider. I think our [ Vito ] platform is like if you see beauty service 3,000 -- 30,000-plus brands were is fashion, still have 1,500 brands. So we do believe that fashion has more growing to do in terms of bringing additional brands and categories online and there's more work to do. And as we do that, but in fashion, a lot of customer visits are already coming in, or customer downloads are happening. And through the funnel, we need to convert more through a wider catalog and wider catalog. So that is clearly going to happen.

In general, Nykaa believes in premiumization, both for beauty and fashion, and we don't see any desire and need to rush to the bottom in terms of acquiring the lower strong customers. So I think we'll be selective, and we will look at the long-term value of the customers that we acquire. And there will be a balance between long-term growth and short-term profitability objectives.

[Operator]

We have next question from Percy.

[Vijit Jain, analyst]

Yes, please go ahead.

[Operator]

Percy, can you please unmute yourself and ask your question.

[Percy Panthaki, analyst]

My first question is on the BPC margins. And thank you very much for giving this clarity on segmental margins. That's really good disclosure that you have done. So my question is this. See, most of the [ street ] is expecting BPC margins in the long term to trend anywhere between 15% to 20%. Now I don't expect you to comment on whether this is a reasonable expectation or not. But in light of this expectation, my question is where do you see leverage for margin expansion in BPC? I mean, given your main cost of ad spend fulfillment, et cetera. I'm assuming that at a 44% gross profit to NSP ratio, you're fairly settled or fairly doing -- fairly well there. And I would assume there would not be a huge leverage there. So what are the other costs in terms of fulfillment, marketing, et cetera, your main cost employee costs, how much further over really a longer period of horizon do you think these costs can go?

[Falguni Nayar, executive]

So if I may comment, I think on the gross profit margin itself, it can increase from this percentage because of ad income, and I that can be a big platform with a number of visits and how valuable those visits from beauty and personal care customer perspective, if you want to -- you can -- any brand can acquire a lot of new customers on our platform. And for doing that, they may continue to spend on marketing on our platform. And we also have our customers on an average is 4.5, 5 items in the cart, which means that we can deliver new customer acquisition to brands, which is much higher than the new customer acquisition at the form level.

So that is -- so I do believe that -- I'm not saying we would definitely do that, but to assume that there won't be any improvement in gross profit margin, I do not agree. There is generally large proliferation in brands in Beauty and Personal Care, like globally also. And that, in a way, gives power to the platforms and retailers where brands need the platform and retailers to build their brands.

On fulfillment costs, yes, they can go down slightly, but yes, a lot of gain is already there. It can't go down much more than 50 to 100 basis points and marketing and fulfillment costs in the long run for a very mature platform can be again lower, but it's already running at about 9.5%. But you can see that in COVID impacted you it had come down for us as low as 5.9 but then that year, we did not grow that much new customer. We didn't acquire too many new customers. It was -- the customer acquisition was 3 million, which was at a similar level as previous year, but this year, we've accelerated customer acquisition.

So marketing and advertising is a truly variable cost, and it depends on our objectives of customer acquisition and also some amount of money you also have to spend on bringing back to returning customers. And on employee benefit, of course, with the size and scale, there will continue to be some benefit.

So I think long-term EBITDA margin, most investors believe can be higher in this business in the multi-brand specialty beauty retail business. Long-term EBITDA margins can be higher than the current debt.

Do you want to hear about fashion and other consolidated also? There, the long and short is that we believe in having the right unit cost economics -- our unit cost metric for each business. Currently, fashion is at 11.9% negative EBITDA margin, most of it due to marketing and advertisement expense, which we believe that being almost your for scale up for since launch for fashion business. There is some more ground to cover before our repeat and new customer to emerge in an area where we can control our marketing and even costs at a better level because the market is very large, and we have ground to cover in acquiring and converting the customer visits. We will continue to do that, but in a very mindful way so that we, over time, become positive on our -- I mean breakeven on our EBITDA margin.

[Anchit Nayar, executive]

Right? And I think one thing to just add there, and is, if you can hover over the gross profit margin on [ NSC ] which is apples-to-apples for Beauty and Fashion in terms of a base. You can see that the gross margin percentage is looking very similar across both businesses and that too at a very early stage in the lifetime of the fashion journey.

[Falguni Nayar, executive]

And other businesses, which is mainly Nykaa Man and in B2B business, they are very new. Nykaa Man is about 1.5 years. And B2B business is not even 6 months old. So we will continue to invest in those businesses. And that's why we have started giving segmental -- not really segmental, but we've started giving vertical focus EBITDA. So that you can see that while the beauty business EBITDA was INR 277 crores, we've invested as much as INR 110 crores between fashion and our new businesses.

[Adwaita Nayar, executive]

And I think one thing that we were trying to hover on it's the last note on this slide which is that the fashion contribution margin has been positive this year. And we calculate that really, it's fully loaded with all the costs, fulfillment, marketing, selling expenses. And under that, we've got the employee costs and indirect and the overhead. So we've been able to achieve contribution profit positive for this year.

[Vijit Jain, analyst]

Thank you.

[Falguni Nayar, executive]

[indiscernible] we've answered your questions. And next.

[Vijit Jain, analyst]

The next question is from the line of [ Sudad Butra ] operator can be unmute him?

[Operator]

Yes. Sudad, can you please you unmute yourself.

[Vijit Jain, analyst]

Sudad, can you please unmute yourself and ask your question. Sudad Butra?

Maybe we'll take the next question from the line of [indiscernible], can you unmute it?

[Unknown Analyst]

Hello? Can you hear me?

[Falguni Nayar, executive]

Yes.

[Unknown Analyst]

So I have 2 questions. Firstly, while you've been largely solving for online users, you are gradually now addressing the offline stores also where the opportunity potentially is higher. How aggressive is the strategy going to be in the offline compared to online business?

[Anchit Nayar, executive]

So maybe I'll kick it off and then others can add. So I think we've always been very sure that omnichannel retail is the only solution for a country like India. And that's why you can see that we've managed to grow our physical retail footprint quite significantly in the last 5 years, and today we're sitting at 105 retail stores. And as we've shown this time for the first time, we've disclosed what the GMV is in terms of GMV as a percent of the total GMV, so the online versus off-line split.

So it goes to say that our physical retail business is growing very well, and we see it as a massive opportunity, as you said, so the potential is there for us to expand the footprint, continue to expand the footprint not only across a larger number of cities but also increase the concentration within cities. So it remains a large part of the strategy. Do I -- I think in terms of GMV share, it will probably -- the reality is online is a very fast-growing business. So the GMV share will always remain at this maybe single digits or low double digits, but online will remain a majority of the business in large part because the 2 are not apples-to-apples competitors and online, you've got 3,000-plus brands available, whereas in physical stores, only about 80 to 100 brands.

So it's also not totally the right comparison. But otherwise, I think based on the metrics and the results that we're seeing, it's something that we will continue to expand meaningfully in the coming years.

[Unknown Analyst]

The second question is on the SuperStore. So can you just talk about what exactly are you looking to do just to compare and contrast of the online BPC business versus SuperStore? Is it something new that you're trying out? Or do you believe you already have a model which has right to win? Because you already cover 98% of the PIN code. So I'm just thinking about what are we solving for here and how the operating economics will be different things like working capital, store marketing, et cetera?

[Falguni Nayar, executive]

So I'll come in here. So if you look at the traditional, we -- I mean, before going to the TAM, I just want to talk about the business. So if you look at the traditional distribution that FMCG companies used they would -- the brand and manufacturers would sell their product to distributors and wholesalers who would sell it to retailer. Nykaa started selling directly to the consumer and basically started playing the role of distributor wholesaler [ come ] retailer and that is direct-to-consumer model. What we do believe that in spite of e-commerce being quite large and growing, I think the rest of the market will also continue. The physical market will continue. And Nykaa wants to backward integrate into solving for supplying to these retailers. And we have deep relationship with our brand and maturing manufacturers of FMCG companies because we retail for them online. And now what we are doing is we are extending that as this GT/MT distribution network that we have created that any brand can buy. And if you look at it traditionally, like the FMCG companies get their distribution only in-house and [ Hindustan Lever ] or ITC or any of the brands like P&G would use their distribution network only for their brands.

Now what Nykaa is doing is creating the GT/MT distribution network, but it is available to any new brand, any growing brand, any international brand that wants to come into the country. So I do believe that we are serving a very special needs and many of these brands are picking up that third-party distribution network that is available. And we are winning brands very quickly within -- we just launched it 6 months ago, and we already have 134 brands listed. And we are already creating about presence in 302 cities, and we are transacting with almost 18,000, 19,000 retailers. This does need feet on street to get the retailers to sign up and there is some amount of investment required. So Nykaa will do it right, keeping the same unit economic metrics in mind. But of course, it falls into place over a couple of years. And initially, we would have to invest some amount of money in this business, but it will be, again, balanced with the due to short-term profitability and long-term growth objectives of this business.

But I do strongly believe that Nykaa has a right to win. We have a very interesting and excellent app, and we have great relationship with our brand partners who will give us the right to win in this segment.

[Vijit Jain, analyst]

Just a quick question. We are almost at time. If it's okay with you to extend this by another maybe 15 minute?

[Falguni Nayar, executive]

Yes, we could do that.

[Vijit Jain, analyst]

The next question is from [ Raj Gopalan ]. Please unmute yourself and ask your question. Thank you. Please limit -- maybe we'll just take the next question from Manish Adukia from Goldman Sachs.

[Manish Adukia, analyst]

My first question is -- if you can just help us understand what's happening in the competitive landscape and this is across both Beauty and Fashion. Now on Beauty, we keep reading that some of the larger Indian conglomerates are getting slightly more aggressive on the beauty side. So are you seeing any signs of that in your business at all? Or given you just a differentiation that you talk about, there's really not any material impact.

And same question on fashion as well. I think -- I mean you look at the quarter and you called out this even seasonality in your business, but a Fashion business, GMV was flat quarter-on-quarter. So is part of that also a function of the fact that competition actually has been a lot more aggressive. I mean that, for example, [ Reliance ] certainly has been really aggressive in the fashion side. So are you seeing any impact of that on the growth as just would love to get your thoughts on the both [indiscernible]?

[Falguni Nayar, executive]

Honestly, I think many of you line are better positioned to judge competitive landscape than us. All I can say is that what we hear from our brand partners mostly in terms of our role relative to what the competitors role, we do here that on the Beauty side, many of the large partners continue to want to work with Nykaa because of the size and scale and the organized manner in which Nykaa works with them to deliver their numbers, and I can ask Anchit to comment more on that. Anchit would you like to come in?

[Anchit Nayar, executive]

Yes. Sure. So again, I think we can just share whatever we have whatever we hear from our partners and whatever we see in the business year-to-date. So what I would say is that, look, we've always said the horizontals like the horizontal marketplaces have been around since 2012, '13. So they're not new. Then you've got some of the direct-to-consumer guys who were -- who I think made a big push earlier in the first half of this year as well as some of the other smaller vertically specialized beauty retailers. And I think what's happened is that there was a lot of noise, especially around November, December when we were going public. I think a lot of competitors used it as a time to relook at the Beauty space and to further hack into the ring.

But I would say that from what we're seeing on the ground, the competitive intensity seems to have reduced actually since then. And our hypothesis is that there is -- there are probably larger markets for the larger horizontals to fight for. We believe, obviously, groceries, electronics, fashion are larger addressable markets. And I think that's where a lot of the horizontals and some of the new entrants, as you mentioned, will probably focus their time and energy. And so there was some additional focus on Beauty from the larger players in the interim, but that seems to have received it.

Now if some of the local companies that you mentioned do decide to get into Beauty in a big way like we've all seen in news, I actually think it's going to be a good thing for the market till at Nykaa has single-handedly built the beauty industry in India, obviously, with the support of our brand partners, but is the only retailer of size and scale in the market and a retailer focus on education and building awareness for beauty consumption, we've helped build the market to where it is today.

So in our point of view, some healthy competition and companies who are willing to invest in the Indian Beauty ecosystem and help to grow the market could, in fact, have a positive impact on us. So that is a short, I guess, a long answer, but try to explain to you the different parts of the competitive spectrum.

[Adwaita Nayar, executive]

I think jumping in on fashion. The way I sort of look at it is first and foremost just taking a step back, the massive size and opportunity in the fashion market. You're talking about a $125 billion industry by 2025. You're up more 25% online penetration. And internally, the way we think of it is even if you're able to get 5%, 10%, 15% of that online pie, this is a very, very sizable business for Nykaa. So at least for us, personally, we're not lifting our heads and looking at competition left and right? I think we're really focused on trying to build something that is differentiated. And at least for me, maintaining and protecting that differentiation is the #1 priority, and that's our right to win.

So I'm not obsessed with gaining market share at the cost of the other folks. It's more about let's get the part that we really like and we really believe in.

Moving forward, you sort of touched on what about the growth over the last couple of quarters. I personally am trying to look at the business on a year-on-year basis rather than a sequential quarter basis. I think on a year-on-year basis, we're about 168% GMV growth, we showed you some slides that compared the Fashion journey to the Beauty journey. By any metric, the Fashion growth has been explosive over the last couple of years. So I personally can look at it on year-on-year. The thing with sequential quarters is that there's always one seasonality of play; two, there are always judgments you take every quarter when you're trying to, again, balance the profitability and growth equation; and three, in every quarter, I'm always trying to set up the right marketing metrics that takes us into the next year and really use us for the next year.

So I'm not sort of saying that the sequential growth that you've seen is what you will continue to see at all, but just saying that I'm trying to look at it on a year-on-year basis.

[Vijit Jain, analyst]

The next question is from the line of [ Rohit Chordia ]

[Unknown Analyst]

Thanks, Vijit, and good evening, everyone. Just 3 small questions. Just trying to understand your numbers better. One the bridge between your NSV and revenue from [indiscernible] for various segments, if my understanding is right, the bridge in Fashion -- sorry, in the BPC segment will primarily be ad revenues. Fashion would be 2 elements ads, which is kicker and then there is a take rate element, if you could just throw some light on this bridge in the 2 segments.

[Unknown Executive]

Yes, I think that's correct. So NSP -- so BPC is an inventory-led model. So revenue is quite similar to NSV, except that there's an incremental revenue on advertisement, which is not part of the product revenue. So that's correct.

And in terms of fashion, yes, NSV is a number which is what customer pays net of taxes. And what we get in P&L is commission that we earn from the brands because it's a predominantly marketplace business, but we also get some revenue on advertisement even in Fashion, and we also get some revenue on shipping fee, et cetera.

[Unknown Analyst]

Second question, how has this metric shipments per order move? So let's say, against the 32 million orders last year across the 2 segments, but as the number of shipments. I'm just trying to understand, are you still breaking your orders into multiple shipments to ensure better consumer experience?

[Falguni Nayar, executive]

I think we have some data on that. We do send the [ luxe ] orders separately. However, if you see during beginning of the year because of COVID April, May, June, our spot shipment ratio is very adverse, which has since been brought down and there is improvement in that. Plus, we also now have regional warehouses and thereby reducing our air shipment costs.

So we are doing a fair amount of work to manage our fulfillment cost better. And you will see the benefit of that going forward. Arvind, do you want to comment?

[Arvind Agarwal, executive]

Yes. I just wanted to add to one thing. I think actually, we believe that [ split shipment ], consumer getting multiple packages for the same order is not a good consumer experience. And so we've always been focused on bringing that split shipment ratio down. What I would say is it was never that adverse for us. We've never been a company that has had a very adverse future ratio. I think it was slightly more adverse than usual in the first couple of months of the year because of the COVID impact. But all of the investment we've made in building out a good regional network of warehouses and also reducing and also better inventory management across our warehouses. I think that is the investment that you've seen in the fulfillment expense numbers in terms of building out the capacity.

But you will see the -- we're starting to see the benefit of that in terms of the split shipment ratio coming to very, very healthy levels in the past couple of months. And as a result, the consumer experience is obviously better. And of course, the fulfillment expenses also are trending lower.

[Unknown Analyst]

So just quick last question. If you could give us a sense of the makeup of your marketing spend between performance and brand?

[Falguni Nayar, executive]

So that is not there in this presentation. And unfortunately, as a result, we won't be able to share it. But you -- I don't know how to guide you on that, but -- because it's not just performance and brand that are also support and fixed costs of managing the [ martech ] function. So unfortunately, we won't be able to. But as a philosophy, we would like to spend predominantly on performance marketing with some conscious budgets towards brand marketing so that we have a healthy upper funnel [ both ].

[Vijit Jain, analyst]

The next question is from the line of Sachin Dixit.

[Sachin Dixit, analyst]

I quickly had a question regarding AOVs in BPC in particular. Right? So if we use the last 3 quarter numbers and we look at the annual that has been released, AOV seems to have dipped quite sharply in Q4, like it has stepped to [ 1,660 ] roughly, if my math is right, from somewhere like a 1960 sort of a number in Q3. So is that normal should like -- or there are some other factors that are driving that?

[Unknown Executive]

Maybe I'll come in here. So I think there is obviously a seasonality in numbers also. If you look at quarter 4 AOV, 1,763 BPC, which is quite similar to last year's same quarter. So last year also, it was 732. So part of it is seasonality, part of it also because you have actually invested back the efficiency that we realized into fulfillment network expansion, right? We spoke about moving from national fulfillment strategy to digital fulfillment strategy by expanding fulfillment centers regionally closer to customer that has brought down our cost of shipment.

So our unit economics has improved and some part of it, we are flowing back by reducing the minimum shipping value that a customer can book a preshipping for. So in quarter 4, we have reduced our shipping threshold to make it more affordable to let's say, Tier 2, Tier 3 or mass customer who is conscious about shipping charges. And that also brings down a little bit of AOV versus what we were having in, let's say H1.

So this is EBITDA neutral in a way that the efficiency that we get from fulfillment cost reduction, we are plowing it back to make it more affordable to customers, reaching deeper and nearer to customers.

[Sachin Dixit, analyst]

Got it. Just one more question quickly on ordering frequency. So in Fashion, for example, we do understand like there are a number of new users who came into picture in FY '22, which could have driven the ordering frequency down to something like a 2.97 for the year. How do you see this ordering frequency panning out over time? Like do you see this will mature at somewhere around this 3, 3.5 sort of a range or it can go up to something 5 like this?

[Falguni Nayar, executive]

So to be honest, from a consumer cohort behavior perspective on Beauty we had a very sticky and very, very valuable cohort. And we used to see all individual cohorts be in a similar way, making us believe that, that was an inherent customer behavior. To some extent, it was a little bit affected during COVID period because mainly makeup having been affected out of that cohort. And Skin and Hair Care and Personal Care had gained a bit. So there were these contrasting trends.

However, that Beauty cohort we have here is coming back to pre-COVID levels, but still a little more way to go for the entire amount of larger celebration and the entire -- all the patterns of out-of-home behavior coming back in full scale. As they come back in full scale, you will see more positive impact. Definitely, fashion is in a very early stage of our growth journey with fashion customer cohort reasonably good in terms of repeat customer behavior but needs a lot more working on to get them to the level of repeat customer behavior that we see in beauty. But we will work on it. And we do believe that fashion is also a category where consumers engage with the category pretty similar number of times as beauty, I would think. And hence, they should be similar in the long run.

[Unknown Executive]

I'll supplement that. I think frequency of ordering could actually go up because of 2 reasons. As we spoke earlier that some of the adjacent categories are growing faster because of better focus and assortment that we have brought out there. And some of it is coming through Personal Care as well. And in those kind of categories, it is generally more higher frequency versus makeup, skin care, hair in terms of order -- pattern of ordering.

So that could expand frequency of ordering and also because we have brought down the shipping threshold to INR 300 so many customers might put smaller orders, but more frequently. But like I said, we are giving more assortment and choice in getting closer to customers. So we believe that getting more orders and more frequently will not stay in the P&L rather on an annual consumption value basis, I think we will be positive to get larger wallet share from the customers.

[Vijit Jain, analyst]

The next question is from Nihal Jham.

[Nihal Jham, analyst]

Good evening. Am I audible?

[Vijit Jain, analyst]

Yes [indiscernible]

[Nihal Jham, analyst]

First of all, congratulations on the strong performance. A couple of questions from my side. First, on the Fashion business, I just had this observation. I know we're looking at it on an annual basis, that our monthly average users has been more or less similar at around 16 million whereas the transacting users is something that has been increasing every quarter. And even in the previous quarter, we did mention on the focus on conversion. So I just wanted to confirm again that even this quarter, the same thought process continued, that the focus is on conversion rather than getting customers into the funnel at this point in time?

[Falguni Nayar, executive]

Yes. It's a very interesting question, Nihal, and I will tell you that as a company, we are very focused on upper funnel, we are very focused on middle funnel and also for lower funnel. And while our primary objective is to focus on conversions also, but we also have to keep an eye on adding healthily on the upper and middle funnel.

So multiple objectives, but a very good stronghold on marketing, both from the car perspective and what we are doing perspective so that we are able to optimize the best outcomes.

So what I would not say is that TV ads never made sense because they are per funnel. I think every type of marketing has a role to play, and we would do a mix. And there is a very big emphasis on CRM because for a large customer database, which is very active for us. On Beauty, CRM should be a very big focus. And so should it be for other areas also.

[Nihal Jham, analyst]

And if I may just follow up that going forward, the focus would be that this number keeps increasing, so that it keeps feeding on into transacting customers into the future.

[Adwaita Nayar, executive]

Absolutely. I think conversion is something that as a company, we are very, very focused on. We want to do more with the visits that we're getting. And as we see [ e-conversion ] is the work of so many things, so relentless focus on assortment, price, availability, along with product marketing features as well. So yes, that remains a focus. And to me, an improvement in conversion is just a constant reflection that your strengthen platform and doing the right thing for the customer. So that would be our focus.

[Nihal Jham, analyst]

Sure. The second question was...

[Vijit Jain, analyst]

Nihal -- sorry, if we can just fit in [indiscernible] [ Kapur ], who is the next question here, and then you can jump back into the queue if possible.

Can we please take the next question from [indiscernible] Kapur?

[Unknown Analyst]

Hi. Am I audible?

[Falguni Nayar, executive]

Yes.

[Unknown Analyst]

I just wanted to ask one question. I see that in the balance sheet, the other financial assets have increased considerably this year compared to last year. Is that primarily a function of proceeds from the IPO that have gone into your deposits? And just if you could give some color on how you plan to deploy -- is it just -- are those the same ones from the idea that you plan to deploy the same strategy as mentioned during the time of IPO?

[Falguni Nayar, executive]

Yes, few funds will be deployed in the same manner as disclosing the IPO document. But we also have funds available through our profits that we are generating cash flow that we are generating. But we continue to want to invest in stores, warehouses and also some amount of investments in new businesses and also some amount of investment in inventory or that we need to do our business that, of course, it's been a tough environment from a supply chain perspective.

So we've taken a little bit higher inventory so that we don't face supply shortages. So but similar as what we've been doing.

[Vijit Jain, analyst]

If I can squeeze in a question my own here. I was just looking at the SuperStore expansion, the number of [indiscernible] went from 4,500 to 18,000 in this quarter. And you did mention about some feet on street hirings to add these retail stores. So just trying to understand, a, are those stores acquired solely through feet on street or there's a little bit of self-serve there as well? And.

[Falguni Nayar, executive]

There is an element of self-serve also, but these are very early days. And also, the business had a good scale up in that quarter. However, when that happens, we also have to keep building infrastructure to service that network. So I think in early days, it's very difficult for us to predict quarter-on-quarter growth because sometimes our networks are slow at expanding in line with the demand that we see. So I think in early days of Beauty, we learned that one thing we should do is believe in that growth and invest in infrastructure ahead of the growth. And I think that is, to some extent, we are doing it for Beauty with our store rollout with our even physical store rollout as well as our warehouse rollout and we'll have to do something similar even in the B2B business.

[Vijit Jain, analyst]

The next question is from the line of Garima Mishra.

[Garima Mishra, analyst]

I had a couple of questions on the fashion business. Any time lines that you may have in your mind as far as when this business can become EBITDA positive? And also now that you're seeing a much larger number of transacting customers in Nykaa fashion. Is there any material change you observe as products customer behavior on order returns at [indiscernible]?

[Falguni Nayar, executive]

I think we can make forward-looking statement on breakeven. But if you know Nykaa, we are always working towards that magical EBITDA breakeven for each of the businesses as early as possible, but in a manner that we are not depriving the business of medium- to longer-term growth. So I think it will be a balance and affordability also in terms of what we think is something that we would like to spend to build that business. But I think for most of the e-commerce business, showing near-term profitability is a matter of stopping customer acquisition, but it's not really the right thing. If you're acquiring the right customer, it is worthwhile to acquire the customer from a long-term value creation perspective.

[Adwaita Nayar, executive]

Yes. I think in terms of the next question around returns, that's something that we've not split out, and therefore, it will be difficult for me to comment. But what I will say is that I'm very focused on making sure that we're getting a very high-quality customer. So we're really trying to keep out kind of that -- that's often fraudulent behavior that is prevalent across e-commerce in India. So trying to very focused that the returns that we do get are from high-quality customers who are truly struggling with product and size and so forth and doing a lot of work on our end, both in terms of attracting the right customer. But then even after that, weeding out the customers that could potentially have for return behavior.

And the result of that is definitely a return rate that is far better than what we hear and see amongst competition.

[Vijit Jain, analyst]

So there's one last question from the line of Nihal Jham a follow up.

[Nihal Jham, analyst]

Just my pending question was that in the quarter, we obviously announced the 3 investments into [indiscernible] -- just wanted to understand your perspective of the plan ahead, is this to build up the private label portfolio and that's what thought this? Or could we look at exits for these kind of investments? And would they be more effective as [indiscernible]

[Falguni Nayar, executive]

Yes. I mean I think what we don't want to do is we don't want to be a fund that invests in consumer companies with a view to exit. I think we would like to build a company, which is a consumer company with a number of brands that it owns. Many of the brands are created in-house -- I mean through our own organic efforts, and there could be some brands when we come across certain brands that bring something incremental or they bring something in an area that we don't have our current focus on, then we may acquire those, but with a clear part to control over time. Intention to control. Sometimes the part may not be already laid out, but we are intention to have control over [ time].

[Vijit Jain, analyst]

Sorry, I see one more hand raise [indiscernible] if that's okay with you to take this.

[Falguni Nayar, executive]

Yes. Let's take the last question. Yes.

[Vijit Jain, analyst]

The question is from Amit Sachdeva.

[Amit Sachdeva, analyst]

Sorry, I got disconnected in between. So my apologies if this has been asked earlier. So my question is on the eStore business. And I see that there's -- in 6 months, there's a remarkable progress there as well. But if I do a rough math, and correct me if I'm wrong, if there are some 18,000 end retailers and in revenue, if I just make a rough guess about maybe INR 89 crores of revenue has been -- GMV has been reported here.

So probably they are spending about lakh per outlet or some sort I just want to know that basically, what would be the ticket size, what is the total addressable market of those? And what is the minimum efficient scale that you need to reach that it becomes a bit more profitable. I would reckon that because the gross margin there would be half of that of your [ DTC ] margin because of the trade margins, et cetera. So how we should make sense of this business in terms of next 4 to 5 years' perspective, what could be the size of revenue and probably a trajectory for this business?

[Falguni Nayar, executive]

Yes. Very interesting question, but these are very early days for us to be able to answer all of your questions with data. Well, a couple of things I can tell you for sure is that this business cannot be done like a B2C business because like you said, inherently, the gross margin available for the business is far lower than what is available for a B2C business. And keeping that in mind, this business will have a very different distribution network like it may have warehouses much closer to the retail centers. It may also not be -- now it will also not spend on marketing for customer acquisition, especially if it is also spending on feet on street to educate and convert the retailers and teach them the art of buying online.

And strategically, I see a very, very big opportunity here because once you are tied to the retailer, the kind of value add you can do to tell him what are the brands, new brands, new products that are likely to sell in this area? And what should we equip himself with and how you -- and we can also be the conduit to offer the best offers to them, to the retailer through our brand partners and also educate them and educate them on the right conversation that they can engage with the clients and also give them working capital to buy those products, give them knowledge which products and what quantity to buy.

So I think it's a very powerful business model. We see that next 10 years of growth will be in this area. And Nykaa definitely play this very successfully first in Beauty, where we are backward integrating and we are in front of most of the brands, and we think we truly add value for them. And in future, we may also consider a couple of other categories that make sense given our business focus.

[Vijit Jain, analyst]

Thank you. That was the last question we can take today. Thank you, Falguni and Adwaita and Arvind for doing this call. Thank you, Anchit. Thanks, everyone for joining, and hope you all have a good weekend.

[Falguni Nayar, executive]

Thank you. Thank you everyone.

[Unknown Executive]

Thank you, Vijit. Thank you. Thank you, everyone for participating.

[Adwaita Nayar, executive]

Thank you.