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FSN E-Commerce Ventures Ltd, which owns online beauty and cosmetics retailer Nykaa, reported a 96% fall in its September quarter consolidated net profit as the company’s marketing and advertising expenses jumped nearly fourfold during the period ahead of its public listing last week.

Nykaa’s net profit fell to 1.17 crore in the quarter ended September, from 27.47 crore a year earlier, the company said in a regulatory filing. The company’s shares were listed at 2,018 per share, a premium of 79.37%. Its market capitalisation crossed 1 lakh crore.

While the company reported a 47% increase in its revenue from operations to 885.26 crore, its operating expenses almost doubled to 394.4 crore, thanks to a 286% jump in its marketing and advertising expenses to 121.4 crore. The marketing and advertising expenses now account for 13.7% of revenue against 5.2% in the year-ago period.

While the company’s earnings before interest, tax, depreciation and amortisation margin contracted by 585 basis points (bps) to 3.3% in the September quarter, its gross profit margin grew 345 bps to 42.7%.

“We have maintained growth momentum in our beauty business, accelerated our fashion business and focused on building the brand Nykaa with strong marketing campaigns both digitally and mass media," said Falguni Nayar, chief executive officer and founder of Nykaa. “Increased marketing spends has led to acceleration of customer acquisition, also evident in the unique visitor and transacting customer metrics," she added.

Gross merchandise value of Nykaa’s beauty and personal care segment rose 1,186 crore in the September quarter, while that of its fashion segment jumped more than three times to 437 crore. Consequently, the fashion segment contributed nearly 27% to the company’s consolidated gross merchandise value against 13.9% in the year-ago period.

“I think there was a misconception that Nykaa was a makeup company. Today, makeup is hardly 30% of our total business, 70% comes from the rest. We are a beauty and personal care retailer in the true sense. But for us, now the focus is definitely on lifestyle, which is beauty and fashion and its adjacencies," Anchit Nayar, chief executive officer, Nykaa e-commerce had told VCCircle in a recent interaction.

In October, Nykaa had bought skincare brand Dot & Key for an undisclosed sum in a bid to expand its skincare, personal care and nutraceuticals-owned portfolio. Dot & Key was the first direct-to-consumer (D2C) beauty brand acquired by Nykaa.

During the quarter, Nykaa also launched SuperStore, an e-business-to-business platform (B2B) to enable retailers across the country offer beauty and personal care products. The company installed eight new physical retail stores to take the total number in the country to 84 as of September 30.

Commenting on the new initiatives, Nayar said that the acquisition of Dot & Key marks a significant step towards Nykaa’s brand strategy, and Nykaa SuperStore will be an area of focus in the quarters to come.

Nykaa has been expanding its fashion business with a couple of acquisitions over the past two years. In 2019, it acquired women styling platform 20Dresses.com. In April, Nykaa acquired jewellery retailer Pipa Bella, a brand that targets 22-35-year-old urban women. Pipa Bella had secured funding from early-stage venture capital firm Fireside Ventures in 2018 and previously in 2015, it had secured $600,000 in a pre-Series A round led by LionRock Capital.

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