Ladies and gentlemen, good day and welcome to the Q2 FY 2022 earnings conference call of FSN E-Commerce Ventures Nykaa Limited, hosted by Morgan Stanley India Company Private Limited. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. If you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjay Shah, country head at Morgan Stanley. Thank you, and over to you, sir.
Yeah. Thank you, Steven. Greetings, and thank you everyone for joining this call. As Steven said, my name is Sanjay Shah, and it's an absolute privilege to be hosting the FSN E-Commerce that is Nykaa management. We have with us today, Ms. Falguni Nayar, Executive Chairperson, Managing Director, and CEO, Adwaita Nayar, Co-founder and CEO for Fashion, Anchit Nayar, CEO for Beauty E-commerce, and Arvind Agarwal, Chief Financial Officer. Before we start the call, we have this housekeeping message, so please bear with me. Please note that this meeting and your questions will be recorded and may, in certain circumstances, be distributed to clients and/or made publicly available. By participating in this event, you consent to such recording, distribution, and publication. For any important or pertinent disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures.
This call will be for 60 minutes, and we will have time for Q&A. Before I pass it on to the management, I must absolutely again congratulate the management for building such an incredible lifestyle technology business. The passion, dedication, and commitment you displayed has been incredible. In less than 10 years, you've built a tremendous scale, $550 million of GMV last year and already up 100% in the first half on year-on-year basis, annualizing more than $850 million. All this done with an actual raise prior to the IPO of less than $1 million. Incredible effort and the success of the listing last week, of course, is a testimony to that. Falguni, given your experience, obviously the journey has just begun. There is so much more to be done, just given the headroom.
Let me, with that, just hand it over to you for your opening remarks, and after that, perhaps we could take questions and answers.
Sure. Thank you very much, Sanjay. It's an absolute pleasure to be with all of you as part of our very first earnings call that Nykaa is doing in its journey. I'll try to be very brief and concise in what I say on the call so that the reporting is there, but all of you will have to read it in conjunction with the presentation which is on our website, and I'm sure all of you have access to it. I'll start with very few summary messages. As you can see, Nykaa's consolidated GMV grew by 63% year-on-year for the quarter ended Q2 FY 2022. Even on a sequential basis, it has grown at 10%, so it has grown at 10% over Q1 FY 2022.
Within this, the beauty and personal care GMV grew at 38% year-on-year, and the fashion GMV grew at 215% year-on-year. Fashion GMV now contributes almost 27% of the consolidated business, up from 14% a year ago. What we are really happy about is that our average monthly unique visitors has gone up to 21 million for the beauty business, which is up 62% year-on-year. For the fashion business, it has gone up to 16 million monthly unique visitors, which is up 328% year-on-year. Obviously we've been doing more work on the upper funnel, attracting customers in the upper funnel through wider marketing efforts because we believe that COVID-induced recession, and this is the time to take advantage of returning consumer interest and demand.
Because this was till the end of September, and as you are all aware that October to December is one of the strongest quarter for lifestyle industry, retail industry, and particularly even for beauty and fashion for us. On the annual unique transacting customers also, we are happy to report that Nykaa has now reached 7.2 million annual unique transacting customers on the beauty and personal care business, and 1.3 million for the fashion business. That means about 4% year-on-year increase for beauty and 417% year-on-year increase for fashion. I will now go on to highlight some of the other other key, what I call as key KRAs or KPIs that we have in our document, and I will call out the page number.
If you first go to page number eight, and I won't spend too much time because everything is self-explanatory. You can see that in the quarter one, of course, we had a huge growth in B2C at 59% year-over-year, and 63% year-over-year growth in quarter two. However, we are not suggesting that that is likely to be the trend for the full year because as you are all aware that quarter one of financial year 2021 was affected by COVID. However, it is a very strong growth momentum that we're experiencing in the B2C business. We'll move on to another important element of the beauty business which is on page 10, which is the AOV. I particularly point this out because many of you asked us this question in our presentation.
You know, all of you said that in quarter one and quarter two during COVID-impacted times that AOV went up from 1,850 pre-COVID to almost 2,100 to 2,168 levels. Many people asked this question whether it will sustain. Of course, we had very strict shipping policy during the COVID times because of constraints on supply chain. However, even post that, and now there are no constraints and we've eased our shipping policy both from COD and on minimum shipping levels. But even in spite of that, our AOVs have maintained at the level of 1,913. In fact, it's up over last three quarters, you know, from 1,763 to over 1,913.
We are happy about being able to maintain our AOV as you know, the right unit economic metric emerges from good AOVs. On the annual unique transacting customers, also I want to point out, which is on page 11, we have now reached 7.2 million. I think many of you were disappointed about the number of 5.6 million versus 5.2 million just a year ahead. We do feel that some of it there was COVID impact. We did grow at 35% in spite of the COVID, but at the margin COVID did take away some amount of our growth. As we come out of COVID, we do believe that we are experiencing stronger growth. That is evident in our annual unique transacting customers which grew quickly.
We are also spending more on marketing to achieve that. As we move to the fashion business, I'll take you to page number 14. I just want to point out that as you are all aware that fashion is in a sequential growth phase, we have seen a huge number of increase in annual unique transacting customers, which in the quarter two stands at 1.3 million against just 0.2 million a year ago. That's a massive growth in transacting consumer on our fashion platform. The GMV growth also continues to be strong with an extremely strong growth experienced between quarter four of financial year 2021 and quarter one of financial 2022.
You saw our GMV go up from INR 268.6 crores, this is on page 14, to INR 384.8 crores over just one quarter. Even on such a strong quarter we are now seeing 14% sequential growth. We move on to the next part of the presentation, which is the financial highlights. Sorry, just before that I'll also point out that on the fashion side too, our average order value has been strong and it is at INR 3,237 for this quarter. Now I'll come to the consolidated financial highlights. Revenue from operations grew at 47% year-on-year and 8% on sequential basis. Marketing income in beauty business continued to be strong and came out at 68% year-on-year.
Income from marketplace services, which is entirely driven by fashion, grew by 3.6% year on year. This led to gross profit of INR 378 crore which is a 59% growth year on year. All of this is on page seventeen. Gross profit margin came out at 42.7% against 40.6% in the previous quarter. It was an improvement of 213 basis points primarily led by increase in share of GMV from own brands as well as increase in share of fashion GMV. EBITDA has come out at INR 28.8 crore, INR 288 million rupees, with a flat EBITDA margin of 3.3% compared to the first quarter.
Marketing and advertising expense as percentage of revenue from operation was at 13.7%, higher as compared to 11.1% in quarter one of 2022. Marketing costs have gone up from 11.1% in the first quarter to 13.7%. This is hugely higher than what we had experienced in the first half of last year, causing a little bit of concern amongst market participants who don't probably understand that we are in a very conscious manner increasing our marketing spend because they were artificially depressed in the first half of last year due to COVID impact as well as fear of COVID and the period up to which COVID can last and impact our business. With that fear, we had spent very limited on the marketing costs.
In fact, in later tables you can see that our first half marketing cost last year was just around 4.2%. Even the second quarter marketing cost was only 5.6% of net revenue. That will change, and we do believe that going forward we will spend somewhere around, you know, higher levels, definitely higher levels and somewhere around this or slightly lower levels in marketing. All of that will be value accretive is our commitment. On the profit side, that has resulted in INR 1.2 crore or INR 12 million of profit in quarter two. That is profit after tax, and that compares with INR 2.7 crore, which was achieved a year ago.
However, if you look at the half year details then, our profit, we had suffered a loss of INR 25.1 crores in the year-end first half of financial year 2021. INR 251 million, if I may say so, was the INR 251 million rupees loss during the first half of financial year 2021, and that has now come out at INR 37 million profit for the first half of this year. I think this is on page 17, if I can share. In our mind, if we look at it from a strategic perspective, we are balancing between growth and profitability. Our intention is to deliver strong growth because we think these are very fortunate times for e-commerce companies to try and tap into consumers more accepting of e-commerce.
Of course, being disciplined about trying to you know, maintain our unit economics as we expand, not just for beauty business but also for fashion business. However, fashion business is at an early stage of growth. As a result, while if we were to look at the EBITDA of the businesses separately, which is something we've not shared, but the two businesses which we were comparing, we clearly felt the business is at a stage where we are continuing to spend more than our revenue. In the sense that even if we cover all direct costs of marketing and fulfillment, I don't think we're covering our overhead in the fashion business. We believe that as we continue to grow this business, we will be able to show similar discipline on unit economics the way we are disciplined for beauty.
With that, I'll go on to the next page, which is page number 19, where I think some of these graphs that I talked about. There is a graph called Gross Profit Margin and Key Operating Expenses, where you can see the quarterly trends. You can see the full three financial year trends, financial year 2019, financial year 2020 and 2021, followed by quarter one and quarter two. You can clearly see that the gross margin has gone up. Both fulfillment and employee benefit costs are under control from a long-term trend perspective. However, marketing costs have slightly edged up. Against that, there is enough to show in terms of be it visits, be it unique visitors or be it transacting customers for all of Nykaa. With that, I'll highlight couple of other business developments.
Of course there are items of P&L and balance sheet that I can take, but I thought I could take it as part of the question and answer rather than right at the beginning. With that, I'll take you to the five additional business developments. One being that all of you must be aware of the Dot & Key acquisition that we did. We believe it's a fantastic company, and this is part of our presentation on page six, where we acquired Dot & Key on 27th May. It's a brand which is in skincare, personal care and nutraceutical. We do believe it's a fantastic brand with a lot of promise going ahead.
The amount of money for this latest acquisition is all known in the prospectus, so I won't repeat it. The second important trigger has been the Superstore by Nykaa, which is our eB2B business which we launched during quarter two, and it is having good initial success. The Superstore by Nykaa aims to support and empower retailers across India with a view to offer the best of beauty and personal care products which they can then onward sell to their customers. In fashion, we also launched a label called Gajra Gang, which is our ethnic wear label. It is meant for women who refuse to be labeled, and it offers ready-to-wear collection of modern occasion wear and balancing between craftsmanship, tradition and wearability.
It is super empowering women's choices, and as a result it's a brand totally on point with what the Nykaa customer wants. We continue to grow our store expansion. We've opened 8 physical stores in this quarter, and we are reaching cities like Gwalior, Cochin, Mysore, and Ranchi. With this, our total operational stores has gone up to 84. Nykaa also continues to ensure that across this platform and timely delivery for all customers across length and breadth of India. Gladly, the warehouse delivery capacity has been growing with 0.37 lakh sq ft of capacity added during quarter two, which has resulted in our total, you know, warehouse capacity going up to 6.65 lakh sq ft. With that, I think I can take a break and open it up for question.
There are certain aspects of the balance sheet and P&L which I've not addressed in the presentation, but I can take it as part of the question and answer. Ankur, is that okay? Should we open the question and answer?
Thank you very much. We'll now open the question and answer session. Anyone who wishes to ask a question may press star then one on their telephone keypad. If you wish to remove yourself from the question queue, you may press star and two for asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Shripad Nayak from IIFL. Please go ahead.
Hi, ma'am. My first question is on the market size for BPC, which in the prospectus you've mentioned around INR 1.2 lakh-INR 1.3 lakh crore. However, a very large part of this market is actually mass market brands, like let's say Lux or Lifebuoy soap or Colgate toothpaste, et cetera. So if you are going into these kind of products maybe sometime in the future, I mean, I'm sure you have all this on your website. What I'm trying to say is if there's a material contribution coming from such products in the future, how does that affect your gross margins? Because the trade channel margins on these products would be much lower than the margins that you're getting on your current portfolio.
I think, I'll just come in and say that as far as the prospectus is concerned, we have declared that 70% of the business is from the three categories, which is makeup, skincare, and haircare. Haircare within that is also included there. Besides that, at least 30% of business is in other categories, which of course includes clearances, it includes fragrances, and it also includes personal care. Personal care, which actually includes some amount of haircare and skincare, is already a reasonably decent size business in our form. We don't look at margins only from the perspective of the margin you receive as a retailer. First of all, because we play a role of a retailer and a distributor, and we buy directly from the brand partners.
Also many of the brands also see us as a place where they can actually build true customer awareness and access to their brand and acceptance of their brands. For that, they also share with us. They buy our various marketing assets, and they share with us additional margins through this, they receive the additional money through this marketing role, you know, where we play a role of the marketer for them. With that, we don't think there is any adversity across segments. Yes, within that, there could be absolutely some categories or some cases which may not be the best place to buy things on our site.
I think there is a fair amount of business in personal care that we do, and that includes haircare, personal care, bath and body, and a number of other products, which are, you know, like personal or like beard care or shaving or, you know, or personal feminine hygiene. There is a whole lot of categories which see a big potential in our platform to reach customers. In general, we believe there is a trend towards premiumization in all categories.
Right.
I wouldn't say that we don't sell non-premium, like say for example, sanitary napkins. We sell enough of the base sanitary napkin like Discor and others. We also sell, you know, all kinds of sanitary napkins and the share of many of those is growing, and those are definitely premium products. Same thing with body washes. We sell all the basic body washes from ITC or Divya and others. We also equally sell premium body washes from The Body Work, The Body Shop, and Lakme Azon, and Vandila, and others.
Understood. Secondly, I just wanted to touch upon the margins and especially the marketing cost, which has gone up. If you can give some flavor as to what part of this increase is because the fashion business is in ramp-up mode, and what part of the increase is because the BPC itself needs a higher spend, given that the base comparator is very low.
I think, while we don't have a very good guidance with that, for you right now, I think going forward, we'll work towards giving a very specific guidance going forward. You absolutely are right that when a business is at an initial phase of build-up, like fashion business has been, where it's growing very rapidly and you're acquiring a lot of customers to the platform, your mix of new customer versus repeat customer is such that, the overall cost of marketing is high because you're bringing a lot of new customers to the platform. That settles in at a more optimum level once you have a better mix of new versus repeat customers on the platform. Fashion is now two and a half to three-year-old platform, and as a result, we do see marketing costs coming down.
Yes, they will be at a substantially higher level than beauty. I won't say that marketing costs have gone. Let me put it this way, because I don't want to say anything that isn't true. If you see the first half of last year, which is, you know, for the September 2021 ended first half, you know, the marketing environment was very benign because things were nobody really. I mean, you could only do essentials-only business for three months. Nobody was marketing much because everyone was scared and, you know, conserving capital because they'd had huge losses in first three, four months. I think there was no major marketing competition.
As a result, our marketing costs in the first half of last year were unduly low because there was nobody marketing. We also were conserving capital. We didn't do marketing enough. All that has changed now and everybody's picking up on marketing. Having said that, there was unusually low cost of customer acquisition during first half of last year. That doesn't go there. But if you look at it overall, we are back to the long-term cost of customer acquisition, which also varies by category. I think we do believe that things are coming back to the long-term cost of customer acquisition level, both for beauty and of course fashion is a new business for us. It's not like we have a long-term benchmark.
From our perspective, we do believe that we would like to do this business in such a way that, we keep in mind the LTV, the long-term value of the customer versus the cost of customer acquisition. That's why one needs to be measured in terms of the quality of customer one acquires and all the effort that goes in converting the customer through the funnel, that overall cost of customer acquisition versus long-term value coming from the customer is a healthy mix.
Understood. If I might just push the envelope a little bit more on the margins. You had about 6.5% margins for FY 2021, both the segments put together at a consolidated level. How many years or quarters do you think before we will cross that benchmark for the consolidated company?
You're talking about EBITDA margin?
Yes.
You know, I think by now, I mean, I would like to share with most of the investors that for e-commerce companies, profitability and near-term profitability is a balance between customer acquisition, mixed customer acquisition versus, you know, pay per customer and new customer acquisition. As a result, it's something that can be optimized for because 55%-90% of our marketing tends to be what you call this performance marketing, you know, which is optimized to a certain efficiency vis-à-vis sales. Of course our marketing costs are higher, like I told you, in the new verticals as we're building them. Once those verticals settle down, then again the marketing cost comes down.
I think for us, I don't want to predict into the future, but it is something that we believe that, nothing has changed in terms of how we will look at the balance between, profitability and growth, you know. Yes, last year comparisons are difficult because it was a different year. I think from a perspective of, I think investors. I would urge investors to look at marketing costs in conjunction with the new customer acquisition and, you know, customer engagement in terms of monthly customer engagement as well as, you know, trailing twelve-month customer engagement and stuff like that.
Absolutely, ma'am. Thanks a lot and all the best.
Thank you.
Thank you. The next question is from the line of Abha Mitra from Credit Suisse. Please go ahead.
Yeah, hi. Thanks for taking my question. So my first question was, you know, if we look at year-on-year, a lot of the BPC growth is driven by orders. In fact, more than full growth is driven by orders. Your visits are also up quite a lot. But when we look sequentially last couple of quarters, it seems it's AOV driven, the order growth is relatively low. Is this something that is of concern to you and or should we broadly look at the GMV with the customer maybe bunching up orders at different points of time? Also if you could help us understand peak season seasonality in BPCs, because do you look at these e-commerce companies sequentially that is there a significant seasonality that we should be aware of?
Yeah, absolutely. That's a very important question, and thank you for that. Yes, there is definitely seasonality in our retail business and lifestyle business. October to December is seasonally the strongest quarter. Post that, October to December quarter is very strong because of two core reasons. One being the fact that Diwali falls in that. Usually the marriage season starts then. Thirdly, of course, year-end buying also comes in there. I think with that, it's a very strong quarter. January, February, March is not as pumping as it was last year because what happened was that for year ended March 2021...
Sorry, for the year ended March 2020, the January, February, March quarter suddenly the COVID came and, around the 30th of March, the stores started shutting down. A lot of e-commerce parcels were also not delivered. I think you are now getting a bit of a sense of, you know, sense of seasonality there. I do believe that, you know, the January, February, March quarter will never match up to October, November, December, which is quarter three, but it can be a reasonable quarter. What we find is that the first half is definitely seasonally weak. Particularly also the second quarter, which is quite weak because of summer period and holidays fall in this quarter as well as crop-up effects by monsoon, flood and things like that in the country.
There is some amount of challenges in that quarter. Last year again, second quarter was a little different and that's why year on year comparison doesn't claim because last year second quarter saw some amount of revenge buying because first quarter was entirely shut for non-essential category, you know. Second quarter was strong. I think this year it is very difficult to understand. Yes, believe me, there is seasonality. Second half is stronger. It does take a fair amount of effort in the first and second quarter to continue to grow the customer base so that you get the effect of that customer base that you brought into your net, you know, the customers repeat behavior because on an average customer buys two times in a year.
Instead of waiting for the fourth quarter only to sell to them, we keep acquiring customers throughout the year. Then eventually many of them come back and buy with a much stronger throughput during the season, which is the second half. It's a pattern we've seen, and as you observe us through the years, you'll find similar patterns.
Sure. Thanks for that. My second question was on AOV. What we've seen in some other industries, though they may be very different, like food delivery, as the customer growth happens, the AOV tends to fall very rapidly as you go down the income curve. In your case, at least last year, but there was still an explanation that because of COVID and people may have been bulking up and lesser orders. Would you expect the AOV to drop as you grow and you go down the price strata or income strata? Is there some way in which it will be mitigated with some other levers?
Yeah. Our past experience has been that we've had a similar AOV across tier one, tier two, and tier three. Basically now already 60% of our business is from tier two and three cities in beauty. In fact, at the consolidated level also similar. It is definitely not showing any kind of big difference from an AOV perspective. That is also because of the fact that we are basically giving access to less distributed premium products through our platform, which customers through length and breadth of the country are buying through us. Unlike, I don't know about other businesses, but Nykaa is a very pure B2C business because from the very beginning we do not allow our retail orders and we actually cancel retail orders.
In many ways, you know, most of our business is a, you know, consumer-facing business. As a result, we find that consumers are, you know, because of the geographical way in which India grew, there are a lot of different industries in different parts of the remote parts of the country, you know. Somewhere there'll be a tea industry or there are plants in certain parts of areas from which the demand comes. We don't find very much difference in the AOVs of the customers.
Okay. Thanks.
Yeah.
Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Garima Mishra from Kotak Securities. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Couple of questions. One, can you please highlight the contribution of the offline channel in your overall revenues? Second, could you also comment a little bit on the fashion business AOV? For the last, let's say three or four quarters, AOV has really scaled up. So you would attribute that more to premiumization or this would be more a function of customers buying more clothes per order?
Yeah, very interesting question, Garima. I'll tell you a couple of things. First, in terms of, I'll address the fashion AOV. Fashion AOV looks like it went up from 600 all the way to 3,500. I think it is because of the assortment kept growing. Initially we had a very limited assortment, mainly started with easier categories of accessories and stuff like that. As the assortments have been growing. Again, you know, a lot of brands have found our platform where they can sell premium products, new launches and everything, which they tend to sell at a good price point. Because of all of that, and as customers are also getting more comfortable with the platform and developing trust in the platform, you know, the value that they're buying is going up.
We are clearly seeing an increase in AOV, which is driven both by assortment and also the consumer trust. You are aware that in beauty customers buy almost five items in a cart, whereas in fashion it was only 1.3. It's also going up now a little bit to 1.6 items in a cart. There is some amount of benefit of that. I think on your first question that you asked about GP, CPG, and personal care, if I got it right, I think it was about. Sorry, can you just repeat what exactly you wanted to know there?
Yeah. I just wanted to know what is the contribution of offline business to your B2C revenues or overall revenues, whichever way you may want to share?
I'll tell you a couple of things, Garima. Right now, we don't want to disclose things which we haven't disclosed in the past years. I totally understand that in the long run we will share that. The reason why we did not share it was because of, you know, COVID impacted on and off, it was like a very confusing number in the last couple of months or years, you know, right, last one or two years. We do believe that, you know, it will come back. I mean, already the retail business is back to its pre-COVID level, and we will now have a more sustained and regular increase in store growth, number of stores that we, you know, grow. I think there will be a better pattern to it.
I think in a couple of quarters we will make sure that we start sharing that number. It remains small, and if I may say, I think during COVID times and during the post-COVID time it was sub 10%.
Understood. Thank you so much for the clarification, Venky.
Right now there's a lot of strong momentum in physical retail. Like we always emphasize that our business is omni-channel. We treat all customers in the same basket, so every store customer is added to our database, and we start selling them, you know, all our notification mailers, everything. They start buying online. Similarly also, to online customers, we are always letting them visit new store opening. If there's an opportunity, we are driving them to go to our store and experience it because we think that customers are excited to do that. As a result, what we find is that in whichever city like, you know, we go, we actually see a strong momentum, you know, in both the business, both online and offline. We believe it's truly an omni-channel business.
Like you can now see we are rolling out in more and more cities, you know.
Actually, just a factual clarification there. When you disclose GMV and transactions to customers, does online also form a part of it, or is that, you know, those metrics are completely separate?
Yeah, I think so. We would include everything.
Got it. Thank you so much for the clarification.
We would include all of it. It's a consolidated, all of beauty business, all of fashion business. In fashion, there are no stores right now, only one store. In beauty, of course, we have now more stores, 86 stores.
Yeah, I'm just confirming, Garima, that Offline sales GMV is also part of the beauty GMV and total GMV.
It is.
Yeah, it is part of it.
Thank you.
The next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, Falguni . Thanks for this opportunity. You have clarified that AOVs don't vary a lot between cities. Is the understanding or is there a divergence between the company average and, you know, an old customer or a customer with a longer lineage with us?
Yeah. If I understood the question right, our AOVs of customers go up with every subsequent purchase that they make, right?
Mm-hmm.
The first AOV of the first purchase of the customer is always lower as an entirety. Of course, there are customers who will come and buy worth INR 50,000 also in the first purchase. What I'm telling, in entirety, the AOV of the first purchase is lower than the AOV of the repeat purchase.
Specifically what multiple does it come to, any kind of numbers versus a company average for longer term, you know, customers with longer transaction history?
We haven't disclosed this. In future we can, but you know, it also changes. Like, you know, the AOV of the customers who've only bought two times or AOV of customers who bought 20 times. You know, it all varies. Of course, you know, on an average we see that most of our customers who are retained, we retain a lot of our customers, and the ones who are retained also buy about four times in a year as evident from total number of orders to unique customers who buy. I think with all, and I'm talking here about beauty numbers, so with those kind of numbers, obviously there are customers who have been in with us for five, six years now. The number of orders are much higher also.
The AOVs really look very strong because it gives customers a lot of confidence to buy a lot more categories from us and a lot of even more value products from us.
You know, I was just trying to understand that, but I'll kind of wait for that disclosure.
Yeah. We don't have a combine. We'll work towards it. I mean, to answer your question, if we see that everybody wants such a set of data, we'll work towards sharing those over time. It's not easy because it varies a lot across businesses and stuff like that. Because you know what happens is that after customer starts buying a lot more items in the cart, you know.
Yeah. No, I mean, it's just that it's, it gives a sense in the value of the customer once it becomes, that is where I was coming from. I take your point that it will vary a lot business sense. That is why I think that is where my question was headed. That's it. My second question was on the fashion side. I mean, I'm just trying to understand the broader positioning. Is this more towards the curated content that you want to kind of focus on versus the company? If yes, does not having inventory, this was a big differentiator kind of, as a whole. That's all.
No, I think on the fashion side, I understand the question, right. We are focused on bringing curated assortment to our customers, which means that we are not an open platform where anyone can come and sell anything. We are actually doing some amount of pre-selection for our customers on the customers' behalf, saying, "Is this good quality? Is this a good brand? Is it right on trend product that we need to show it?" Because even from our brand partners, we don't take everything catalog. We take their more of what we call on trend, new launches, the right popular catalog. We don't have commitment to offer and show everything from our brand partners on the fashion side. I think it's a very curated catalog that we bring.
Within that, we also facilitate through you know discovery, as we call it, but through discovery, so we facilitate customer discovering a lot of new brands, new on-trend styles and a lot of that which allows for better consumer experience in terms of how they experience the website and how they are satisfied with the purchase. I don't know, Adwaita, you wanna come in here?
Yeah, happy to come in. Yeah, I think there are key pillars on which the fashion business is being built. The first is, you know, as Ritu mentioned, a highly curated merchandise. I think fashion platforms need to have points of view. There's a lot of products out there, and you know, one of the pain points we heard from customers is that on other platforms they get lost, they get scattered. That is why the philosophy of merchandising is can we really curate, can we handpick the right products, the right brands, and really make the customer feel that this is a platform which has a point of view, and I know what they stand for, which is slightly more premium, very high on quality, very style driven, and very trendy.
I think the second pillar in fashion is inspiration, and that's really what we do with beauty as well. Indian women are looking to be inspired, how to dress, how to really up their outfits. Tons and tons of content are being created, and it defines what the next experience. As you've heard earlier, the fashion business, as you also insinuated, is that we're striving to build it as a marketplace, because I believe that, you know, inventory risk in fashion can be higher. We would like to build it as a marketplace, and we built all the technology to support that, and we're scaling it well on a marketplace model, which means we're not holding inventory for the most part, for large part of our brands.
Adwaita, what I was trying to get to is because we don't hold inventory in BPC, that is the distinction that I see. That, you know, while the positioning is the same, that is where my question was with why we it could be different, but you probably know. I, that was where I was, like, trying to understand why we think fashion did not need inventory while BPC did. I understand that it has kind of worked in BPC, but in fashion, do you think that reduces our competitive strength to some extent?
No, I actually think that.
I'll come in here, Adwaita, just one second, and then you can add.
Yeah.
You know, it's just that we realized that the number of SKUs that you need to offer in fashion is very wide. Even the brand partners very often. Sometimes some brand partners are okay for you to take up the inventory, and we may do that in future. Many of the brand partners also want to keep the inventory all in one place and sell from there. Because if they were to allow certain partners to pick up certain inventory and then it'll be divided into so many buckets from where it can be all accessed. Fashion business is developed differently and hence marketplace is a way to go. Yeah, there could be some brands that we do take an inventory level. Adwaita, you wanna come in? Go on.
Yeah. I think, you know, there's one very big fundamental difference between fashion and beauty, and that is that beauty is a very brand-centric and within brands, very hero product-centric business, which means that, you know, certain product ends up selling well for decades, and that's the nature of the beauty category. Fashion, on the other hand, is so fragmented, where things go in and out of style so frequently, and every brand is launching thousands of new drops every quarter. You know, given that sharp difference, that one is very brand, very product, hero product-led, and one is, which is very trend, very frequent drops, very high on SKUs, led. I think choice between inventory and marketplace stems from that fundamental difference. Vivek, does that answer a bit better?
Yeah, yeah. This is clear. Thanks a lot. Thank you very much.
Yeah.
Thank you. The next question is from the line of Jignesh Kamani from GMO & Company. Please go ahead.
Hi, Gargi and team. I have a quick question for the research team here. If you look at our monthly average unique visitors might be very healthy at 62% year-over-year and 11% quarter-over-quarter. If you are transitioning to our GMV growth and MAU unique transaction percentage is slightly lower at 30% and 20, 30%, 30% kind of. Can you explain slightly weak transition from the MAU to our GMV?
I'm not sure if I've understood your question fully. It's just hard to hear very clearly. I think if you're talking about the consolidated mix, then you're saying that why is the GMV growth higher than the growth
I think MAU growth is just close to around 60% year-over-year, while GMV growth is around 38%. I think conversion from MAU to GMV is slightly weak this time versus the past. What has been the-
Yeah. You're talking about difference between net revenue and GMV growth, right?
No, from the MAU to GMV.
Because, you know, our net revenue for beauty is not based on net sales of the product. There is
I understand that, Falguni. I'm talking about MAU, monthly average user.
Yeah.
Maybe I can take that. Falguni, if you will permit.
Yeah. Go ahead, Arvind. I didn't hear the question clearly, yeah.
Sure. I could hear that. I think the question is, while our monthly average unique visitors have grown by 62%, the visits and the growth in TTM is lower at 30% and 40% respectively. The answer to that in my view is that, you know, while we have stepped up our marketing efforts and brand building, a lot of new customers or unique customers are coming onto Nykaa platform very clearly. That shows up in unique visit numbers. It takes a while for them to keep revisiting, and then it takes a while for us to convert them into transacting customers. Because our model is to engage with the customers on a non-transactional basis, and over time they start transacting also.
It has, it went in part, and we believe that setting up the funnel to bring lot more new customers and over time convert them into buying, so transacting customers, will work through the content to commerce model that we have built.
Sure. Okay. Thanks a lot.
Thank you. Next question is from the line of Amit Sachdeva from HSBC. Please go ahead.
Hi. Good evening, everyone, and thank you for taking my question. My first question is on the fashion segment. A lot of questions have been answered already, so I would not probably go down to that again and again. My question is, what's the logic of building the fashion business? Is it the marketplace model, which is, you know, brings in lots of third-party brands and build a consumer base, and then eventually the right strategy is to actually build our own brands? Your anchor is marketplace, but the real value is capitalized in, for example, developing 3-4 larger brands which are your own and which allows you higher margin, higher consumer franchise, and also, you know, more margin, you know, profitability as well as the brand.
In that context, how the inventory model evolve because is the own brand right now on inventory or still marketplace-led model and how you are thinking about this?
As we go forward, like five years from now and how the business model will shape, as a strategy.
Should I take that?
Yeah, I think you have to.
All right. Okay. You know, I think in terms of our philosophy, we do really believe in both sides of the business. We do believe in the multi-brand role that we play. There are incredibly strong brands in the country and both internationally and we think that there's a real opportunity to bring all those brands to the country. That is first and foremost our mission to be a multi-brand retailer. On the own brand side, as you know, we have about five brands today. Western wear, Indian wear, jewelry, lingerie, athleisure and so forth. This is also, you know, a part of strategy that we feel good and confident about.
We don't get, you know, we feel there were gaps in the assortment and we could plug it with our own brand play there. Yes, the margin sitting better there. You know, we first and foremost are committed to the multi-brand side of this business. That will always be the dominant share of the business. The own business that we have, yes, we do hold inventory for that side of the business.
Okay. There is no marketplace-like contract with the supplier, say you own the inventory there. Just wanted to clarify that.
We own the inventory on the own brand side of the fashion business.
Okay. That's very, very helpful. Thank you so much. Just another small one. Can you give us a little bit. Because I see that in Q1 we had a disclosure in DRHP for e-retail part of GM and EBITDA margin. Can you share those numbers as well with Q2? The e-retail, the BPC e-retail business subsidiary gross margin and EBITDA margin if you can.
I think, clearly, it is while each of the subsidiaries are, Nykaa E-Retail is meant for beauty and personal care business. FSN Brands also does physical retail and some amount of imports business. Beauty private label business sits at the top in FSN E-Commerce, you know. This has all been done due to FDI rules in India, which are a bit complicated, where the holding company needs to be the manufacturing company and the e-commerce needs to be 100%. I mean, it needs to be 100%, it needs to be a subsidiary.
You know, things like that, because you cannot have foreign ownership in the e-commerce entity if you want to do inventory there, and you need to be Indian-owned and managed at the top. It's a little complicated for us to be able to explain the section segment numbers of beauty and fashion based on the subsidiary numbers.
Okay.
Yeah, they broadly show the trend and, the biggest trend is that the beauty business definitely is at a level of maturity where it probably would be at the optimum level of EBITDA. I mean if it was not for COVID time. There's probably a little bit of a COVID, you know, impact here and there. Beauty business definitely on a omni-channel basis, because, you know, second quarter was adverse for physical retail. It was not adverse for e-commerce, but it was adverse for physical retail. By then, you know, a lot of advantages of free delivery services and all had gone away, you know. Still in many cases the stores were not open.
I think it's difficult to generalize, but once COVID is over, I think you can see that the beauty business would be at an optimum level of EBITDA and fashion would be at a point where we would still be investing and hence having negative EBITDA. We hope to make that go on a similar path in beauty in a couple of years, one or two years.
Sure. That's very helpful. The reason I was asking this question was because if I look at last year, you know, we had DRHP exposure only so far on detailed numbers on subsidiary IQ. We had FY 2021 +8% EBITDA margin for e-retail. At the company level we were at 6.66%. Truly if I were to annualize in some sense last quarter's, you know, the extra spend like a marketing spend, we had about INR 40 crore extra in some sense on a run rate basis. That led to EBITDA margin being 3%. If that was not the case, it had been 8%. That's the reason there's a large swing in EBITDA margin and hence some perception issue about how the margin could be.
That's the reason I wanted to understand whether investors should understand the economics of the business separately that would help them understand that one is like a, you know, in a, in a self-fulfilling mode, the BPC business, and another business is in investment mode. Having a blended cost could actually give them more confusion than clarity. If you can separate these two economics well, that would really give a lot of clearer picture for people to appreciate these businesses and their investment cycles correctly. That's the reason I'm asking this.
Yeah, yeah, sure. I think we understand that. We've just finished IPO and everything, so we were not comfortable being able to give out these numbers on a very sustainable basis for last three years and all to be expected of us. I think we are very aware and going forward we'll do the right thing in couple of quarters and try and do that. Also please do understand that this was such a COVID impacted year. Like, we used to have fair amount of business from GT/MT for our private label business. That had also come to a standstill, you know. We as a company were not cutting costs because we didn't see the point.
We had a strong engine in e-commerce, we did not really sack even our employees who work in our GT/MT. We took a human side of the business, and we decided not to cut any employees. Like, we maintained the salaries and also the employees' jobs through the COVID period because we realized that it was a huge human price and we could not see this through the screen. I think the true picture will start coming as we get out of COVID, which I think has started happening in October, if we don't have a third wave, which the way it was, then we'll see that. In fact, the second wave, which started in April, May of 2021 in India, was actually very bad from a human price, that human price that was paid.
However, surprisingly, the government did not shut the business on an all India basis. E-commerce business and our business did reasonably okay through that first quarter also. I think this is a better market for e-commerce, and improving market for what we call as typical businesses which are typical retail and also GT/MT businesses which can set up for the retailers. I think you'll see a different picture emerge over time.
Got it. If I may just squeeze in one small question about the skincare or the cosmetics business. If you could think about it, you see, the main driver being e-commerce because of app entries and everything else, could you sort of spell it out a little bit? What is the percentage of, you know, skin and beauty in your business, like, cosmetics? Is there a particular, you know, what is the average ticket size you sell for those? Is it how big is the markup, like markup pricing, like you are at 2x or 3x of the markup. What is your fastest growing segment which is fueling this growth? What we want to understand is how tier two beauty counters are doing in terms of those skin products. That's where I'm coming from.
Sorry, because the line is a little bit difficult, I'm having trouble understanding your question fully. If you're asking about average selling price of our product is about INR 450 rupees or INR 460 rupees. While the AOV is like 1,850, I think on an average customer buys four items in the cart. Typically the average selling price of a product on our site tends to be INR 450 rupees or INR 460 rupees.
I think makeup and skincare kind of change, you know, the relative importance of the skin changes slightly here and there, and it could be similar or sometimes, you know, skincare may go ahead, especially during COVID shutdowns when there are, you know, festive times or wedding season when, you know, the makeup goes up also more because, you know, we are also quite unique in bringing a lot of international brands in each arena. For us, these are all balanced businesses. I think where we've disclosed in the prospectus that our top three categories, which is makeup, skin and hair, accounts for 70% of our business.
Got it. Thank you so much, ma'am. All the best. That's very helpful.
Thank you.
Thank you. The next question is from the line of Suryanarayanan Manian from DSP Investment Managers. Please go ahead.
Yeah. Hi, thanks for taking my question. I just wanted to understand the conversion between MAUs, which are your active users and the transacting users, which is obviously higher for B2C versus fashion. Once fashion, you know, sort of starts to scale up, should that conversion be similar? The related question to that was, you know, does it have an implication on the unit economics for fashion? Does it require, you know, the same level of marketing spend, higher marketing spend, and hence, by default, does it require a higher AOV versus B2C?
Yeah. It's a very interesting question, and it's difficult to answer it fully. I'll try to answer it partially. In terms of, yes, our fashion conversions are lower than B2C conversions. If you look at, we also look at one is conversion, but the other is also unique conversions. We also look at unique conversions because we are aware, and you have the data that our customers visit our website many times within a month itself and many times in a year for sure. Obviously many times they're not buying. We've also encouraged a user behavior that we like the engagement, that they come often, and maybe some of those times they buy. That is the story of the beauty side.
On fashion also there are similar behavior we are encouraging where we would like them come and visit us multiple times and they buy eventually. I think in fashion there are certain barriers that we can breach over time, from being easy returns to price barrier to, you know, many other and also trust that comes with passage of time and, you know, and also word of mouth as some customers have a very favorable experience and, you know, then they buy more. I think we also track, you know, like in beauty, one of the main barrier is believing that the product is genuine. Authenticity and genuineness of the product, I think we track very early on in the year two and three of the business.
I think since then there's been no looking back in terms of having customer trust on quality of the product and hence the conversion. Conversions, of course, as you may know, vary also between whether they are on our app, whether it's an iOS app where item affordability is never an issue. iOS app conversion is usually different than our Android app conversion and mobile web where a lot of first time users go there and then over time they download the app. Mobile web conversions are even lower. The mix of traffic also results in conversion. Long and short is that, yes, there's more work to do. We are just happy that we've started getting noticed and as a result, the unique customer visits on the fashion is very healthy.
In fact, Arvind always points out that 16 million versus 21 million for beauty is a very healthy number. Market cap for fashion is also bigger, right? It's 5x. We really are benefiting from the market TAM also in terms of getting customers to come into the cart. As we offer a meaningful assortment as they get excited about lifestyle, and also as we learn about the preferences and match the right product onto them, all the conversions will definitely go up.
Understood.
Just a quick follow-up there, do you need these kind of AOVs to sustain in fashion for you to achieve, you know, whatever is your profitability target?
No, not really. What we thought is that it's better to make the size aspirational and start at the top end. If you are asking me a question that can the business be sustainable and profitable even at a lower AOV, of course it can.
I, you know, just to add to that, yeah, it started from the fact that we wanna differentiate, and for that differentiation, I think the more premium positioning is what was available in the market. I think the way I look at it is that if you want to go lower in AOV, you could also acquire customers more cheaply. I think it's more expensive to acquire more premium customers, the way I look at it.
Understood. All right. Thank you so much.
Thank you.
Ladies and gentlemen, thank you for staying. We take that as the last question. I now hand the conference over to Mr. Sanjay Shah for closing comments. Over to you, sir. Mr. Sanjay Shah, over to you, sir, for closing comments.
Well, thank you so much. Just a quick word of thanks to Falguni, Adwaita, Anchit, Arvind. This was the most insightful conversation and commentary. Falguni has intrigued me. Much more to do. For all that you achieve, I think it's safe to say the best is yet to come. We look forward to more interactions in the future. With that, just like to close this call. To all the investors and people from the sell-side who were there on the call, thank you so much for taking the time out and we shall talk soon. Thank you. Bye-bye.
Thank you.
Thank you.
Thank you, everybody, for being with us. Thank you.
Thank you. Ladies and gentlemen, on behalf of Morgan Stanley India Company Private Limited, this concludes this conference. We thank you all for joining us, and you may now disconnect your lines.