Ladies and gentlemen, good evening, and welcome to the FSN eCommerce Ventures Limited Q3 FY24 earnings call, hosted by Morgan Stanley. This event is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For more important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. Please note that this call 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. All participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. I'll now hand the conference over to Ms. Sheela Rathi with Morgan Stanley. Thank you, and over to you, ma'am.
Thank you very much. Good evening, everyone. This is Sheela Rathi from Morgan Stanley Research. Welcome to the FSN eCommerce Ventures Limited Q3 FY24 earnings call. From the management of Nykaa, we have Ms. Falguni Nayar, Executive Chairperson, MD, and CEO, Mr. Anchit Nayar, Executive Director and CEO of Beauty eCommerce, Ms. Adwaita Nayar, Executive Director and Co-founder, CEO, Nykaa Fashion, and Mr. P. Ganesh, Chief Financial Officer. Before we start, we would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the presentation. Kindly note that the call is meant for investors and analysts only. With that, over to you, Falguni, for your opening remarks.
Thank you very much, Sheila. It's a pleasure to be here among all of the investors, and thank you for giving us this opportunity. I'll begin with the presentation. We'll begin with performance highlights. So I think we saw that quarter 3 of financial year 2024, Nykaa continues to drive profitable growth. Our gross merchandise value at INR 3,620 crores is about 29% year-on-year growth. The net sales value, and I'll talk the numbers in millions, at INR 17,866 million, is about 24% year-on-year growth. And revenue from operations at INR 17,888 million is about 22% year-on-year growth.
On the gross profit basis, our gross profit came out at INR 7,600 million, which is about 20% year-on-year growth, and the gross margins are at 42.5%, which is albeit about 86 basis points lower on a year-on-year basis. There are more details on each of those in later numbers, and hence I won't elaborate on these here. On the EBITDA basis, our EBITDA came out at INR 988 million, a 26% year-on-year growth, and the EBITDA margins are at 5.5%, which is about 18 basis points improvement.
On the profit before tax basis, it's at about INR 265 million, almost 109% year-on-year growth, with profitability margin at 1.5%, which is a 62 basis point improvement on a year-on-year basis. With that, the PAT has come out at INR 175 million, which is 106% year-on-year growth, with a PAT margin at 1%, almost a 40 basis point improvement. Taking it forward, I think we are delivering growth across all our verticals, and we are happy about that.
I think what we've done is we have given the year-on-year growth for the third quarter of the current financial year, but at the bottom, we've also given a two-year CAGR for each of the businesses so that you can compare how the business are growing from a medium-term perspective. On the GMV basis, the beauty grew at about 25% on a year-on-year basis. It's a similar growth rate as a two-year CAGR. On the fashion business, the GMV growth came out at about 40% year on year, with the fashion GMV at INR 10,125 million, and this is about a 45% CAGR growth over a two-year period.
If I look at the other businesses, which includes, mainly the, Nykaa Man, as well as the eB2B business, platform, which is the most significant part of the business, what we call as the Superstore by Nykaa. That other business has grown at about 39% on a GMV basis. Within that, the Superstore business has grown 68% on a year-on-year basis, and the two-year CAGR is at about 122%. The GMV of these businesses now stands at INR 2,373 million, so it is becoming reasonably significant. On the NSV basis, the growth in beauty were lower at about 20%, and the NSV was at about INR 113,805 million.
One of the reasons for divergence in the GMV and NSV growth in beauty particularly is that it was a difficult year for many of the beauty companies in the country, and as a result, the discounting that they are offering to the consumer has gone up. Many of you are aware about some of the rural growth and growth in other channels being slower, and as a result, the discounting in beauty business has gone up a little bit more this year. And there's more on that, that Anchit will take us through. On the fashion business, the NSV grew at 31% compared to the GMV of 40%. Similarly, slightly higher discounting. And in the others business, in fact, you can see that the NSV growth was at 88% against the GMV growth of 68%, especially for Superstore.
For overall category, 67% NSC growth against 39%. This is particularly indicating some of the improvements that Nykaa did in terms of leakages that these businesses used to face. With that kind of leakage improvement, we've been able to deliver higher NSC growth compared to GMV. NSC growth for other businesses also came out at INR 1,309 million, and a 2-year CAGR on NSC growth has been as healthy as 221% year-over-year. Next. So like we talked about it, a couple of years ago, that we were aiming for business diversification to serve the larger TAM, and that's exactly what Nykaa has been able to achieve.
So if you look at a two-year period between quarter three of 2022 to quarter three of 2024, you can see that against the total net sales value of INR 17,866 million, now beauty contributes about 78%, with fashion contributing 15% and other category contributing about 7%. I think you can see that all of the businesses are growing healthy in a similar manner, with, of course, some of the really nascent businesses outperforming in terms of growth. And this is resulting in fair amount of diversification and yet diversified growth. Each of the businesses are delivering growth.
On the right-hand side, from the opportunity perspective, we have always said that BPC is overall a $31 billion market, and it is broken into 3 components of online, being about $10 billion; organized offline, which we call modern trade, about $9 billion; and unorganized offline, which is about $12 billion opportunity. Nykaa now plays pretty aggressively in each of the 3 segments. We dominate online beauty, but we also have a very significant presence in physical retail now, and similarly, we are building our presence through the superstore to cater to the GT/MT segment. In fashion, we've always said that it's 5 times the size of the beauty market, and that's what excites us about the business. We are addressing about $49 billion of that opportunity that exists in the online segment currently.
With that, I hand over to Anchit to talk about the beauty business.
Yeah, thank you very much. So I will quickly run through the slides, giving an update on the performance of the beauty.com, the beauty physical retail, as well as our private brand on the beauty side, those various business segments. So if you see the chart on the top left corner, you will notice that the GMV growth over the past two years for the BPC segment has been roughly 25%, taking us to about INR 2,369 crore of GMV for the quarter ended December thirty-first. In terms of the mix of business, our the loyalty and the stickiness of our existing customers continues to improve, and that reflects in an improvement in the mix of business coming from repeat versus new buyers, now standing at 78% and 22% respectively.
NSV growth came in at about 23% over a two-year CAGR and ended the quarter at INR 1,380 crores of NSV for the BPC segment. Annual unique transacting customers stood at 11.1 million versus 9.6 million the year before, and a 21% CAGR over a two-year period. In terms of the number of orders that were serviced in the quarter, it stood at 11.1 billion orders serviced in the quarter ended December 31. Next slide, please. So this is a very interesting and unique innovative event which Nykaa hosted for the first time this year. It was called Nykaa Land. It was India's biggest beauty festival. It is a one-of-a-kind event in which over 80 global and local brands participated in a two-day beauty festival.
We had 15,000+ customers who bought tickets to attend this event, and there were over 12 master classes that were hosted and 5,000 participants attending those master classes. These events were hosted by makeup artists and professional beauty experts from across the world, including Mario Dedivanovic, as well as others listed on the page. There was significant attendance from celebrities as well, Bollywood celebrities, and over 800+ influencers and KOLs. As a result, we managed to create over 5.5 billion impressions from this two-day event, and 5,000 pieces of content were created and disseminated across both online and offline channels. So this is an event which we see as instrumental in the role which Nykaa plays in the ecosystem, which is that of category creator.
Events such as these allows customers to access and to be educated on, on beauty as a category, and these are the kind of events that will accelerate the expansion of the addressable market of beauty in India and help to take the per capita spend on beauty to higher levels than where they are today, which happen to be some of the lowest in the world. So please enjoy the video, and, in about five seconds, we can move on. Great. So moving on to the next slide. This was an important quarter for Nykaa Beauty, also from a premiumization perspective. As we have always stated, one of our strategic pillars of the business is to continue to premiumize the consumption of beauty in India.
We believe that not only does India under-index in terms of per capita spend on beauty, but premium beauty as a percent of overall beauty is also highly under-indexed, compared to other developing and developed economies. As India's GDP per capita increases, we are very optimistic that premium beauty and prestige brands will continue to gain more market share and drive better unit economics for both brand and retailers alike. Here on this slide, there are a couple of examples of some of the brands which were launched by Nykaa in Q3. As you can see, some of these names you might recognize. They are globally well-renowned brands. The first on the page is the brand, CeraVe.
CeraVe is a derma skincare brand that is owned by the L'Oréal Group, and it was launched for the first time in India in partnership with Nykaa. Second brand on this page is a brand called Urban Decay. It is a iconic cosmetics brand, again, from the U.S., and again, owned by L'Oréal. This brand has been introduced into India exclusively with Nykaa, and Nykaa serves as importer, distributor, and retailer for this brand. Also adding to the list is Dr. Barbara Sturm, which is a prestige premium skincare brand out of Germany, as well as ColourPop, which is a Los Angeles-based global makeup brand. These brands as well are exclusive to the platform and are also being imported and distributed solely by Nykaa.
So on the right-hand side, you will see a quick summary of some of the brands which we serve as importer and distributor for into India. To remind some of you, this business is... We call it as the Nykaa Global Store. These are brands for whom Nykaa handles not only the logistics and the registration and importing of the products, but also the distribution, go-to-markets, marketing, pricing, and customer service aspects of their business. So we serve as the brand proxy in the country, and we have about 35 brands in this portfolio. We have shown the logos for about nine of them, which we feel are worth highlighting, some of which we have discussed in the past.
This business of ours is growing at roughly 47%, year-over-year, and is a strong addition to our portfolio as well as a moat against other competition. If I look at the premium business as a whole, today we have one of the largest, if not largest, assortment of premium brands in beauty in the country, 250+. This segment of our business is growing at about a 50% CAGR over the past three years, and almost, roughly a fourth, a quarter to about a third of our GMV comes from what we define as premium and prestige beauty brands. Next slide, please. Spending a minute on our physical retail business, we believe that brick-and-mortar retail continues to be incredibly important for beauty brands.
As they look to partner with select retailers, they are looking for retailers who can give them both scale online as well as scale offline, and today in India, Nykaa is one of those players. If I look at our store count, it has increased by almost 80 stores over the past two years, and we have opened roughly about 39-40 stores in the past twelve months. Today, we cover over 64 cities across 174 stores, and we cover about 1.7 lakh sq ft of retail space. In terms of the key callouts for this business this quarter, I would say is a strong improvement in profitability.
The retail segment of our B2C business is showing healthy growth at the EBITDA level of about 35% year-over-year, and today it contributes to roughly 9% of our overall GMV. Now, I will mention that it's not an exact apples-to-apples comparison. We have over 3,000 brands online and about 80 brands in our stores. So for the 80 brands which we keep in our physical retail stores, the contribution of physical retail to the overall GMV mix is much higher than 9%. Finally, we see our stores as a very powerful channel, especially for premium beauty brands. Today, we have over 85 premium beauty brands in our physical retail stores, and 65% plus is the share of the GMV in our retail stores that comes from premium prestige brands.
As a result, we have what we believe to be strong productivity and throughput, and our GMV per sq ft per month is roughly INR 4,109. On the bottom left, you'll see a breakdown of our store network. We have about 974 Nykaa On Trend stores, 67 Nykaa Luxury stores, and 33 Nykaa kiosks. The split between metros and non-metros is about 94 stores in non-metro towns and 80 stores in metro towns. Q3 is also the quarter in which we host our flagship beauty sale of the year. It is called the Nykaa Pink Friday Sale. This year, this sale has continued to grow from strength to strength.
As you can see, we execute the sale now across not only the Nykaa Beauty App, but also the Nykaa Beauty physical retail stores, as well as both Nykaa Fashion and Nykaa brand platforms. So this is truly a one Nykaa sale. This year, we generated over 400 million in terms of social and media reach. This is across roughly a seven-day sale. And we had 50 million unique visitors who visited either our stores or our apps across the period and duration of the sale. To give you a sense of how the sale has scaled over the past five years, you can see on the top right bar chart that the GMV that we generate across this sale, the seven-day sale, has increased almost 10 times in the past five years.
And today, again, as I've said earlier, a key focus of Nykaa's is to premiumize the beauty consumption in India, and that is reflecting even during key sale moments such as these. You can see that one third of the GMV for this sale came from premium brands. 32% towards the growth for premium brands in terms of GMV versus the sale last year, and 67% growth in offline sales during the period of this Pink Friday. In terms of Nykaa Fashion, on the bottom right-hand side, you see that in a matter of 2 years, the GMV that we are generating from this sale has scaled almost 5 times in just a 2-year period, so also very healthy growth.
There is a 29% jump in order conversion that we see on the Nykaa Fashion platform during the sale, and a 120%+ growth year-over-year in terms of key categories of women's western wear GMV versus last year's sale. And again, women's bags and footwear, another standout category for the Nykaa Fashion platform during this year's Pink Friday sale, showing about a 150% growth year-over-year. Next slide. And with that, I'll hand it over to Adwaita to take you through the fashion slides.
Thanks. Thanks, Anchit. So I'll take us through a couple of fashion slides here. Starting off with some metrics, in terms of GMV, the quarter three ended at about INR 1,000 crore in terms of GMV, and that's a 45% two-year CAGR. It's up about 40% year-on-year. From an NSV perspective, you see that we've ended the quarter at INR 275 crore for Q3, with a two-year CAGR of 35%. Moving on to our annual unique transacting consumers on the bottom left, you can see that we're now at 2.9 million customers as of the end of quarter three, demonstrating a 36% two-year CAGR. And finally, on the right-hand side, orders have grown at about 25% CAGR over the last two years, taking us to 2.0 million orders in the quarter itself.
So overall, it's been a very strong performance, I think, for the fashion business, and on the next slide, you'll see some underlying metrics which are showing very strong improvement. And I think it's also important to note that a lot of this strong top line growth has been in the background of a pretty muted fashion environment for a lot of the other competition. So here on this chart, we show a couple of metrics, which are demonstrating, you know, the improved profitability that's also coming through. So if we start on the left-hand side, and we look at the order to unique visitor conversion, we can see a very strong upward trajectory consistently over the last 5-6 quarters. We're now at 3.2% as the unique visitor conversion, which is up from 2.3% exactly a year ago.
On the bottom, right below that, you can see that we're now seeing about 50% of our GMV coming from repeat customers or existing customers. This is a good marker of, you know, sort of customer love being built, and our retention numbers are improving, whichever cohort we look at. These two things combined, that is, conversion rate and the increase in repeat, is actually allowing us to bring our marketing expenses down, which brings me to the middle chart. So in this middle chart, you can see that the marketing expenses are coming down again consistently over the last couple of quarters. We're now at 23.9% of NSV being spent on marketing.
And finally, on the right-hand side, you know, the improvements in marketing and, you know, there are other line items as well that have improved, is really driving a good expansion in the contribution margin. And, we're now at 6% for Q3, which is up from 0.9% a year ago. I do think net-net it is the commitment to our positioning, the positioning that is to be differentiated, to be curated, to believe in the premiumization of India's fashion story, which is allowing us to deliver the improvement in metrics. And, you know, I'm feeling pretty good about Q3, both from the point of view that the growth has come through, along with improvements in contribution margins. So I think it's been a good performance from the team in that regard. Moving on.
The big highlight we wanna talk about from the fashion business perspective is the partnership that we've just struck with Foot Locker. You could see the news a couple of weeks ago. Foot Locker, as you may know, is a U.S.-based company, $8 billion in top 9 Fortune 500 company, and a very popular multi-brand footwear specialty retailer. They're very well known for their sneaker culture positioning and their sports positioning, and their top brands include brands like Nike, the Jordan franchise within Nike, Adidas, Puma, and so forth. It goes without saying on the next slide, that obviously sneakers and sports in this country is exploding, and we are seeing that the search trends for sneakers in India are growing at about 5x over the last couple of years.
Nykaa Fashion definitely wants to play in the sneaker trend that the country is seeing. We think it's a great opportunity, which will likely be about $4.5 billion by 2027. It's in the context of finding a great retail partner in Foot Locker, as well as in the context of the trends we're seeing in sneakers, both on our site and more generally, that on the next slide, we're really proud and excited to announce our partnership with Foot Locker, where we are gonna serve as the exclusive e-commerce partner. We're gonna run their India website, as well as, provide a shop-in-shop format within the Nykaa Fashion and Nykaa Man apps. Our offering will include footwear, apparel, accessories.
I think it's a really strong move from the point of view that we will get access to some fantastic assortment, which will strengthen our positioning as being, you know, premium curated, and now also a very strong player in the sneaker and sports space. With that, I'll hand back over to FM to take us through the house of brands slides.
... Adwaita, I thought you were going to take us to the house of brands.
Okay, sure. Moving on. So I think as a reminder, this is not the first time we're mentioning this, we do have a bouquet of our own brands that we're very proud of. We don't call them private labels. These are truly our own brands that we're hoping and aiming to build with a lot of consumer love in the country. We have 13 brands on the beauty side. On the left-hand side, you can see a lot of these we've built in-house, some we've acquired. Three of them have hit actually considerable scale, and you can see those, starred, you know, on the top, on the top side. So Nykaa Cosmetics is a INR 400 crore annualized brand, Kay Beauty is a INR 200 crore annualized brand, and Dot & Key has hit our INR 500 crore mark.
So very proud of sort of the traction we're seeing in a couple of these brands. On the right-hand side in fashion, we've spoken about this before, but we do believe that own brands in fashion have a particularly important role to play. The customers are starved of brands, and so if we can create a lot of good assortment, which is what we're trying to do, I think it can be a win-win both for the customer and for the platform. Here as well, two brands have had breakthrough performance. Twenty Dresses has hit over INR 100 crore run rate, as well as Nykd, which has also crossed INR 100 crore.
I think, particularly in fashion, the numbers have to be seen in the light that a lot of these brands were just started in the last 2-3 years, so their performance in terms of scale is quite commendable. We are really trying to double down on our own brand strategy, really strengthening the org and our capabilities from an innovation, creativity, marketing perspective, so that we can become a true house of brands and a true consumer brands company, and build some wonderful brands through this. Moving on. Here we talk about the top line, in B2C, and in particular for these own brands. So you can see in quarter three, this vertical delivered INR 315 crore of GMV, which is a 34% 2-year CAGR, and a 40% year-on-year growth.
In terms of the contribution to the overall B2C segment, it's 13.3%. On the right-hand side, you can see similar numbers for the NSV level, which has now hit INR 194 crore NSV at a 32% CAGR. On the bottom, I'll draw your attention to this pie chart, which shows that, a significant portion of the sales are obviously coming from Nykaa. Nykaa online is 53%, Nykaa physical stores is 13%, but 34% is also coming from other third-party channels, predominantly GT, MT. We do believe that, you know, for these brands to stand on their own two feet, they do need external distribution as well. Moving on.
On the fashion side, again, it's been a good performance over the last two years with this vertical hitting about INR 116 crore from a GMV perspective and INR 46 crore from an NSV perspective for Q3. Showing about a 57%-60% CAGR, two-year CAGR, for both metrics. And from a channel mix perspective on the bottom, you can see that 54% is coming from our own channels, and 46% is coming from other parties, whether it's a GT, MT, other e-commerce players and so forth. We can move on. So with that, I'll hand over to Vishal to walk us through the eB2B business superstore by Nykaa. Thank you.
Hi. Thanks, Adwaita. Next slide, please. So look, eB2B is a very young business, but every month, every quarter, it is going from strength to strength. As you can see in, in the last two years, we have grown our GMV by more than 31x, our NSV by more than 40x, and all that is coming through expansion of our customer base. And we have 35x increase in transacting retailers and 38x increase in number of orders per quarter. And now we have hit 337,000 orders per quarter, and you can see that it's a business which is growing quarter on quarter. As you know... And we, we are improving our, our importance to the retailers as well as to the brands that we serve, because ultimately it's a scale business.
If you see the next slide, you will see the benefits of scale coming through, because while we scale, we are super mindful of improving the profitability. You know, it becomes a virtuous cycle where scale improves profitability, and profitability allows you to improve scale. You can see that between GMV and NSV alone, we have reduced our leakages by 40%. Yeah, through very rigorous operational control and also improving our service level to the retailers, which means that we have much lower damage returns and returns by our customers. There is some improvement also in the conversion because of lesser discounts and lesser schemes, which means—which is lower retailer margin, which means better conversion because it's less discounts.
There is a 13% increase year-on-year on the AOV, and this tells us that our importance to the retailer is increasing because the retailers are giving more and more of their business to us, which again becomes a virtuous cycle because we get bigger orders, and bigger orders are more profitable, and we get more loyal customers. Importantly, 42% of our turnover is what we call high-margin featured brands, which helps us improve our profitability. You can see the improvement that we have made in our contribution margin, which is coming from this profitability as well as reduction in costs. We have reduced 5 basis points in overall fulfillment cost through lower warehouse cost, lower fulfillment freight cost, as well as much lower packaging cost, which we have reduced by half.
We have also improved our field force productivity and reduced our sales and distribution expenses by 170 basis points. So overall, significant improvement in our contribution margin. Next slide. And like I said, this comes a lot by improving our service to the retailers because it is a service business. And from 10 warehouses, we have moved to 13 warehouses. You can see 3 new warehouses, Patna, Chennai and Bengaluru, and where, you know, we are closer to customers, which means lower cost, lower service time, and improved happiness of the retailer and improved margins for us. So we have total 2.5 lakh sq ft, and we are covering 959 cities. Yeah. So month-on-month, very high, you know, scaling up of the business, but scaling up with profitability. Over to Ganesh.
Thank you, Vishal, and good evening, everyone. As you can see, all our business verticals have delivered strong growth in quarter 3 FY 2024, despite macro pressures around discretionary sectors. With that context, I would like to take you through the financial highlights for the quarter. As you can see, our company delivered healthy growth on both revenue at quarter 3 and 9-month level, growing at 22% and 23% respectively. Our gross margin came in a little lower at 42.5% this quarter, versus 43.4% in Q3 FY 2023. The drop is primarily on account of the increased mix in our eB2B business at a consolidated level, as also on account of some softness in service income in the BPC business.
Our EBITDA margins have expanded to 5.5% in quarter three FY 2024, led by improvement in our fulfillment expenses, employee expenses, and other expenses. And this improvement has been achieved in spite of higher resolve costs and costs pertaining to our omni-channel launch in the GCC region, which cumulatively accounted for 0.6%. We have greater details on the flow between EBITDA margin and this adjusted EBITDA margin, which I just mentioned about of 0.6%, in the later slides. Our PBT for quarter three FY 2024 stood at INR 26.5 growth, growing strongly at 109%, and our PAT in quarter three FY 2024 stood at INR 17.6 growth, again, with a strong growth of 107%. Going on to the next slide.
Here you can see a snapshot of our consolidated PNL for the quarter, as well as for 9 months. We have achieved improvements in our profitability through improvement in fulfillment expenses, improved scale efficiencies on employee costs, and optimization on G&A. Moving ahead onto the next slide. Here you can see the vertical reporting, which gives detail of the individual businesses. The operating leverages have helped us to drive efficiencies in our contribution margins. Our fashion contribution margins, as you can see, have smartly expanded by 110 basis points Y-o-Y, while our other verticals have also narrowed down the contribution margin impact and have expanded 344 basis points. Going to the next slide. This slide highlights how our business verticals have been consistently improving on profitability. As you can see, there is a healthy, profitable growth across all the 3 business verticals.
And while on an overall basis, the EBITDA margin does not fully reflect this growth, which is seen on account of all the, all the verticals, the primary reason being the eB2B business, as we can see, has been growing significantly in terms of salience and is upwards of 7% at this point, as you can see in the bottom right chart. Moving ahead. This slide further elaborates the movement between contribution margin and EBITDA, which is primarily on account of employee expenses and other expenses. These expenses, as we have shared previously, were higher in FY 2023, since we were in a stage of investing ahead of the curve. They started moderating over the last few quarters, and those benefits are starting to show up.
Another point to note over here is that almost 40% of our G&A spends are on web and tech investments, and with the rest of the G&A spends continuing to be stable. Moving ahead. Here you can see the EBITDA to PBT bridge. As you can see, depreciation amortization expenses at INR 248 million this quarter at a 45% Y-o-Y is on account of expansion of retail stores and expansion of our warehouse capacity over the last year. As a percentage to net revenue, these costs have increased by 22 basis points. Lease costs, both in terms of depreciation and amortization, as well as finance costs, have been relatively stable. Interest costs first have moved broadly in line with expansion in business and resulting increase in working capital, and being offset by higher interest on the investments that we hold.
This has resulted in EBITDA margins improved, expansion aided by G&A, the overall PBT margins have improved by more than 60 basis points. We just continue to focus on growing top line, as well as in terms of continuing to grow profitably. Moving ahead, what you can see on the slide is a summary of the proposals which were approved by the Board of Directors of FSN eCommerce at the board meeting held today. A brief summary of the proposals, the first one is infusion of additional equity of INR 150 crore in Nykaa Fashion. Nykaa Fashion has been scaling up quite nicely, and at this point we feel it's appropriate to capitalize this company, so that's the driver behind this this proposal.
The second one is consolidation of the Fashion and own brands business into the parent company, and this will happen over the next two quarters. And in terms of holding structure, it will bring it on par with the holding structure for own brands that we have in the BPC business. The third one is a demerger of the eB2B business from FSN Distribution to Nykaa E-Retail. This again helps in streamlining the holding structure, simplifying the structure, whereby the online beauty business gets consolidated into a single entity. So that's a summary of the proposals which have been approved by the board today. With that, I would like to thank everyone for joining this call, and I would like to pass on the mic to Sheila to initiate the Q&A session.
Thank you, P. Ganesh. Operator, we can open up for the Q&A session.
Thank you. We'll now begin the question and answer session. If you would like to ask a question, please press the Raise Hand button found on Zoom, or if you've joined us on the phone, please press Star followed by one. Before asking your question, please introduce yourself, providing your name and your organization name. Please limit yourself to a maximum of two questions, so we can accommodate as many people as possible. Ladies and gentlemen, we will wait for just a moment while the question queue assembles. Okay, we will take our first question from Zoom. The first question comes from Sachin Dixit, so please introduce yourself and your company name. Please go ahead. Please do ensure that you are unmuted locally. Unfortunately, we are not getting any response, so we will move on to the next question.
If you would like to ask your question, please do re-raise your hand. The next question comes from the line of Vijit Jain. So please go ahead, your line is open.
Yeah, hi, thanks for the opportunity. My question is on the BPC segment. I would, you know, The presentation shows and suggests that the premium segment within BPC grew ahead of your overall BPC GMV growth. And, while you did note pressure in prestige segment in your opening remarks and in the press release and trading update as well, I'm just wondering why the BPC gross margins look a tad weak, given the premium segment did so well. And, a related question to that, did discounting in your own brands go up further in 3Q versus 2Q?
Additionally, did retailer margins in your partner brands see any kind of a change QOQ, you know, as the brand partners kind of combated the weak environment in India? Thank you. That's my first question.
So, I'll just answer about our private label brand discounting, and then I'll pass it on to Anchit. So, yes, I have to say that our private label brand discounting did go up like every other brand in the environment, especially the prestige brands. And, to that extent, that is built into that. And, I now pass it on to Anchit on commenting on the retailer.
Yeah. So maybe I'll take, I'll take the question in order, I think a couple of different aspects you touched upon. So the first is, you know, regarding the, the increasing or the faster growth of premium and prestige brands on the platform. So I think, look, the reality is, is that premium/prestige beauty was a very small percent of the overall BPC market, so it was incredibly under indexed. So it is growing off of a smaller base, base, so there is more opportunity for those brands to continue to grow faster than the platform. That's one. Second is, as Nykaa, we strongly believe in continuing to, drive awareness for and continue to, you know, do business in the premium prestige space, because, these are the kind of brands that drive strong customer repeat and loyalty.
As I said in the beginning, it's also just generally better unit economics for us. So we're happy with the results that we're seeing with the prestige brands, but again, it's coming off of a very small base.
...So, you know, generally the whole market needs to grow, and that's when we'll start to potentially see better, or see positive impact from a gross margin perspective. With regards to mass and massy brands, I think as many of you know, the commentary coming from some of the listed names is that the demand has been soft in rural markets, and I think as a result, there was an urgency to get short-term revenue growth, and which led them to spend more money on discounts and promos than on marketing marketing investments on platform. So some of the marketing investment dollars moved from on-site marketing to promo spend, and I think that's probably a short-term, you know, a short-term impact that should revert hopefully in the medium term.
I think FN covered a bit about own brands, discounting. And finally, on retailer margin being impacted by partner brands, I think the short answer is no, in terms of, product margin that we receive from our brand partners, these are long-term contracts, tend to be anywhere from 3-5 years and tend to be, renewed at the end of that period of time. So no impact on retailer margin, on that front. So I hope I answered all your questions.
Yeah. Thanks, Anchit. My second question is just looking at the marketing spends for you guys in the BPC segment, right? I know this is a seasonally strongest quarter for business activity, everything for you guys, so there's a seasonal QoQ uptick to be expected, but it just looks from a YoY perspective, also up quite nicely at 45%-50%. So should we read that in conjunction with your comments on you know how competition was behaving in the own brand space or is there more to it?
So discounts are not captured in this-
Right.
Line item, right? So this is it. I don't think it's got anything to do with our own brands, promo strategy to compete against competition. What I would say is that, as we said in the past, we're very strong believers in category expansion. If Nykaa doesn't continue to invest in growing the beauty category in India, then really I don't know who will take on that initiative. We feel strongly that as a large beneficiary of this category and as a large player, it is important for us to continue to grow the ecosystem and events such as Nykaa Land, but many more.
We just showed you one example of Nykaa Land, but there are other such events which we host throughout the year, which are category building initiatives that of course do carry some amount of cost, alongside that, and that is showing up in the marketing expense line item. That's one. The second, and probably the largest share, of course, is our strategic focus on customer acquisition. So for us, new customer acquisition is a strategic priority, and we definitely pushed the pedal on that in Q3. Given that it was the festive time, given that we were seeing good traction, we wanted to invest in new customer acquisition.
As we go into obviously a new fiscal year, we want to be aggressive on acquiring those new customers into the beauty world, which, you know, we are helping to create the market. So we also want to ensure we are capitalizing on those customers and acquiring them early on. So I think the increase in marketing expenses is a combination of the two, customer acquisition spend, as well as category building initiatives. But if there's anything else, either Ganesh or SN would like to add, please feel free.
Yeah, and, just my last question, I suppose. As you look forward into, you know, the calendar year 2024 or FY 25, can you talk a little bit about where do you want the overall business margins to kind of, go? Is there a target, or is there any kind of a guidance you can give on, on those front? That will be extremely helpful. Thank you.
I think it's too forward looking for us to be able to address like that. But I think, you know, I think, you can see how we are trying to manage all our elements of both margins as well as, cost elements.
All right. Thank you. Those were my questions.
Thank you. The next question today comes from the line of Vivek M. So please go ahead. Your line is now open.
Hi, good evening. My screen is freezing. Continuing with the questions on BPC. Just to get it right, the gross profit margin, quarter-on-quarter, year-on-year, which are down about 60 basis points, that is essentially because of own labels. It's not because of Nykaa funding part of the, you know, discounts or promotions. All of that is taken care by the brand.
Vivek, Vivek, we are losing you. If you don't mind just restating the question, if you don't mind. I think you're cutting in and out.
I'm sorry. Am I, am I audible now?
Yes.
Yes.
Sorry about that. So Anchit, my question to you is, this 60 basis points, quarter-on-quarter and year-on-year decline in gross margin, that's only because of your own brands, and this has nothing to do with the BPC brands on the platform. Is that understanding correct?
So I didn't catch the entire question, but I understood that it refers to the, roughly, you know, 80-90 basis point decline in the gross margin for the BPC business. So what I would say is that, as I mentioned, in my answer to the previous question, some of that is coming from, you know, large mass and prestige brands moving some of their advertising spend away from advertising and into the promo bucket. Because generally, companies, consumer companies tend to have one large A&P budget, and, you know, the use of the proceeds, the use of the cash is fungible between either advertising or promo spend.
And as I mentioned, given the other pressures they're facing in other parts of their business and markets, there has been a slight, a higher emphasis on promo spend than on advertising in this past quarter. So some of the impact is because of that. And, there is no real impact of the consumer brand. I think if you look at our own brands, they have in fact gained, a little bit of share year-over-year in terms of their contribution to our business. So that is not really the impact that is, playing out here. It's mostly, as I said, just some softness on the, marketing income this quarter.
Okay. And, Anchit, because Nykaa is a 1P platform, so essentially buy and sell it, you know, because it's a 1P bit, if brands are discounting more, do they actually adjust it, actually so that it goes out of their pocket and not your pocket, so that you are protected? How does it happen in the real world?
So again, I think I caught some parts of the question, but yes, we are a 1P model. But, as we've said historically that for Nykaa, retailer-funded discounting, we believe, is very short-term approach to doing business, and it's not the right thing in the long term, if you're looking to grow the category and to drive, what we call as the art of retailing, which is our core focus. And, it's short-term gain, but we think longer term, it attracts the wrong quality of customer, and it drives the wrong type of customer behavior. That being said, of course, if any of our brand partners would like to pass on discounts to the consumers, that is totally their decision, and, they do.
So if there is a discount that the brand wishes to pass, that is passed directly on to the consumer. There is no role that Nykaa plays, in, on that front.
Okay. Last question, from the 30.8%, you know, contribution margins in BPC, which is a quarter low. Do you think the margins have bottomed out at this level?
We can't hear your question, and I think maybe we can give chance to others if they're in the queue.
Okay, sure.
Maybe you can connect it.
You can probably type it. Yeah, if you just type it in the chat box, if you're having some connection issues, we can address it, maybe a little bit later.
Thank you. The next question today comes from the line of Nihal Jham. We do request that each person introduce themselves and their company name. Thank you.
Hi, good evening. Am I audible, first of all?
Yes.
Yes. Thank you so much. This is Nihal Jham. I'm from Nuvama. My first question was on the BPC bit itself. If I look at the contribution margin for the BPC segment, over the last couple of years, obviously, the fulfillment from leverage from fulfillment expenses come in. Just wanted to get a sense that where do we see this contribution margin stabilizing in the longer term, and what would be the future levers to achieve that?
So maybe I'll... Yeah, go ahead.
No, I think, I think these are very healthy contribution margins. And, I think, we will continue to work towards improving certain components if we find the ways to improve it. Say, if there is ability to improve fulfillment expenses, even from here, we would definitely capture that. But I think one trend is clear, that we would also like to invest more in marketing and building, you know, driving the category adoption as well as all that Anchit has been saying so far. So like you saw, that marketing expenses have also gone up over the last year. So I think there will be... There is no, there is no desire to keep improving the contribution margin, but to grow the category and improve the prospects of the business. Anchit, anything you would like to add?
Yeah, no, I think you summarized it well, which is the priority number one for the BPC segment going forward will be growth. Because we feel that we've managed to deliver pretty healthy contribution margins, but we are incredibly optimistic and excited about the opportunities that exist in beauty in India today. The kind of focus that India is now receiving from global beauty brands, the kind of customer behavior which we are witnessing, the kind of premiumization that is un- that is that the market is undergoing. So we feel there is no time like the present to continue to reinvest in the business. So I think that priority number one will be on driving more customer acquisition, bringing more customers into the world of beauty.
And also, there is obviously a cost associated with retaining our customers and driving more customer delight. So investments by us on, obviously, customer acquisition and retention, but also on customer service as well as fulfillment. I think it's imperative for us to continue that, and you will see more of that to come. So we feel that growth is priority number one, but of course, if there is any, if there are efficiencies that we could find across, fulfillment, across marketing, that will 100% be done. But it will also those proceeds will be reinvested in continuing to drive outside growth and growing the overall beauty market. So we feel that where the contribution margin is today is probably a healthy place for us to be in the short to medium term.
Of course, longer term, as things like, you know, generative AI and the other tech automation capabilities play out, you could of course see meaningful savings across fulfillment and marketing, employee costs, et cetera.
I need to just add, Ganesh, here, is that the contribution margins which you have been seeing at present, they are in line with the historical trend that we have had. As Anchit mentioned, the fact that we have been able to bring in efficiencies on fulfillment, et cetera, over the last few quarters, is also creating room, in terms of our ability to invest behind the business, invest in customer acquisition, et cetera.
Understood. Just one last question and related to the larger business, that I am assuming that based on the discussions, that the priority number one across all the three segments remains, I'm assuming, GMV/NSV, and margin would be lower than the pecking order at this point in time. Would that be a right thought in terms of how we are looking at the business for the year?
No, we are not saying that the margins would be lower. We are saying that we are focused on the growth, and we will continue to invest in the business, be it for, you know, market creation, be it even faster deliveries and delight to the customers. So I think what we are trying to say is that the objective right now is not trying to push the contribution margin higher.
That's clear. Thank you so much.
Also, also, each business is at a different phase of its growth and its profit, profitability, right? So we feel that, if you look at the contribution margin for the BPC vertical, it is increased by almost 300-400 basis points over the past 2 years. So there has been significant improvement there, and it's in a very healthy place. So priority number 1 is growth, and I think if you ask Fashion, priority number 1 is also growth. But there, there is, of course, more work to be done on the profitability side, and I think Adwaita spoke about the good work we've done in the past quarter. So I think obviously both are important.
The weightages between growth and profitability can be different for each of the business segments, based on where each business is on, on its own, on its own journey.
Thank you. Thank you so much.
The next question-
But at the consolidated level, I think, based on improvement in other businesses like Fashion and B2B, we will see that there will be greater coverage of costs, fixed costs, and as a result, the EBITDA margin at a consolidated level, we can be optimistic about. But it's not that we're gonna try to maximize it. We're gonna try to continue to invest in all the businesses and then try and, you know, manage for growth as well as profitability.
I think the best slide to, you know, if you go back to the NSV mix slide over the past years, you'll see that just two years ago, if you look at FY 2022, I mean, BPC accounted for 85% of the total NSV mix, and today that number is 78%. So despite the Fashion and B2B verticals, which currently have a more profitability profile, them gaining and taking increasing their mix of revenue to the overall business over the past two years, despite that, I think the consolidate, consolidated profitability has held up.
I think it goes to show you that, you know, beauty's profitability continues to remain healthy, and Fashion and B2B not only are they growing the top line faster, but they are also managing to turn corner on profitability and drive better margins.
Thank you. The next question today comes from the line of Percy Panthaki. So please do introduce yourself and your company before asking your question.
Hi, am I audible?
Yes.
Hello. Yeah. Yeah, this is Percy Panthaki from IIFL. My first question is on the one-off costs that you mentioned, that is the GCC ramp-up and the ESOP costs. They total about 60 basis points. So one is, can you disaggregate the two? And secondly, just wanted to understand how much of this will be recurring. Is it that there's a big ESOP charge out this quarter, and then from next quarter onwards, it's going to be close to zero? Or will it continue at the same level as what it is this quarter? And also the same question on the GCC investments. What kind of percentage of total revenues do you want to sort of cap the GCC investments at? So this is my first question.
I think, Ganesh, you want to explain-
Yeah.
-the first?
Yeah. So, Percy, as far as the ESOP costs are concerned, the cost which has come into the P&L this quarter is about INR 7 crore. And while this will be a continuing cost, given the way ESOP accounting happens, over the next three years, this will be gradually tapering down. So that's the way this cost will progress. It will be a continuing one, but it will taper down over the next three years. As far as the GCC costs are concerned, we should bear in mind that there is a stores rollout plan, et cetera, which is happening as far as GCC is concerned. So these are the initial costs.
About INR 3.5 crore is the amount, and this would, this would vary going forward, depending on how the stores rollout happens.
Okay. My second question is on the BPC NSV growth, which is over the last 2, 3 quarters sort of around that 20% mark. And even in our analyst meet, I think the expectation for a 5-year CAGR was somewhere in the region of about 27% or so. So in light of this, I wanted to understand what is the reason why the growth has dipped by about 10 percentage points, and also why basically it's tracking below our sort of medium-term aspirations.
I understand the discounting part to some extent, but do you think that this goes away in one or two quarters as the discounting annualizes? And then if the GMV growth is like 24-25, we see the same NSV growth, or do you think that there will still be pressure on NSV for some reason? And secondly, just wanted to understand, in context of if we see the consumption space, there is pressure at mass end consumption, FMCG products, et cetera. But your average ticket price per item is in the region of about INR 300, which is like the top decile of the entire E-FMCG space. And that space, really, if I look at not only FMCG, but any other premium consumption space, we have not seen any kind of slowdown.
So in light of this also, I wanted to understand how the slowdown has happened over the last two, three quarters. Sorry for the long question. I hope I've been able to try and convey what I'm sort of trying to get an answer to.
Sure. I think I'll address it, and then I'll ask Anchit to chip in. So I want to say that at no point are we saying that Nykaa's premium customer is affected by what is happening in terms of the rural slowdown. I don't think that's what we have said. I think we are saying three, four things. The first and foremost, what we are saying is that, and I think we've said that earlier also, that currently the e-commerce, the beauty online growth is slightly below the long-term average, and that is a post-COVID phenomenon, where customers were very happy to be out and about and shop more in physical retail. So there has been a little bit of a sub-optimal growth in online BPC, and we believe that that will correct going forward. So that's first point, number one.
Second point is that from the perspective of discounting, yes, the brands have had to discount because they've had channel adversity in other channels, and as a result, to chase growth, they are doing higher discounting to deliver on their growth targets, as a whole. And that is why the difference between GMV and NSV growth is coming, because if the brands want to pass on the discount to the customer, that's what is reflected in the NSV. And you are totally right, that the current discounting is at a high level, which cannot sustain in the long run, and it is bound to stabilize or, you know, go down also in future, but definitely it cannot keep increasing from here. With that, if Anchit wants to come in on any additions.
I think, I think you covered it. Look, I think we, you know, we were coming out of a pandemic where obviously e-commerce had grown very rapidly and had taken share from physical retail. So some of that normalization is what's been playing out, and there has been a return to physical retail, you know, a healthy return to physical retail, which is good for us. It's a benefit to us, because Nykaa also has one of the largest, you know, networks of physical retail stores in the country. However, as I showed you earlier in the day, physical retail business for us is growing very well, but you know, it's still only 9% of our overall GMV to our BPC business, so it's not able to move the needle as much.
So I think there's a little bit of normalization in the mix between online and offline. And as a result, maybe the mid-term, mid to long-term growth at 30%+ for online is looking more like 25-26%. So there is a slight decline as some of that demand moves back into the offline space. Please remember that beauty is a category also that lends itself well to offline retail, as well. So it's gonna be a healthy mix, and I think omni-channel retailers like us will benefit from that. But I would also like to stress on my other point, which I made earlier, which is that, you know, you mentioned some other category, discretionary consumer categories that may not be seeing a slowdown.
I would also say that beauty is different in the sense that beauty is not a, a category which Indian consumers were historically familiar with. So the awareness for the consumption of beauty in India is still, as I said, one of the lowest in the world on a per capita basis. So a lot of that work needs to be done. It's not an affordability issue, it's an awareness issue. We always say that consumption of beauty in India is a result of three factors. One is affordability, second is availability, and third is awareness. And I think the affordability issue is being addressed as the GDP per capita improves. Availability, Nykaa is bringing the best brands from all around the world into the country, so that's being fixed as well. Finally, the awareness needs to improve.
If you look at other economies, the frequency of purchase of beauty products, the number of beauty products bought per customer is much more significant than India. So it's an awareness issue that, again, we're working on through category growing initiatives like Nykaa Land, and of course, a lot more that we do.
Thank you. One last quick question, if I might be allowed. Any comments on your market share amongst the e-tailing, BPC e-tailing space with some new competition coming up over a two-year period? Are your market share in the BPC e-tailing space constant, or have they gone down?
... So as you know, there's none of the other, beauty e-tailers are listed, so it's, you know, difficult for me to say, with 100% confidence. But of course, we have enough market intelligence and enough, you know, understanding of the business. What I would say is that we don't think our market share has declined at all because of the new competition. When we-- From our understanding, some of the horizontals have been, you know, high single digits, low double-digit growth for the category. And the new entrants still are very, very small, and are not, not really impacting us, from a market share perspective. So we would...
Our understanding is we have probably grown in line, if not slightly faster than the online BPC market growth, and so our market share is probably very healthy and in line with, with previous years. But as I said, also remember that we are also a very large offline retailer of beauty, and there we continue to take market share because we are expanding our store count very rapidly and becoming one of the largest networks of beauty retailers offline as well. So I think in aggregate, definitely market share has probably improved year-over-year.
Thanks very much, Anchit and, Falguni. That's all from me.
Thank you. The next question today comes from the line of Abhishek Banerjee. So please go ahead and introduce yourself before asking your question.
Hi, this is Abhishek from ICICI Securities. First question goes out to Ganesh. So, infusion of equity into Nykaa Fashion, this is essentially a non-cash transfer, right? So basically, whatever was given in the form of debt is being converted into equity. Is that correct?
Yeah, that's right. Your understanding is right. While there is INR 150 crore equity which goes in, it goes into repayment of debt. And repayment of debt given by the parent company. So in a sense, it's a conversion of loan into equity. We are capitalizing the fashion business.
Understood. The some sale, there will be some cash transfer, right?
That's right. Yeah. This is based on a valuation which has been done by Grant Thornton, and on that basis, there will be an actual consideration which we get paid.
Okay. So overall, it is correct to think that probably the Contribution Margin of the fashion business will changes?
Yeah. Again, when you look at the fashion entity in terms of the fact that there will be a cash infusion which goes into the fashion entity, the overall profit profile of the fashion entity will improve to the extent of lower interest costs, primarily.
Understood. That's very helpful. And now, Anchit, if I may ask a question on the growth aspect that you were talking to, and one of the earlier callers also alluded to. It is with regards to where you see the growth really coming from. And basically, just to say, this quarter, you saw a faster growth in the premium side of beauty, right? So do you think that is a more sustainable trend? Do you see the premium side growing faster? And also in terms of customer profiles, right, I believe you already have an exposure to slightly more premium customers, right? So whom do you see really buying more? Are the more premium customers buying more, or do you really see growth from the value customers that you have?
So maybe I'll start with, on the, on the prestige premium side. As I said, today, prestige premium is less than 10% of overall BPC spends in India, so it's very under indexed. So this will continue to grow. And it'll continue to grow at, at a rate faster than mass and masstige, because mass and masstige brands are very, very well distributed and are already at a reasonably large scale, if you really look at a few of the large ones, across India, right? So, the premiumization of beauty is a trend that happened globally, especially if you look at China over the past 15 years, and India has not even begun that trend yet. So the premiumization of beauty will happen, and Nykaa is well placed to, to be a, a beneficiary of that.
Because, as you mentioned, we do have a large percent of the premium consumers in India today are currently Nykaa shoppers. However, that being said, we also have a very large base of non-premium and non-prestige shoppers. And in fact, that is a massive opportunity for us to continue to acquire customers in the country, because, you know, today's value shopper is tomorrow's prestige shopper. As I said, it's not really an affordability issue, it's more of an awareness issue, and that's the work that Nykaa does. Once we acquire customers, our ability to use CRM and CLM capabilities to improve the unit economics, improve the annual consumption value of our customers, improve the average order values of our customers, is quite meaningful.
We've always, you know, we've always said that our repeat buyers tend to have higher average order values than our new buyers. So that's work that we're able to do once we acquire the customer. But I think the biggest, the biggest opportunity, again, I'll say it again, is you have even the existing Nykaa customers today, even if they're shopping premium products or they're shopping value products, they are still under indexing in terms of their frequency of purchase, their number of items in a cart, their category with their annual consumption value is still comparably lower than what it could be. So you will see ACVs of existing customers improve if we do the right things as a company. And you will see a lot of customers who are currently not shopping beauty at all.
You have a lot of personal care shoppers in India. India has historically been a personal care market, but if you look at other comparable markets, personal—today's personal care shoppers, tomorrow's beauty shoppers. So there is a large number of consumers who will come into the beauty funnel. And again, that's Nykaa's responsibility: acquire these shoppers and sell them more beauty products. So bringing personal care and non-beauty buyers into the beauty shopping funnel is a massive opportunity. There are, you know, millions and millions of customers who currently are either buying personal care or other lifestyle categories, who are not consuming beauty yet. So that is also a low-hanging fruit for us, and that's where a lot of the investment in terms of new customer acquisition will go.
As I said, existing customers will be encouraged to shop more frequently and shop more items per cart, and that will be driven by a lot of the repeat customer mechanisms that we have in place.
Understood. So you actually also touched upon the theme of the next question that I wanted to ask you, which is, you kind of briefly spoke about how awareness is the issue, not affordability. And I think that really ties well with the statement that you and Falguni ma'am made on the fact that you think the contribution margins for the BPC business are at an optimal level. So does that really mean that the additional gains which you would be getting in the contribution margin due to scale, that will be reinvested into you know advertising and maybe more events like Nykaa Land, which we saw? Is that the thinking? Just trying to understand.
Yeah, I can say in the short term... Look, in medium to longer term, I don't want to give guidance in terms of will all efficiencies and savings be reinvested in marketing. But we think short term, definitely there is a massive opportunity for us to do category expansion work, and that's where we are spending some of the money. And the remainder is, of course, on, as I said, the millions and millions of shoppers in India who are shopping online, who are comfortable with using digital forms of payment, who are shopping large-ticket items in other discretionary categories but are still not buying beauty. There is tremendous opportunity for us to acquire those customers and do a lot of category awareness work on them.
So I think in the short term, yes, as we said, we are very early in our journey in terms of total number of transacting customers on our platform is still small compared to the opportunity in India. So there is a lot of investment and a lot of work which we plan to do to bring more customers onto our platform. And I think the advantage that we have is, you know, ten years of being in this business, we have tremendous, we feel brand equity in the market. We are recognized as thought leaders and almost being synonymous with beauty by the consumer.
So really building upon that good momentum and work we've done over the past 10 years, as opposed to starting from scratch and trying to build legitimacy from scratch, I think that's something that we have our work cut out for us. But of course, there is investment and to be made and time to be given to this strategic priority.
Understood.
And, Anchit, I don't know whether you spoke about CSMS, but when we did the education on CSMS as a routine, cleanser, moisturizer, serum, and sunscreen, I think what we found was that the growth in sunscreen as well as serums on our platform was in excess of 60%-100%. Like, on serum, 65% year-on-year growth, and sunscreen was a 100% year-on-year growth. So I think a very wide education needs to be done to create the demand. And we are believers that per capita consumption of beauty can go from $15 to $50 with increasing per capita income. And affordability is not an issue, but it's the knowledge and education that is important, and Nykaa's done that from day one to grow the market.
Perfect. Very clear. Thank you, ma'am. Adwaita, just one question to you also. So, the amazing, you know, improvement in the fashion business as of now. Just one question that I have is on the new sneakers business that you seem to be getting in. And my understanding is, generally, globally, it is a more male-centric kind of product category. So do we really have the kind of customers or consumers on our platform who would really be looking for sneakers, or are we trying something different here?
A couple of thoughts. First is, I feel that sneakers is a, you know, great opportunity for women as well. We see that, it's growing incredibly fast already with the category that we have on our site. So I wouldn't say that it's just a, you know, male-dominated category. I'd say that there's potential in both genders for this to be a significant play. Secondly, I do also see it as a, you know, as an initiative that will help us acquire more male customers, into our business, and that too, with the right type of product, which is premium sports and sneakers. So to answer your question, I think, one, we will be able to serve our existing customers better. They are, most definitely interested in these products.
If you look at all the women around you, they are wearing Nike, Puma, Adidas and so forth, on their feet. But it also allows us to attract the male consumer with a very compelling offering. And, you know, through this, we'll have some other, some assortment which no one else in the country has, so we hope to capitalize on both.
Also, we have both men on our Nykaa Fashion platform, as well as we have a Nykaa Man as a platform, which is also growing nicely.
... Okay, so this could be a hook to get in more men into the platform?
Yes, also.
Understood. And just one last final question on the B2B business. I saw that you've created a warehouse footprint, which is quite spread out. But generally, in this kind of a business, the traditional thought process is to, you know, go by a cluster kind of approach. So, you know, build scale in one cluster through higher density and then scale up. Any reason why you are taking this approach?
I think we wanted to build a national scale to be relevant to our brand partners, and we are achieving that with this network, and we may go to few more because I think, intra-state is what is clearly necessary here. You know, at least minimum, and then also certain radius around the warehouses are all very critical to success. And these have been carefully chosen from that perspective. And there will be more warehouses, few more warehouses going forward, like at least one per state. But you have to also superimpose this on already existing warehouse network that we have for our, you know, for our e-commerce business, which also by now is in every state, pretty much.
So for us, it's not so—I mean, we are not a startup company, so we have a lot of investments already made, which can plug and play into this to do this efficiently.
Perfect. Understood. Thank you so much. That's all my questions.
So, like some brands, we may receive inventory in larger warehouse and then send it to the smaller warehouses. So I think what works for Nykaa is very different than from a total startup enter company. So thanks.
Thank you. The next question today comes from the line of Kapil Singh. Please go ahead. Your line is now open.
Hi, good evening. This is Kapil from Nomura. Most of my questions have been answered. Just wanted to check, what are the growth trends we are observing currently in the key segments? Is there any improvement that you're noticing, or they're fairly similar to what you saw in the last quarter?
So I think without sounding too optimistic, I'd like to point out that the CEO global CEO of every beauty company has visited India over the last 6-9 months. So I think Indian market has become a very promising beauty market for global companies, where, you know, from earlier ranking, maybe in top 7 or 8, it is starting to rank in the top 5 markets, sometimes top 3, from importance perspective. So I think that the and also Indian customer wants best of what the world has to offer because of social media.
So I think now the challenge lies, and of course, companies like Nykaa have put in place very effective supply chains, very effective network already in place, like our store network is already 175 stores in 65 cities plus, and we will take it to 100 cities that, you know, before you know it, it'll be at more than 250 store network. So I think we've created the network set up. It's possible for these global brands to leverage, and that's why we keep harping on education. But I think the trick lies in more and more education. And I think, you know, Nykaa Land, and we do a lot of beauty bars now.
We do a lot of in-store master classes for the customers, and there's a big, big emphasis on education so that we can grow the category demand. Like, if you look at certain... Like, if you take a little bit of a far seat, you know, and you see the number of people who are trading stocks, if you see the number of people who are flying airlines, you know, domestic airlines, these are all very large numbers. And I think, why can't beauty consumption be at that level? It's not a very large ticket item. It is a very small ticket item, and it's a very affordable item for most consumers. And I think the Indians have not been very enthusiastic about beauty and personal care consumption. And I think personal care industry is very underdeveloped in India compared to globally.
Like, I keep pointing out every time, fashion also is five times the entire beauty and personal care market. So we think that there is a work to be done, and Nykaa will continue to do that work. And of course, a lot of beauty companies will, beauty and personal care companies will also do the work. Like, you are aware that Hindustan Lever has, now, you know, have a beauty-specific focus rather than just the personal care. So I think more, larger companies in the world are joining the bandwagon. And, you know, like L'Oréal, luxury, which was L'Oréal Luxe, which was not present in the country, is entering with, or Lancôme and more brands like Urban Decay through us, and, they came in through CeraVe.
We do see that big companies investing in India opportunity and, together, all of us being able to grow the market to its right full size and scale.
Okay, thank you.
On the fashion, I think what I would like to point out is that, you know, we are just a four-year business, which sometimes people forget. And there's a lot of assortment growth at this early stage. And with every passing year, we are bringing new assortment that makes the platform more complete and improves conversion and customer stickiness to the platform. And that same will continue over the next couple of years. Foot Locker is one such, you know, effort in that direction, but there'll be more. And I think through that, you know, through that process also, we feel very excited about what, what, you know, what possible future lies ahead. And I think marketing costs, if we can bring it under control, then that means we can afford, you know, more investment in the business.
... Okay, thanks. Just one small follow-up on this adjusted EBITDA margin that we have reported. Could you tell us what was the adjusted EBITDA margin, like-to-like for Q2 of FY 2024 or Q3 of last year, so that we can understand what you are trying to convey here?
No, just to clarify, these are ESOP costs which have kicked in now, and so also as far as the GCC spends are concerned, they have kicked in now. Since it's coming for the first time, that's the reason we have highlighted. So while there have been past ESOP, et cetera, there's been a grant which has come in now, and given that this is sizable at around INR 7 crore and coupled with the GCC spend, which is about INR 3.5 crore, it's a sizable amount, so that's the reason we have flagged it.
So we will be reporting this adjusted EBITDA margin every quarter from now onward, or this is just highlighted for this quarter?
We've just highlighted for this quarter so that you could understand. I don't think we want to create too much of, you know, special reporting every quarter.
Okay, thanks.
Just
Okay, thank you, and wish you all the best.
Thank you. That was the last question we can take today. You may reach out to Nykaa's investor relations team for any additional queries. I'd now like to hand the conference over to the management team for closing remarks.
Yeah, thank you very much, team Morgan Stanley, for as usual, you know, doing a brilliant job on facilitating an excellent interaction. And I hope we've satisfied all the participants. And thank you very much for all the participants for being on the call and, pretty insightful questions. And I hope we've been able to provide, you know, answers to most of your questions, but otherwise, please reach out to us separately. Thank you.
Thank you very much.
Thank you, everyone. On behalf of Morgan Stanley, that concludes this conference. Thank you for joining us, and you may now disconnect. Goodbye.