Ladies and gentlemen, good day and welcome to FSN E-Commerce Ventures Limited 2Q FY 2023 Earnings Conference Call hosted by Morgan Stanley India Company Private Limited. At this moment, all participant lines are in the listen-only mode. Later, we will conduct a question-and-answer session. At that time, you may click on Raise Hand icon from the toolbar to ask a question. Participants connected via telephone call may enter star and one on the telephone keypad to ask a question. Please note that this conference is now being recorded. I now hand the conference over to Ms. Sheela Rathi, India Consumer Analyst at Morgan Stanley. Thank you, and over to you, ma'am.
Thank you very much, Anita. Hello, everyone, and on behalf of Morgan Stanley, I welcome you all for the FSN E-Commerce Earnings Conference Call. Thank you very much, Nykaa team for giving Morgan Stanley the opportunity to host you all for the 2Q FY 2023 Earnings Conference Call. Without any further delay, let me hand over the call to Ms. Sunita Sadbai, IR and Strategy, to take the call forward.
Thank you, Sheela. Good evening, everyone, and welcome to the conference call. We'll be covering this evening the results for the quarter ended 30th September 2022. On the call with me from FSN E-Commerce Ventures Limited is Mrs. Falguni Nayar, Executive Chairperson, MD and CEO, Mr. Anchit Nayar, Executive Director and CEO, Beauty and eCommerce, Ms. Adwaita Nayar, Executive Director, Co-founder, CEO, Fashion, Mr. Vikas Gupta, CEO, B2B and International, Mr. Arvind Agarwal, our Chief Financial Officer, Mr. Vishal Gupta, Executive Vice President, Private Brand, and Mr. Rajesh Uppalapati, Chief Technology Officer. We will start the presentation with Falguni sharing an overview of our performance in this quarter. Before we get started with the presentation, I'd like to draw your attention to the disclaimer for good order. With that, over to you, Falguni.
Thanks, Sunita, and good evening, everyone. Thank you for joining us on the call, and it is always a pleasure to interact with all of you. I will begin with a short presentation and will be happy to take questions after. Our GMV for this quarter is at INR 23.46 billion, which has recorded a 45% year-on-year growth. Revenue has also grown at 39% year-on-year, and it now stands at INR 12.3 billion. We are happy to report our EBITDA growth, which has more than doubled year-on-year at INR 611 million, achieving an EBITDA margin of 5% for this quarter. Profit before tax is at INR 88 million, and profit after tax is at INR 52 million.
Our beauty GMV has sustained growth at 39% on a year-on-year basis, and the fashion GMV has grown at 43% on a year-on-year basis. Visibility to business growth is strong despite consumer environment normalizing as we have gained from our omni-channel presence. Our new business delivered INR 1.2 billion in GMV contribution, which is heartening. These are early-stage businesses, so we believe this strong growth should sustain. Just going one level lower to the breakdown of break-up of GMV across businesses. Consolidated GMV, as I mentioned earlier, grew 45% year-on-year. This is truly a commendable performance from our team and a testament to the investment we have built into people, technology and capacity. Our beauty GMV grew 39% year-on-year. Our online and offline presence in beauty has delivered strong growth momentum while gaining from efficiencies across the value chain.
Our fashion GMV grew 43% year-on-year as we continue to stay committed to and investing in building a unique customer proposition in fashion, aided by investment in a differentiated product, collaboration with global brands and expansion of breadth and depth of private label portfolio. As you've seen for a few quarters now, we separately provide what we call as other categories, which are new businesses that we are currently building, and that currently includes our retail businesses like B2B business as well as Nykaa Man. These business GMV grew by 240% year-on-year, and they now contribute to INR 1.1 billion in revenue. Overall, another quarter of yet another strong growth in revenue along with profitability. I also wanted to take this opportunity to introduce you all with recent addition to Nykaa family.
It gives us great pride to introduce our new Chief Technology Officer, Mr. Rajesh Uppalapati, as well as our other members, our Head of Private Label Brand, Mr. Vishal Gupta, and our Head of B2B and International Business, Mr. Vikas Gupta. Rajesh brings over two decades of technology experience with proven record of delivering successful world-class, large-scale, performance-critical software projects supporting multi-tier businesses. He has worked with Amazon for about 20 years across different roles and geographies with increasing responsibilities. Prior to joining Nykaa, his immediate previous employment was with Intuit India. I would request Rajesh here to share a few words with our investors.
Thanks, Falguni, for the warm welcome and the rich introduction. Good evening. As Falguni mentioned, I've been in the software industry for more than 20 years. We develop algorithms and build large-scale distributed systems for Amazon's operating technology. We bring product innovation to acquire and retain the next 100 million customers, ranging from video, voice, and one-click-based shopping experiences to lightweight apps for shopping in transit networks, and also gamification and content platforms that increase engagement with our customers. Recently, as the vice president of product engineering at Intuit, I was leading engineering for Intuit's tax, desktop, and web products, along with owning the EF science track team. As I join Nykaa, I'm really excited about the opportunity. Over the next few weeks, I intend building relationships while also understanding where we stand across the three Ps, people, product, and process.
There are three strategic pillars which have served me well as a tech leader in my careers. Creating a robust product infrastructure, essentially the plumbing and everything that goes beneath the surface, that translates to offering best-in-class security, availability, performance, and quality for our products. The second lever would be how do we get fit? How do we do more with less? How do we dramatically improve our development velocity and the throughput of our innovations? Embracing external technology trends. There are so many emerging technologies like crypto, metaverse, Web3, and we will start to embrace these technologies and figure out use cases to apply them. I think we will ignite on behalf of our customers before our competition can do it. Thank you so much.
Welcome, Rajesh. We are all very excited. Introducing Vishal Gupta. With nearly three decades of experience in the FMCG sector, Vishal joined Nykaa after a celebrated tenure at Unilever globally, where he led large-scale award-winning campaigns and teams. In his latest role at Unilever Russia, Vishal helmed the beauty and personal care business, comprising a large portfolio of international and local brands, including Lux, Surf Excel, Vim, and Sunlight to name a few. With this, I request Vishal to come in with his introductions and few words to the investors.
Thanks, Falguni. Hello, everyone. As mentioned by Falguni, I bring to the table many years of experience in running businesses and building brands with high consumer love in India as well as in international markets. Honestly, that is exactly my mandate in heading the Nykaa private label brands business, which is to build a portfolio of brands with very high consumer love and scale across channels so that we deliver sustained profitable growth for the years to come. Based on my past experience, as well as last few months at Nykaa, I can confidently say that our right to win comes from three things that we do well. First, our superior consumer understanding. Second, our ability to translate this superior consumer understanding into products that really wow our consumers. Third, our ability to create brand content that not only drives desire, but also drives conversion across channels.
All in all, super excited with this opportunity to scale our house of brands into a large and profitable business for the years to come, which is really loved by our consumers. Thanks.
Thank you, Vishal. Thank you very much. We also have secured our CEO for eB2B business, and he also heads the international business, Vikas Gupta. Vikas Gupta has been spearheading the Nykaa eB2B business that currently holds Superstore by Nykaa as well as Nykaa Pro. Having held several leadership roles in the past, both at Hindustan Unilever and also Flipkart just before joining Nykaa, Vikas is p roficient in building businesses for data-driven digital-first enterprises. Vikas comes with over 20 years of experience at Unilever, with stints in India, Brazil, Singapore, and Indonesia. As I said more recently, he was with Flipkart in Bengaluru. Some of you may have heard Vikas speak at our annual investor conference in July. With that, over to you, Vikas, to give us an update on your new business.
Thank you, Falguni, and good evening, everyone. For my introduction, Unilever was my home and my school for more than 20 years. I joined Hindustan Unilever as a management trainee back in 1998 and was fortunate enough to get opportunities to work on some of the most diverse roles during my tenure in sales and distribution, in marketing, and in general management. It transpired over five countries in three different continents. This included the global leadership of one of Unilever's biggest brands, Dove soap, for five years. In that period, we added more than EUR 1 billion top line. Taking global market leadership away from Tide and establishing Dirt is Good as an iconic brand across most markets, including India.
Also had the opportunity to serve as the executive director and board member at Unilever Indonesia, leading its home care business, where we accelerated both the top line and bottom line growth. You know, the biggest contribution that I made there was getting the next line of leadership ready to take over. I left Unilever in early 2019 because I really wanted to participate in this brave new digital economy and learn how data and technology can be harnessed to shape consumer behavior and solve real-world problems. Joined Flipkart to head its marketing and customer growth function. Last year I joined Nykaa to lead Nykaa Distribution and Nykaa International.
I see it as the perfect opportunity for me to bring together my experiences at Unilever and Flipkart, to disrupt the old, somewhat entrenched distribution ecosystem in the country, serve historically underserved parts using technology, using data, and create value for all stakeholders in the process. Most of all, our customers, which is essentially the small retailer on the roadside. Coming to the quarter two business updates, I will be taking you through the others section, which you saw in the previous slide on the split of vertical performances. Just as a reminder, the others business numbers include our B2B business. It includes our international business. It includes Nykaa Man and our new acquisitions like LBB and Nudge.
I'm here to provide some insight on the scale-up of Superstore by Nykaa and the strategic partnership we recently announced with the Apparel Group in the Middle East as part of our international foray. Talking about our B2B business, this vertical has now established its right to win as a specialist, vertically focused B2B platform, allowing us to penetrate much deeper in the country. We are scaling this platform in a very measured and choiceful manner to ensure our focus on the right unit economics from the very start. Operating within that context, it is very exciting to see that in less than a year of launch, we have more than 70,000 retailers already transacting on the platform across more than 650 cities, with above expectation repeat rates and retention rates.
In quarter two itself, we served over 173,000 orders, an almost 20x ramp- up on a year-on-year basis. As you know, retailers have been spoiled for choice and inundated with horizontal B2B players in the last few years. Within that crowded situation, we are resonating strongly as a specialized player and expert in beauty, personal care and wellness segments, getting their rightful share of mind. Our key value proposition most valued by our customers is the selection and its discovery on the platform through relevant recommendations, customized to their region and store type. We now have 182 brands listed on the platform, a 6x growth on a year-on-year basis, and there are several more in the offering.
Our partnerships with brands are strengthening, and that is essentially because of the level of transparency we are able to bring to their promotion spends, ensuring high ROI that reaches its target, audience without leakages and the data intelligence that we are able to provide at the most granular level. Our key strategic wins we are able to co-deliver with our brand partners is the premiumization of the offline markets, just as we have done with the beauty platform in the online B2C segment over the last 10 years or so. For several brands, we are already their primary go-to-market partner, thus democratizing distribution in the country, especially in underserved channels and underserved geographies. The next highlight of quarter two is the new partnership with the Apparel Group to undertake an omni-channel multi-brand beauty business in the Middle East.
We intend to build a strong business on the lines of Nykaa in India in the six countries of Gulf Cooperation Council, or GCC, namely UAE, Saudi Arabia, Bahrain, Kuwait, Oman and Qatar. We are very excited first and foremost with the market opportunity that GCC presents. It is one of the most value-dense markets in the world when it comes to beauty, with a significant young population that is witnessing strong winds of positive change in terms of women rights and women empowerment. The e-commerce segment is under-penetrated but growing rapidly, significantly ahead of the total market. We view this opportunity positively and believe we can build a strong, sustainable business there with the Nykaa playbook and the Nykaa energy. There is also a symbiotic deep partnership with two partners in play here.
The Apparel Group is a global fashion and lifestyle conglomerate in the Middle East. It is an offline powerhouse with more than 2,000 stores across several categories with a growing play in e-commerce as well via 6thStreet. Together with Nykaa's expertise in omni-channel beauty retail, its strong brand partnerships, its unique content in commerce model and online tech capabilities, we believe we can create significant value with this joint venture. Together, the two partners share very similar values, a very similar growth ambition, but with a frugal mindset. As a quick update to our building our own brand presence internationally, I'm also happy to share that we opened our first exclusive brand outlet in Mauritius last month. We have also launched our brands across e-commerce marketplaces in the UAE and the USA.
Over to Anchit Nayar to take us through the performance on beauty and personal care verticals. Thank you.
Since Anchit has not been able to dial in from a business meeting, we have Ms. Padmini Nair take us on the slide. Over to you, Padmini.
Thank you, Sunita. Thank you, everyone. I will take you through the BPC highlights for the quarter two financial year 2023, which ended on 30th September 2022. In terms of our business, brand partnerships remain key to our strategy. In this quarter, we have extended our strong relationship with The Estée Lauder Companies in a first of its kind partnership to identify and support the next generation of beauty entrepreneurs from India. This is a unique partnership which offers non-equity grants and mentorship opportunities for budding talent in the beauty industry. We also launched Priyanka Chopra's brand Anomaly in India through an exclusive arrangement with Nykaa. This fits beautifully with our strategy of upgrading existing consumers to premium personal care products.
We continue to remain the preferred partner for the largest FMCG companies in India, including Hindustan Unilever, which has launched its new science-based skincare brand, Acne Squad, on Nykaa. We also launched Inde Wild, a global influencer-led skincare brand, as well as Fable & Mane, which is an Ayurveda-based haircare brand that is now brought into the country. Through quarter two, we worked towards increasing the interaction with our audiences. It gives me immense pleasure to report that our Hot Pink Sale delivered the highest ever unique monthly visitors at 25 million. The love and confidence of our customers has helped us to deliver the highest Hot Pink Sale across e-commerce, and also the robust effect that it has delivered on improving transaction in the offline retail network.
Our retail store expansion continues, as we are now in 53 cities, and our footprint now stands at 121 stores. We expanded our B2C BPC fulfillment centers to a total of 1 million sq ft across 31 centers in 11 cities across the country. This has helped us manage our fulfillment costs and bring them down in spite of inflationary pressures. Our house of brands business within our BPC vertical continues to gain strength. The GMV of our own brands stood at almost INR 2 billion in quarter two of financial year 2023. This now accounts for 12.1% of total Nykaa BPC GMV. This is a 64% year-on-year growth. It gives me immense pride to update you on the milestones we have achieved this quarter.
Kay Beauty, one of our brands, in partnership with Katrina Kaif, Dot & Key, the brand that we acquired earlier last year, they have both achieved the status of INR 1 billion-plus brands. We already have Nykaa Cosmetics sitting at INR 2.5 billion-plus levels. We are building brands that are delivering to consumer expectations, and we are doing this while achieving scale and size of our own brands. We continue to expand the distribution of our own brands through the in-house B2B vertical. This has helped us have our own brands reach 2,130 general trades as well as 132 modern trade outlets in India. We are already serving about 2,314 retailers through our superstore app.
We celebrated the third anniversary of Kay Beauty just recently, and it has also won the Best Beauty Award of the Year, which was awarded by the Bold Beauty Festival, reinforcing our investor confidence in the brand. Continuing with regard to the house of brand business, we've had a variety of new launches from Nykaa Cosmetics. Our flagship brand, Kay Beauty, has Nykaa SKINRX, which is our premium skincare offering, as well as Wanderlust, which is our bath and body range. I'd like to highlight that our own brands straddle price points from very affordable Nykaa Cosmetics nail paint in the bottom left corner of the slide to the premium skincare base moisturizer at INR 1,400 for the combo.
Even the Wanderlust brand that specializes in bath and body has products ranging from more mass market roll-on DEOs to the higher end bath and body ranges. We have some very interesting new launches by Dot & Key across superfood-based serums and affordable face wash launches. Dot & Key launch our unique face balm created a price point of INR 249, thereby growing the appeal and the marketability of the brand. Earth Rhythm, another company where we have taken significant stakes, though not dominant. Earth Rhythm launched some of the unique bath lotions in time for the winter season rush for the body care products. Our offline retail footprint has grown now across 53 cities to 121 stores.
The segment now contributes to 7.5% of our BPC GMV. Tracks healthy INR 3,640 per sq ft per month. We now have 1.2 lakh sq ft in retailing space, and quarter two has demonstrated a robust 19% same store sales growth for stores open till March 2021. Finally, we'd like to talk about the key metrics we track for the beauty and personal care business. Trailing twelve months customers are at 9.1 million, with growth of 31% year-on-year. Average monthly unique visitors of 22 million for the quarter and visits were at least 3.5x in a month. A robust metric according to us for the category of beauty.
Order-to-visit improved to 3.6% in quarter two of financial year 2023, almost a 73 basis point improvement year-on-year, demonstrating the attractiveness of the platform. The number of orders were at 8.4 million in the quarter and delivered a growth of 39% year-on-year, while the AOV stood at INR 1,872 for the second quarter of this year. These metrics continue to underline our testament to driving high quality traffic to the platform and also impacting sustainability of our business model. Now I'm happy to hand over the presentation to Adwaita Nayar for the update on fashion.
Hi, everyone. I really look forward today to talking to you about the fashion business. Starting with some of our highlights. First and foremost, we take great pleasure to announce a partnership with Revolve. Revolve is one of the world's most renowned fashion retailers, known for bringing the best and trendiest fashion to many consumers across the U.S. In many ways, their positioning is very similar to what we're trying to do here at Nykaa Fashion. Via this partnership, which we've been working on for over a year, we now have access to more than 400 international brands. We did an exclusive campaign in June with Revolve in mind, and we had a reach of more than 39 million customers, majorly driven through a very strong influencer outreach.
This builds our global store portfolio, which I spoke about last quarter as well, and this further remains in line with our ambition to build the world's best global fashion brand delivering to consumers. Moving on. The second thing we've done, you know, is gearing up for the festive season. We launched the Nykaa Fashion Grand Festive Carnival. We had over 2,500 brands bring incredibly interesting and exciting festive wear to the platform, and this really helped build and maintain our positioning from a curation point of view. We did see a hike of our monthly unique visitors for the sale, and we saw 18 million monthly unique visitors, you know, visit the site in September. We remain bullish on exploring an omnichannel strategy for the fashion business.
We do believe that there is a role for physical stores to play, so it remains early days. We did open two stores on the fashion side of the business this quarter. One is for our multi-brand fashion website, which is Nykaa, which will be known as under the label Nykaa Fashion. Then we also did open a store for our lingerie and innerwear brand called Nykd. Early days, as I mentioned, for physical retail, it is a start. Moving on, we will talk about differentiation and positioning. This is something I typically touch on every quarter, but I think it remains really incredibly important to me that as we're building our business, we make sure that we have a differentiation. We do look at this very carefully.
Today I'll talk about three propositions we're building that we do believe are contributing to our unique positioning in the minds of the consumer. The first is global stores, which I did mention on the prior page as well, but remains a focus. We now have more than 400 brands across the world that we're bringing into the country. Many of these are exclusively available with us. This global store merchandise now contributes 13% of our Western wear offering in terms of GMV. This is an incredibly stark uptake in terms of, you know, contribution, given that it's only been a couple of months since we launched this property. Next, we have a property called Hidden Gems, and the whole idea here is to just involve and find some of the country's best labels and emerging designers.
We really do scour the country to bring really exciting brands. We have more than 220 brands now as part of this portfolio. It's been 18 months since we launched the Hidden Gems portfolio, and it now contributes 7% of Nykaa Fashion's overall GMV. Finally, I've spoken about this, but I do feel that a very trend and fashion-forward platform has to emphasize new seasons. We want to be known as a destination for new seasons. This quarter again, we hosted a big event called First in Fashion, where we had over 1,000 brands participate and provide us their latest and newest stock and newest launches. That too is now contributing about 24% of the overall GMV of Nykaa Fashion for the quarter.
All in all these metrics are supporting some metrics that we track that, you know, through that differentiation. Those are the two metrics at the bottom of this page. The first is average order value. Our average order value for the quarter is now INR 4,485. This is 10% higher year-on-year and is far, far higher than what we naturally typically see as an average. Similarly, in terms of conversion, our conversion rate has improved dramatically. It's 30% higher year-on-year. Now we'll talk about our own brand strategy. We continue to believe that own brands have a very important place and role to play in our fashion journey. Over the last two and a half to three years, as you know, we've built up our own brand portfolio.
On the left-hand side, you can see that we now have 11 owned brands. A couple of these we've acquired, many of these we built in-house. From a GMV perspective, you can see that the GMV of these owned brands supported to scale at INR 78 crores. This is up 169% year-on-year. Highlighting a couple of the metrics on the same chart at the bottom, you can see that our own brand GMV now accounts for 13% of our consolidated company, our fashion consolidated GMV. This is a really impressive expansion of the percentage and share. You can see that a year ago, the same own brands accounted for about 7%. The 7% has moved up to 13%, and this is on the back of consolidated efforts across 11 different brands.
On the right-hand side, you can see that we're continuing to add, you know, many new across our brands, and we're trying to cover all sorts of categories, whether it's footwear, whether it's lingerie. Right below that, I have spoken about this, and I'll repeat, that we remain focused that our own brands should have a life of their own beyond our platform. Some of our brands, not all, but some will have, you know, distribution, whether it's in multi-brand outlets, whether it's in general sales, whether it's with their own stores. Today, at INR 70 crores of own brand GMV, 45% of it comes actually from third-party platforms. Moving on. On the next couple of slides, we give you a glimpse of our own brand imagery, just so you have a sense of what we're doing.
You can see, you know, the products that we're creating. All of this is created, designed in-house, shot internally. Go on. Finally, I'll talk about the metrics for the fashion business. On the left-hand side, you see that the orders are now 1.2 million for this quarter. That's a 31% year-on-year growth. On the right of that, you'll see that the trailing twelve-month consumers are at 2.1 million. This is 56% higher than the year before. Under that, I indicated this before, but the average order value has gone up dramatically, and it is at 4,425 versus 4,000 or so a year ago. Finally, on the right-hand side, you'll see our GMV. The consolidated fashion business's GMV is almost INR 600 crores. This is split as two parts of our business.
You know, the pink bar is what we call our multi-brand nykaafashion.com, and the other bar is our other platform. You can see that the multi-brand business is growing at 55%, whereas the sales on other platforms is growing at 1%. With that, I'll hand over to, s orry, I'll just add two more metrics. Two more metrics which are mentioned elsewhere in the deck, but are important, I think, to you know, round out the conversation on the fashion business. You know, we do continue to track that fashion is about 26% of the consolidated business in terms of GMV, and it remains contribution margin positive. In fact, the contribution margin for fashion has gone up to 138 this year-on-year. With that, I'll hand over to Arvind Agarwal to take us through the financials. Thank you.
Thank you, Adwaita. Good evening. I'm really glad. This is Arvind Agarwal. Really glad to talk to you about our quarter two performance. Why I say that, because we have not only maintained the growth momentum but also improved our EBITDA margin, and I think that's quite impressive in the operating context, weighed down by inflationary pressures. The core business, if you look at the revenue chart, this quarter we have grown 39% year-on-year, which is slightly lower than last quarter when it was 41%. That also had a positive base effect, on the comp of quarter one of last year when there was a COVID base impact. Maintaining the growth momentum, beauty business has grown 35% year-on-year, but other new businesses have also maintained a very good quarter.
Talking about the gross margin, we are reporting 45.3% gross margin, which is about 250 basis points improvement year over year and about 90 basis points quarter on quarter. Talking about the EBITDA, this quarter we are reporting INR 51 crore EBITDA, which is more than double in absolute numbers versus Q2 last year. Impressively the margins have improved 170 basis points from 3.3%- 5% year over year. It has also improved by almost 100 basis points quarter on quarter. In terms of PBIT, we have INR 8.8 crore of profit we posted this quarter, which is largely better than Q1 last year, Q1 of this year.
This is quite better than quarter two of last year, almost 60% extra of INR 1.4 crore last year's quarter two. I think I'll go to next chart and try and explain that organically we are doing quite well on operating efficiencies and variable costs. Not only that, we are investing into building capabilities that will give us quite good operating leverage in the times to come. These are really important investments to make. If you look at this chart, we have upped our storage capacity by 70%, warehouse capacity by 74%, and I'm comparing H1 of last year to H1 of this year like a one-year journey. The infrastructural investment has been really accelerated over last one year.
We have also recruited almost 800 employees in last 1 year, and it comes across verticals which are like delivering headcount linked to business growth, and due to the general trade, modern trade channels and retail store roll-outs, but also some bit of augmentation on our corporate finance and support functions, but that's such as 20% of overall growth. Then we have also promoted and, you know, we did not add office capacities much in last two years. Now with the work from office environment and people coming back, we have added to office capacities also by about 18% from 0.9 lakh sq ft- .7 lakh sq ft. Obviously these are adding to our fixed cost line and it shows up in our table.
Let me explain in the next chart on how we should look at EBITDA margin waterfall. Last year we had 3.3% and now 5% this quarter. If you look at the green movement here, the biggest movement, the green movement is coming from gross profit, which is quite good because it's coming out of advertising revenue going up and favorable product mix. That's quite, you know, why we have maintained a good momentum and also improved the quality of the business growth. Even the fulfillment cost line, we made some structural corrections and went into automation last year, and that's paying back as the only year-over-year improvement is showing up here.
In terms of marketing, we had high marketing costs last year same quarter and we have had a marginal improvement year-over-year. Part of it is driven by the efficiency which shows up in order to conversion ratio and some sanity in digital marketing costs. Part of it is because we did not do a big brand building exercise this quarter, which we had done last year in the same quarter. It's more of a seasonal thing that changed. Talking about the other line, selling and distribution expense has gone up by 159 basis points. Which is because, like I said, we have been expanding into physical economy and B2B under the new initiative and also general trade, modern trade expansion. That is understanding our distribution expense.
In terms of employee expense, we added almost 35%-40% external manpower to support our business verticals in their growth ambition. We've also invested very strongly through our technology functions. It is a cost which should pay back in form of operating leverage anytime. Year-on-year, that shows an increase. Then finally, other expenses which is 108 basis points higher because like I said, we also invested into office connectivity and employee expenses is going in line with the employee headcount growth. In spite of these increase in the fixed cost, we have delivered higher EBITDA margin at 5% driven by operating efficiency and the checklist variable cost as I explained earlier.
As you move to next chart and just to give little bit more color on how the infrastructure investment also impacts lines below EBITDA. While EBITDA has more than doubled year-on-year to INR 51 crore, 112% year-on-year growth. Many of the cost lines, fixed cost lines in a nature are also showing similar kind of growth. Since we have invested into stores, warehouse, office, capital expenditure, depreciation has gone up by 96%. Even with the new leases coming up in these properties, it also shows in terms of lease accounting, impact into lines amortization and interest on lease. Both have also gone up quite significantly year-on-year. Then interest on borrowing has gone up because our inventory investment and working capital investment has gone up to support the business growth.
This shows that between every time period we have increase in fixed costs. In fact, if you see the bottom table, it also shows because of the Indian accounting, where there is a straight line method followed for all the lease costs in terms of the future costs and then they counted and spread over the life straight line method. While the cash lease cost is INR 28 crore, but the P&L takes a hit of INR 34.6 crore. In the initial period of leasing, there is higher cost in the P&L. Of course, that will unwind towards the later part of the lease period. In that case, these are also some of the future costs, but those are required to be put as per the Indian accounting, which is the standard we follow.
Finally, next chart talks about the unit economics of different verticals. I'm trying to compare one year generally for each of these verticals. Talking about the B2B first. Like I said, we have grown 39% on GMV year-over-year and 35% on revenue. If you also look at the unit economic parameters at the bottom of this page, in the take rate to GMV, it has, despite being a large business, improved gross margin by 300 basis points. That's driven by EBITDA to income on brand share going up and the favorable product mix like I said earlier. Similarly, that fulfillment cost has come down from 10.5%- 9.4%, almost 100 basis points improvement.
Marketing cost is the 10% plus kind of number has come down to 7.8% now in this quarter. Almost 200 bps improvement year-over-year. S&D costs are capped at 3.9%. With this, B2B has delivered almost 650 bps incremental margin on contribution level, which is quite significant for a large size business like this. If I look at the fashion business, even there the business has been growing aggressively and seeking a growth kind of stride now. With the revenue growth of 32%, if you look at the unit economics parameters here, gross margin has improved from 39.1- 44.6. Almost 550 basis points improvement in gross margin in one year.
It has also kept the fulfillment costs quite in check at 10.4% despite having pressure of higher returns. It has also kept the marketing costs under check at 25.0%. The only cost line which has increased, S&D, which is because our own brands are now expanding into general trade, modern trade, and various channels, third-party platforms. The commission that we pay comes in fifth of the selling and distribution expense. With that kind of perspective, the improvement in gross margin and investment to S&D, we have still managed to improve the contribution margin by almost 100 basis points from 1.3%- 2.3%.
It's a kind of calibrated growth that we are targeting in perfume and keeping our margins intact and not really going super aggressive in acquiring customers. Of course, at joint partners we did. As of now, being part of the B2B and being contribution positive. In terms of online, this is a mix of new business which we can't talk about. I think there the numbers will not be comparable year-over-year because B2B is a different model and it has come up in last three, four quarters. Year-over-year numbers from a B2C alone kind of model has changed to a mix of B2B and B2C here. I'll not talk much about it. At a suitable time, we should separate out B2B numbers so that we can talk about unit economics there as well.
The next chart is a summary of what I said so far. If you have talked mostly about year-on-year growth, I will try and explain the quarter-on-quarter numbers here. This quarter, we are reporting INR 131 crore revenue, which is a 7% growth sequentially quarter-on-quarter. In terms of the EBITDA margin, we are reporting INR 65 crore, which is 33% higher in terms of the sequential growth. Profit before tax is INR 8 crore, which is 5% sequentially higher. Five times is growth is the net number. I think in terms of H1, if we summarize it, in the final right-hand box, 40% growth on the revenue year-over-year for twenty...
Coming to EBITDA, which is for H1, is almost INR 107 crore, 92% year-over-year growth. More than double the growth of revenue, which shows the operating efficiency. 10 crore profit after tax, which is 113% year-over-year growth. I'll end the financial presentation here, and we will move to Q&A now.
Yes, sure. Thank you so much, Arvind. I now request the moderator to open the Q&A queue, please.
Thank you very much. Ladies and gentlemen, we will now begin the question -and -nswer session. Participants, to ask a question via web, please click on the Raise Hand button on the toolbar at the Q&A tab and click Raise Hand. The operator will announce your name when it is your turn to ask a question. Participants connected via audio call may enter star and one on their telephone keypad. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Nihal Jham from Nuvama. Please go ahead.
Yes. Thank you so much, and congratulations on the strong performance. Three questions from my side. I'll start off with the BPC segment, where, as you have highlighted, the contribution margin is something that has seen a significant improvement, whether you look at it on a Y-O-Y basis or over the last three quarters as we have the data available. I just wanted to understand that would this be the right unit economics to understand that the business can, you know, track going forward? And also, Arvind, if you could ballpark convert this contribution margin to what would be the EBITDA margin for reference perspective.
I think in terms of improvement in gross margin driving that contribution margin, that's quite good. I think at least 200 basis out of the 600 basis structural and should sustain as an advantage to us because of both online, offline channel and device and own brand is also contributing well. Very importantly, advertisement revenue is doing really well. In fact, you know, if you look at commentaries from various agencies, they talk about digital marketing taking a bigger share of their advertisement budget. That's good news. We should be able to continue to monetize it better. I think healthy gross margin is something that we are definitely looking forward.
In terms of fulfillment cost, we might invest part of the savings or efficiencies that we channel into better customer experience, but it should operate at a certain percentage kind of level. Marketing is a choice. In some quarters, we up the marketing spends based on brand building. Like quarter we expect to be a big season, so we might up it there. It should also operate, you know, with let's say almost 100-150 basis improvement year-over-year in that range. I think out of the 660 basis, 400-500 basis is something that bps structure, which should also logically flow down to EBITDA as well. Yeah, because EBITDA, we have added cost in terms of employee cost going.
Some of them are also investment in future, especially technology functions. Operating leverage might come over time. I won't be able to give more guidance on EBITDA number here because it's very dynamically. I mean, people cost is something that we dynamically allocate across verticals depending on the need quarter to quarter. It's a quite flexible resource. Maybe when we come to the annual results, we will try and separate out EBITDA also for you.
That is helpful. Moving on to the second question on the fashion business. This was a quarter where there was also some part of the festive period that's coming. We've seen a quarter-on-quarter fall in the orders that we've received. If, you know, you could just give some highlight on, you know, any specific reasons for that.
I bought in there. I think, look, what's been pretty good about the fashion business from a year-on-year perspective, the core platform which I mentioned earlier, which is growing at about 35% year-on-year, which on a base which is now significantly higher. Within that, the orders have gone up on a quarter-on-quarter basis. Yes, the sequential growth is more volatile than, you know, than the organic growth. Every quarter we're sort of taking the right decisions in terms of how much to invest versus how much to leverage in terms of a contribution margin positive. I think it's a quarter-on-quarter decision.
What I can also say is that we did start amping up the marketing spend and gearing up for festive by September. We definitely had different behavior for this buyer or different outcome in September. That was more us kind of mapping out our priorities in quarter two versus quarter three. We do know that usually quarter two is when we see the data on the fashion side is the best, whereas quarter three onwards tends to be easier to get seasonally, gives us better. For me, it's always also a question of phasing out the growth and when is the right time to dial it down versus not. A couple other metrics I'll share, because I think that was my other question, is on fashion we're also starting to see very interesting and strong repeat behavior.
This quarter, we reported to the exchanges earlier today, but in quarter two, fashion saw 66% of its revenue coming from repeat behavior. It's also a quarter where we're seeing repeat really starting to kick in. New customer acquisition is always something we can choose to accelerate. It's simply a question of how much we want to accelerate and what the pressure might be in terms of profitability with that acceleration. It's a choice that can be worth making.
Just one last question from my side was on the international businesses. If you could just give us some timelines of the launches and the potential, investments or maybe, some losses that may come out of these businesses. I'll come out to that.
On the international business, we have just recently entered into a strategic alliance with Apparel Group. It is now being rolled out in terms of setting up, you know, the subsidiaries and the operating entities needed to roll out that business in the region. I would think that the first store can be official within definitely next 12 months. E-commerce website may take a little longer or maybe similar time. Yes, we are in the execution mode. We really continue to build our business in the same proven style that Nykaa has always done, and our partners are also aligned with that plan.
Everything will be more organically, almost being treated like a startup in the GCC country that is trying to execute, you know, an omnichannel beauty or the brand retailer strategy in the region.
Thank you so much. I appreciate all the details.
Thank you. We'll take our next question from the line of Percy Panthaki from IIFL. Please go ahead.
Hi. Good evening, everyone. My first question is on the fashion business. So, the fashion market size is like five times that of BPC. We are a relatively new entrant, very low base, very low market shares. At this stage of our life cycle, the NSV growth being only 20% Y-O-Y seems a little surprising. I understand that a few other parameters that you mentioned are trending positively, but finally, they are means to an end, and the end is the NSV growth. So can you comment on what really is pulling down this number and what can we do to really push it up more aggressively? That's my first question.
I think, I'm gonna address this question in two ways. The first is, in terms of just talking about what part of the fashion pie we want. We all know that fashion is a massive market. By any estimate, at least for our size, that's a sizable beauty market. However, we wanna be extremely thoughtful about what pa rt of the pie we get. Absolutely can we grow a lot faster from a GMV NSV perspective? We can. We wanna be thoughtful about the quality of the customer we're getting, the average order values that we're getting, and sort of the premiumness that we're being able to deliver on.
I think this is a very tricky industry, and if you sort of, loosen your reins on what type of customer you want, I think your profitability can get impacted, faster than one realizes. What I would say as an overarching comment is that it's actually easy to grow a lot faster, but we're sort of taking a more measured, thoughtful approach, seeing that even if the fashion market is so large, we want a particular flavor that makes sense to us, that makes sense to the Nykaa DNA and the Nykaa strategy, which is to build, you know, sustainable businesses with clear path to profitability. I think the second point I was going to make is. Keeping in mind that, you know, there's a choicefulness in terms of the type of audience and the type of customer we want.
What I will also say is that comparing year-on-year also brings in the fact that last year had some COVID dynamics, which make it a base that is a little bit hard to compare to. There are two particular things I wanna highlight. About a year ago, and you know, even before that, in the peak of COVID, fashion and Nykaa Fashion in particular saw much lower returns than what we're seeing now. Those low returns we saw a year and some quarters ago were actually deflated returns that were not sustainable. As you know, world normalizes, return rates are just going up back to normal natural levels. I think the NSV to GMV ratio we're now seeing, sure, there is some improvement which is possible, and we're working on that, but this is a more realistic ratio that we see.
Our understanding from competitive dynamics is that the ratio that we have and the return percentages we have is still far lower than what the competition has. That's one thing, because base effect is a little bit non-comparable. The second thing is, you know, again, in terms of base effect, last year we saw very rapid customer acquisition on the fashion side. I think fashion, Nykaa Fashion in particular, most of the new wins gained from the COVID phenomenon, because it was a lot easier for us to acquire customers last year when a lot of people weren't going out and were online. I think one thing we're struggling with on the fashion side of the business.
Not struggling, but it is an effect is that we're comparing constant Y-O-Y base, which saw a lot of, you know, unique uplift in the COVID scenario than expected.
Yeah. I just want to comment and also say that our growth should not be judged as if this all that is possible for this strategy. I think there is a clear you know clear plan at Nykaa to try and maintain a financial discipline of trying to balance you know our profitability that we generate. That is plowed back to acquire new customers, both for B2C fashion or any other new business that we are building. Again, yes, in that light, you could say that you know the new customer acquisition for fashion could have been stronger or faster.
We definitely do see a pretty strong returning consumer behavior and pretty much both for fashion and B2B business, we do feel that if we can acquire more customers, it will be good for the long-term business, but we are trying to be disciplined about the pace of growth if I make sense there.
Got it. My second question is on the international venture. Firstly, as you mentioned, GCC market size is quite high. Per cap consumptions are significantly higher than India, so it's a much more mature market there. Unlike India, where basically you are the primary driver of developing the BPC market in India, you as in Nykaa is one of the primary agents of market development. I would put it that way. In GCC, your role is going to be different. How do you see your role in GCC?
Secondly, when the market size is so huge, and it's such a lucrative market, how is it that the e-com penetration is so low and people are mainly shopping online? Is this because it's a mature market, is this an established behavior, and that's how the market has sort of evolved, and therefore to shift people online is going to be something of a difficulty for you, in your view? I mean, any thoughts around. I know I'm asking too many questions. Within this question there are many sub-questions, but I mean, you get my general drift as to what I am sort of looking for.
Yeah. What I can tell you is that, e-commerce penetration for beauty business in that is also going up. I would not say that it is not. It is a market that geographically was not very widespread. If you were to exclude Saudi Arabia, then I think it was not geographically very widespread, and as a result, a lot of retail was happening through physical retail. Still there is already a lot of influencer-led commerce there, as well as a lot of penetration of e-commerce is increasing. We do see that it is again a very interesting market from adoption of beauty, adoption of e-commerce and ability. There is a huge socioeconomic changes happening in the country, you know, every country in the region, especially Kingdom of Saudi Arabia.
We do feel that it doesn't feel that you are too late in the game. It does feel like early days where, yes, there could be couple of players already established, but there seems to be room for more players, including someone coming out of India taking a whole bunch of brands that would be interesting in the region from, you know, what the brand has to offer perspective. That doesn't mean we won't do global brands. We'll be a multi-brand retailer that will retail both global as well as Indian brands with Indian origin.
Any guidance you can give on the total investment over a five-year horizon and the impact on the company level EBITDA margin due to startup losses of this venture?
It's difficult to give that because we don't have a very clear path spelled out. A lot of early work is going on. If we can build this business in a way where our near-term profitability of physical retail business can help us invest for the, you know, online business, that is how we would like to do it. Finally, the population size is also limited. I think it is more larger population countries that tend to be quite difficult in terms of building out an e-commerce platform. It's easier in smaller countries, but it all depends on whether there is a consumer and healthy consumption and are you able to appeal to that consumer and connect with that consumer.
We do believe that is the strength of our segment as a parent group, which is a very large retail with very extremely successful brands that they retail both for predominantly offline but also online. We do believe that together coming of this partnership gives us a chance to succeed in that market.
Right, Falguni. Thanks, and all the best.
Thank you. Our next question is from the line of Vijit Jain from Citi. Please go ahead.
Thank you for the opportunity. Congratulations on a great set of numbers. I have one question specifically on the fulfillment expenses. Arvind, you noted that there was a bit of that Q-O-Q increase owing to inflation. If I look at on a per order basis for BPC, this looks like a 10% Q-O-Q increase in fulfillment expenses. But on the other hand, for fashion, there is a decent decline on a Q-O-Q basis. I'm just wondering, does that divergence have to do with your regionalization of warehouse strategy within BPC and, you know, associated investments within that, or is there something else? That's my first question.
No, I think first of all, BPC and Titan are completely different scale of maturity business. They are not comparable in that sense, and also because the operating model is quite different in BPC versus fashion. I think, if I explain to you the BPC number itself, yes, there is some increase Q-O-Q because there's some inflation in the air shipment side of it. Also, because it's also a quarter just before the season, so we also make a backup investment so that we are ready for the season. Part of it will again unwind into next quarter.
Got it. Yeah, makes sense. My second question is on in the new initiatives what you classify under others that EBITDA waterfall that you showed obviously shows about 460 basis point of EBITDA impact margin impact from investments in selling, distribution, employee, et cetera, other expenses, et cetera. Obviously, there's a contribution margin for the other businesses as well. I'm just wondering is it fair to assume that there's about 400-450 basis point of cumulative EBITDA level impact with these new investments? That's the basic level of investment you're doing in these new businesses? Or is some of that also, you know, reflecting increases in other in beauty and fashion as well?
No, I think when we talk about the lines like selling and distribution, it's not necessarily only new business. Even our own beauty brands and fashion brands are also going into offline through modern trade and general trade, so even there the costs go up. Even the beauty advisors in the BPC stores, so that cost also comes in there. It is basically funding a recent migration for various businesses to replace the stronger offline player, running channel player. We should not try and see only a new business line. I think the overall impact of new businesses we have given the contribution this quarter is about INR 16 crore. Even if you annualize it, four quarters could be INR 78 crore. That's the level we are operating at. These are also on a high-growth stage.
As we scale them up, initially the losses will increase and then over time they will come down. I can't give you any specific number on new business investment, but we are funding it from our internal accruals. That's what it is.
Got it. My last question.
Sorry. Funding and distribution, it's just to say what Arvind said, that it's coming from every business because we do believe in GPMP distribution and a wider distribution, and that is what we are putting in place for whether it is beauty private label brands, fashion private label brands, as well as the B2B business that we are building, both for our own brand as well as for partner brands. Because we believe that, you know, if you look at any data, there was a large part of the market which sat outside of both online and modern trade, and we want to be players in that, in the beauty area. I think that is the theme.
Got it. One last question, just on the working capital side, the net change in working capital that you have in the first half of this fiscal year, should we think of that as kind of inventory build-up before the festive season, and all the sales that you have, in the post-Diwali, sales that you typically launch? Is that how I should look at it? It's inventory, partly inventory build-up and partly some of the other investments?
Yeah, I think.
In the change in working capital.
You know, working capital is much flexible and we have made investments into inventory for sure ahead of the season. That's also definitely part of the reason it should unwind in quarter three. Also because we opened three new warehouses in beauty and even in B2B Nykaa Distribution, we opened many new warehouses. As we open more procurement centers, we have to stock them up to make the regional availability up. Initially there, you know, catch-up investment to be done and then that gets stabilized over time. Right? Before the season we are expecting better Q3 WC. Also within the existing warehouses, we are stocking up much strongly, you know, before we hit October sale or November sale.
Got it. Thanks. Thanks, Arvind.
No problem. Thank you.
Thank you. Our next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead. Ms. Sheela Rathi, could you please unmute your audio and go into your question. It looks like you've muted your microphone. Can you please unmute and go ahead with your question? There seems to be no response. We'll check the connection for Ms. Sheela Rathi. In the meanwhile, we'll move to our next question. That's from the line of Sachin Dixit from JM Financial. Please go ahead.
Hey. Hi, congratulations on the recent set of results. I had a couple of questions. The first one was with regards to the marketing spend. I know there were some brand marketing spends that had been marked over this quarter, which seemed to be minimal. Is it possible to break down the marketing spends between, say, an influencer marketing and what a customer acquisition cost or performance marketing spends would be?
We are not giving those kind of micro cuts and details into how we spend the marketing. We can definitely say that 80%-85% is digital marketing, I mean digital channel, digital marketing and content marketing. 10%-15% tend to be more above the line and brand building kind of spend, but that varies quarter to quarter.
Okay. Okay. I'll pass on this. On the next question, like, Sachin, we have more and more regional warehouses. I remember earlier we used to share, like, how many orders were getting delivered within two days, next day and stuff like that. Is there any movement on those metrics as well, thanks to the regional warehouses?
In fact, with the, like, function of fulfillment centers getting closer to customers, that metric is only improving, and we are at industry standard in terms of being able to deliver almost 98% shipments in less than five days. Of course we deliver a lot faster in like metro urban and overall we've been able to deliver 98% shipments in less than five days.
Okay. Just one last question.
Yes. Distributed warehouses will only improve, so by maybe next quarter we'll share some numbers.
Sure. Just one final question. There is a sharp drop in trade payables during the half yearly balance sheet data. What's the reason for that maybe?
Yeah. You know, it's like this, while we have good suppliers, which are like big companies and they are friends for efficient and working capital. We also have large B2C suppliers, and we want them to stock up, sufficiently invest in the manufacturing line and then they supply to us. We have been able to really pay them faster so that they can also ramp up their inventory.
Got it. Sure. Thank you so much.
Thank you. Our next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead.
Yeah, thank you very much for taking my question. My first question was with respect to the initiatives you have taken last quarter with respect to the Everyday Value offerings. Just wanted to get your perspective in terms of how you are doing on this front, and what is the kind of customer traction you are getting?
Hi, well, I'm Vishal on the call, maybe I can take that question. Sheela, what I would say is that it's been as we discussed in the past, we've wanted to given that we are already very well established and a dominant leader on the beauty side of B2C, we also want to create a sizable business on the personal care side. Reason is that we believe our existing customers can transact with us at a much higher frequency if they begin to buy personal care products on our platform. That was really the genesis behind Nykaa Everyday. What I would say is that it is bearing fruit. Obviously, we don't disclose, we're not breaking it out in any real fashion.
What I can tell you qualitatively, it is bearing fruit, and we are seeing consumers who previously only looked at Nykaa as a beauty or as a cosmetics retailer now looking at us more holistically for their more personal care needs, including haircare and skincare and other categories. I think that reflects in our category mix, where now makeup and skincare are, you know, equal parts of our overall business and other categories like haircare and fragrance, deodorant, wellness, oral care is also growing for us. I would say that is playing out nicely, and we are putting a lot of effort into driving that initiative.
I do believe that with the regional rollout of warehouses that Arvind spoke about, that will only help further improve our commitment to faster delivery for our consumers, which is slightly more important when buying more personal care items than it is when buying more expensive beauty items. I think as the regional warehouse strategy continues to play out, that will have additional benefits for our Everyday strategy.
Thank you. Just a follow-up here. Do we have a number in mind with respect to the rollout of fulfillment centers or warehouses in the next few quarters?
No, it's early days. At the moment, we are going into five, six large states. You know, states like Uttar Pradesh and some of the other bigger states. Then based on that experiment, we may take a decision to go into further next states.
Understood. Just one more question. Yeah, sorry.
I think that we have added three different capacity fulfillment centers. Generally the cycle follows in a manner where you try to put up these centers in H1 so that you can really use them in H2 when the season picks up. I think most of the investment for this year is kind of done. We might add a couple of more, and I'm talking about beauty side of things. Yeah, of course, in distribution we will have to keep adding even in the build out phase. I think if you look at our IPO objective and how we raised the money and what we declared there, we have given the schedule of utilization of IPO proceeds into fulfillment centers.
One third of that is utilized by now, 2/3 is going to be utilized in next two years. That kind of gives you idea how we are building out the capacity.
Understood. Thank you very much, Arvind Agarwal. Just one more question here on the beauty side. With the complete reopening happening, especially in the last, you know, few months, what is the kind of customer traction we are seeing in the physical stores? And, is there any shift with respect to demand moving away from, online to offline? And just a part of it in terms of delivery, are we still calling the hyperlocal delivery model now where we're using inventory from the stores to deliver to the customers in that locality? Just a question, and that's it from me.
Maybe I think to be honest and others can add. Sheela, what I would say is that, you know, we did see a strong rebound in physical retail in the beginning of the quarter. But to our pleasant surprise, it doesn't seem to be cannibalizing e-commerce business. Both are growing at a healthy clip, and I think that's reflecting in the beauty vertical GMV and net revenue growth numbers that you've seen year-over-year. You know, we have to keep in mind that online penetration for beauty consumption in India today is still so low, less than 10%. 90% of beauty consumption happens offline.
Even if there is a rebound in offline, there is this macro trend in India, which is the move, the shift from offline to online, which is inevitable, and that trend continues to remain. I think in some other mature markets where there is cannibalization and the demand does shift from online back to offline, in a very nascent market like India, where penetration is still so low, not only for beauty consumption, but especially for beauty consumption online, this macro trend, we believe, will continue to play out. It's reflecting in our numbers, both online and offline grew at a very healthy clip. Yes, I think retail has rebounded nicely with the pandemic clearly easing now.
I'll just supplement it. If you look at the beauty growth chart, I think over last year it went up about 32%. This year we have grown about 39%. There is catch-up, which means that people are going out and shopping in offline, but at the same time they continue to shop online. I think omnichannel has really helped. I think with government is coming in and COVID-free shopping, our growth rates have actually improved in beauty business.
Miss Rathi, do you have any more questions?
Anything on the hyperlocal delivery model?
Yeah. You know, hyperlocal, like, it was used during lockdown period when you know, instead of getting the inventory, because in our industry, like, air conditioning is needed for many of the luxury products. During that time when the malls were shut, we used hyperlocal, and that was a capability that was available to fulfill from there. Because on average we have 4.5 items in a cart, it doesn't make sense for us to fulfill on hyperlocal. Plus our stores are very extensively located and not conducive to packing and shipping, you know, products from there. This hyperlocal is being used only to manage certain slow-moving inventory, and we really fulfill from our warehouses.
Thank you. That's it from me.
Thank you. Our next question is from the line of Garima from Kotak. Please go ahead.
Thanks so much for the opportunity. My first question really is on the B2C segment. Now, when you showed the contribution margin calculation, which in 2Q FY 2023 was a 24% contribution profit margin to revenue, does this also fully account for the rent that is payable for the physical stores that you operate?
Can you just repeat again the question?
Sorry, my question is.
Garima's question is progress to the contribution-
Understood. Rents for the stores come below EBITDA. Like I showed you EBITDA too, you know, EBITDA. Because these are long-term leases, we count them as a linear amortization cost, and there's also an interest element to this, so it doesn't come in contribution.
Understood. If I have to really see profitability, I understand that rent is a fixed cost, but to some extent it is variable because the more stores you open, the more rent you will need to pay. Ultimately some kind of an adjustment should be done to understand the contribution profitability better. Anyway, that is, that point is clear. Second question really was, could you help us understand the period ending debt and cash? Because sometimes these items sit under multiple heads.
It does look like you've consumed a fair amount of capital during the first half of the year. How should we look at this going forward?
Yeah. Cash balance at end of September is about INR 355 million. You are right that we made significant investments in first half of this year. You see most of it is working capital. This should unwind in next year. Of course, there is CapEx also, but CapEx is not very big element. Two-thirds of these investments are going to working capital.
You're saying there are some seasonal factors here.
Yeah. There are some payoffs for acquisition fees we gave. The dashboard you'll see almost INR 70 crore that we paid out for Acuva and Unbiz acquisitions.
Understood, Arvind Agarwal. Thanks so much. Those were my questions. Thank you.
Thanks.
Thank you. Our next question is from the line of Jay Gandhi from HDFC Securities. Please go ahead.
Yeah. Hi, thank you for the opportunity. Just a couple of basic questions I had. This is on the unit economics. In fashion, given that it's a marketplace, I'm yet to get a handle on it. I'm saying you have a certain take rate that you charge, and then from that you kind of have your expenses of, you know, fulfilling, marketing and stuff. I assume that in a marketplace model, fulfillment costs are typically a passthrough. Just correct my understanding if I'm wrong.
Actually we couldn't hear you. Your voice is cracking. Yeah.
Mr. Jay Gandhi, if you're on a hands-free mode, can you switch to handset and speak, please?
Yes, sure.
Your audio is a bit muffled.
Can you hear me now?
If you could repeat your question.
Yes. Can you hear me now? Am I audible?
Yes.
Better.
Yeah.
Thank you, sir.
Yeah. I'm saying in a marketplace model, I'm talking about fashion, isn't fulfillment expenses, fulfillment costs are passed through? I'm wondering if so, then why do we have a fulfillment expense line item in the first place?
It's a mixed. You know, there are many brands who, with whom we work kind of on a more holistic margin structure in which the fulfillment fees split out, and then there is, you know, small number of brands in which we split it out. It needs some way to read the fashion P&L. If you can go to that presentation on this slide, I can walk you through it.
Sure.
Let me pull it up. Yeah, right here in the second column you can see, if I can draw your attention to the bottom five rows. This is kind of the apples-to-apples way of looking at things and not really on revenue, because revenue will now be impacted by the commission and such marketplace mix structure that affects that number. But in these bottom five percentages, you can see that 44.6% is the margin that we're getting, typically from brands. This includes, you know, product margin, it includes ad income, it includes services income. But what I would say is that not all brands, you know, follow a very consistent structure. From some we get, you know, one overarching margin which includes all inclusives. With others it is more itemized.
This is the all-inclusive amount that we get from brands, and then we make our, you know, expenses, whether that's fulfillment, whether that's marketing and so forth. Does that make sense?
I'm a bit confused. I'll probably take it later. Second is, you know, on the eB2B store, I wanted to understand in steady state, what does the working capital of that business look like? Is it a negative working capital business or is it, you know, a positive one or a deeply negative one basically, or a neutral one?
I think in the long run, of course currently it is in that build out phase. Our inventory is around INR 45 million, and we enjoy 30 days of credit from the suppliers. There's some investment there. In the long run, in this business actually it is possible to have negative working capital because you still enjoy negative trade credit, but you build out a network which will supply to these retailers, let's say almost every week or alternate week, which means that you'll be able to monetize it faster than what you stock up and pay to retailers. It's possible to have negative working capital, but that is few years away in my view.
Got it. There are no receivables, right? I mean, not meaningful.
Sorry?
No receivables, right?
I mean, even if we give credit to the trades, it will be financed by the NBFC partner. We do the order of prepaid or cash on delivery. Should the retailer choose to, you know, enjoy some credit of let's say 15 days, then we pass it on to NBFC partner to fund them. It's not our receivable at all. We do cash business.
Fair. Well, thanks for this.
Thank you. Our next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. Am I audible? Hello?
Yeah.
Yeah, yeah. Thanks for the opportunity. My first question pertains to BPC store expansion strategy. We have now 130 stores in 53 cities. It looks like we are going for width over depth in the store expansion strategy. Just wanted to know the insights we are working with on the same.
Yeah.
Yeah, go ahead.
Maybe I'll kick it off. Yeah, our current status, today we are sitting at 120-150 stores across 50 cities. We do believe that it is already quite a wide footprint, as you were saying. Now, with regards to depth, you know, certain cities like whether it's Delhi, NCR or Mumbai or Bangalore can have up to anywhere from six to 10 stores, whereas smaller cities might have just one or two. I think we're taking a very measured approach. We understand the market well. We know where the demand lies, thanks to our e-commerce platform, and we know where the customers live. Our focus is to build the stores where we know there is demand for the brand which we are selling.
With the two formats we've got, the non-beauty store format as well as the on-trend store format, we know which catchment requires which format of stores. Given our current formats we have as well as our current understanding of the market, we believe that, you know, as we've said before, probably we're about 200 plus stores are doable within the next couple of years. We're well on track to achieve that kind of rollout. It should be across the top 100 cities, Tier one, Tier two cities. We will probably open the remainder of the stores across until we get to the top 100 cities where we do see strong demand from our online business as well.
You know, conceptually, we have a format where we are destination stores rather than neighborhood stores for now. If we would change that strategy, it's currently we are very focused on beauty as defined rather than personal care, and we are very focused on being destination stores.
Got it. Second question pertains to our inventory. In fact, I have slightly different read on our inventory. Considering that Diwali and festive season is in Q3, and then also the fulfillment centers, number of fulfillment centers have also increased considerably, I thought inventory has actually not gone up much. Just wanted to understand how seasonality plays between Navratri, Diwali and festive season. If you can help us understand how we should build our inventory build-up going forward.
I think on the beauty side, Anchit can say more, but we work on about a 45-day forward-looking inventory. We also for imported brands and our brands, we may have as much as 60 days inventory. Within that, we keep trying to optimize and buy the right inventory. For us, in fact, starting with Navratri, the busy season starts. It's. At the same time, our peak event is in November.
Yeah. I think it's a two-step step up. One step up happens, let's say, September end or beginning October. The second step up happens in end of October for, or rather beginning of November for, our biggest Q4 in November. That will unwind towards the December. Part of the step up you will see in December, part of the step up you won't see in quarter number, because that will unwind within the quarter itself in Q3.
Sure. Last and final, the third question, if I may. Other current assets have increased to INR 130 crore odd from March balance sheet. What does this pertain to?
Okay. Other current assets have increased because we have paid some more advances to suppliers, and that's because again, especially on our own brand, we need to revert to the supply chain from the import space, importing the raw material chain. And since own brand is now picking up as a business, we have paid some advances there. Again, it's more a working capital investment and should unwind in quarter three. There's also increase in GST balance, which also sits under the same grouping, balance with the statutory authority. In line with inventory going up, GST balance, GST input also goes up. Again, that's also a timing difference. Once we trim the inventory, then we'll be able to offset this input against our output section.
Got it. That's all from my side. Thanks, and all the best.
Thank you. Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments. Over to you.
Hi. We'd like to close this quarter's earnings. If you have any last comments? Any comments?
No. Thank you everyone for being on the call and patiently listening to our presentation and our sharing of our business updates. I very much appreciate it. Thank you very much.
We'd like to thank Morgan Stanley for hosting the call for us. This marks the end of the call. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of Morgan Stanley, that concludes today's session. Thank you for your participation. You may now disconnect.