FSN E-Commerce Ventures Limited analyst Q&A

Hi! Good evening. I hope you can hear me. Hi! This is Kapil from Nomura. Thanks for giving me the opportunity. My first question is on the margins, you know, we talked about adjusted EBITDA margins. If you could just help us understand whether these items that we are talking about; the ESOP expenses, and GCC business or other ex-corporate restructuring expenses, Are these non- recurring in nature and should we expect, they will not be there from next year, and also, how much is the revenue contribution from GCC right now?

I I'll take the question. What I can say is that GCC, was literally launched in this quarter that we are talking about fourth quarter with the you know, website going live just in early January and the store going the official launch happening in March. So, I think the true results and revenue of GCC will start flowing in through this year, and as we progress in the year, we will share the information you know, with the investors. So, it's just you know, the business is just beginning, and we'd like to share that as that goes, we do believe that it can be a very significant business over period of time, because it's a market with a clear possibility and opportunity for a multi brand beauty retailer. And it's a market with high affinity for beauty, high per capita consumption, very rapid growth. The profile of the consumers is also changing. And also Nysaa’s current launch has appealed to young consumers from all of the segments. So, I think early days to talk about the revenue, and the effort will be to give that information every quarter in a particular vertical called others vertical, which normally houses new businesses. On the other question that you asked about ESOP, you know, obviously, like you were asking more about adjusted EBITDA. So corporate restructuring is a one- time cost. So, I would say that the difference in margins, which is almost 120 basis points, about a third is clearly a one-time cost and non-recurring. The second one is ESOP, which is likely to continue at similar levels going forward, but a lot of companies highlight adjusted EBITDA after accounting for ESOP cost. So Nykaa, wanted to throw light on that. And the third one is GCC, which is obviously gonna continue. And we do believe that we can build this business. It's such a unique market that the business can be built in a manner with which there can be revenue and profits can materialize much faster than in other markets. But I think we'll throw more light on it on our annual day.

Falguni mentioned the primary reason why we have shown this separately. Is that these elements were not there in the base. So just by way of reflection, in terms of the improvement which has come about in the base business. Again, as Falguni mentioned, some of these elements are non- recurring, some other elements will continue in the future. But there's more to give visibility given that they were not there in the base.

That's helpful. And I would assume most of these elements are not there in the gross margins. Everything is below the gross margin, right?

Yes.

Yeah, that's right.

Okay, So, I mean, what we have seen for the year is, you know, we've grown at about 25%, and we have seen an 80 bps improvement in adjusted margin. So is that the kind of trajectory we're looking at in profitability every year, or you think it can be much faster as we move ahead.

I think we don't like to predict the future. But what we can say is that we have seen our growth momentum accelerate in the fourth quarter of this year. I think the growth momentum has accelerated, partly due to, you know, strategies that Nykaa is putting into place in terms of more aggressive customer acquisition, growth in many of the verticals, it is also coming from our businesses, becoming better with every passing year, and we getting better opportunities from the environment, like, we talked about a lot of new launches, a lot of exciting category growing initiatives that we are doing. So, it's a combination. Our technology continues to improve our personalization efforts and impact it has on our ability to grow business ahead of just the mere visits that we can deliver. So, I think there's a lot of contribution to that growth and we feel that we should be able to continue growth trajectory at a similar level is what we would aspire for. As far as the improvement and profitability is concerned, we do believe that the main a bit of margin improvement will come as our 2 of our new businesses, fashion and superstore business, they increase the contribution margin, you know, of both the businesses goes up from being small, currently, which we've shared, and it'll be there later but we share every quarter. So, it's quite small. In fashion, it's at about 5 to 6% level. It can gradually go up. And the main item that will where the cost will come down, besides many other elements. But one of the main cost-element would be marketing costs which can slowly and steadily come down over next couple of years and similarly, on eB2B also, which is, we call, the superstore business, there is a clear path to profitability and accretive margins.

And, just lastly, I wanted to check, you know, growth in fashion from existing customers was much stronger, I believe, than the new customers. And I think beauty also showed very strong growth from existing customers. So, what is driving this? And do you think that growth profile for the business can be similar in next few years, with their existing customers, have a lot more growth too often.

Yes, Anchit, do you want to take this.

Yeah. Yeah. What I can say is that it was a strong performance on both fronts, both new customers as well as existing. I think, we invested behind new customer acquisition this quarter, which is something which we'll also indicate in the past. There are many, many customers out there who are yet not shopping beauty online and Nykaa as their first destination for them to be introduced to the world of beauty. So, there is a lot of opportunity for us to continue to acquire new customers. I think we really accelerated that. And we saw the fruits of that labor play out in Q4. Existing customers for us, you know, we've always said we have a very, very loyal, sticky consumer base of existing customers. We do a lot of CRM initiatives to ensure that our existing customers continue to interact and engage with the platform. You can see that from the sheer number of visits we get. We get over a billion visits to our platform annually, and that comes from you know. That comes from obviously much fewer visitors. So, the number of visits per visitor on our platform is close to 50 times in a year, so almost 4 and a half times in a month. So very engaged, repeat customer who is also increasing their consumption on the platform. with every subsequent purchase, there is an improvement in the cohort. So existing customers already being a large base, highly engaged we are seeing that they continue to account for a lion share of the GMV. But that being said growing new customers is equally, if not more, important to us, and we are investing behind that.

Thank you.

Yeah. Similarly in fashion, I think. You know, actually, it was a serious effort we made over the last couple of quarters to improve the repeat rates. So, it's a lot of detailed work that's been going into improving every single part of the cohort. And this increasing share from existing customers corresponds to significant improvements in the cohort. So that was part of the strategy that we wanted to make sure that we were being able to get our repeat engines in place. Because I think at Nykaa we're a big believer that once you acquire the customer you need to make sure that they stick with you and deliver that long term value. So, we're feeling good about the mix actually repeat, and new and we sort of know that we can always pull the lever on accelerating new customer acquisition as well. But for us, we're always, you know, we kind of want all the metrics to move together. We want the repeat rates to go up. We want the new customer acquisition to go up, and we want the marketing expense to put come down. So, it's kind of a math and an equation that we're trying to do every quarter to deliver on the right mix.

Thank you very much.

The next question is from the line of Amit Sachdeva. Please go ahead.

Yeah. Hi, good evening, everyone, and thank you for taking my question. So, my first question is on, you know, gross margins, and I see, you know. Obviously, growth has accelerated in the fourth quarter, which is an excellent sort of, you know, basic acceleration, I would say Congratulations for that. But I also see that, you know, there's a gross margin journey for both at the company level as well as I think, at the BPC level it has, I would say, come down YoY. So, my question is that, is it a deliberate strategy? Or there is something which is at the part of the mix, or more discounting, or something else, as going on, that is, either one off or sustainable in nature. If you were to accelerate growth. That's the kind of more normalized gross margins, or how do we see? Because I agree that the growth acceleration is much more respectable. But how do we think about it? But what cost It is coming and how we should think about the next year on that aspect?

I think I'll go from a marketing answer perspective, and then I'll ask Anchit to add if he'd like to. But what I can say is that you know from I think Nykaa has taken a call to pursue, you know, there was a time when, because the repeat customer behaviors were good, and repeat customer orders were growing, we were optimizing for overall revenue growth and not for new customer addition. I think clearly we've taken a call to pressurize equally for new customer acquisition. And at the moment, you know, we are saying that we will not, try to optimize for marketing costs, but grow both repeat customers and new customers at its individual pace of growth and that means some amount of investment is being made in new customer acquisition, which is funded from, you know, under the way the rules are, it's not. We are not able to put some of those expenses in marketing costs, and instead they go out from the gross margin line. So, there is some impact of that which is built into that also. The BPC segment is not just the pure e-commerce, but it is a combination of e- commerce physical retail, and our beauty private label brands. So, I think the number is very difficult to really exactly compare. It has influenced from a number of reasons. You know, new customer; acquisition can impact it. Private label growth initiatives can impact it. And also similarly, you know, it is a combination of number of things, including advertising income, also.

Got it.

But I think we do believe that it can. It's at a good, healthy level, and it can definitely sustain. And, in fact, obviously every company will try to improve it.

Maybe to close out the point at the Consolidated Level, Amit, It's predominantly a business mix change as you saw the Others segment is growing much faster than BPC and fashion segment, purely because it is a very large TAM, and it is coming off of a much smaller base. So as others segment continues to grow faster than BPC, and obviously that B2B superstore business has a lower gross margin profile that makes this kind of shaking out this way. But in the in the BPC segment in particular, as FN explained, it's 3 very different businesses online retail, offline retail, and owned brands. and there is, some impact of that makes within the BPC segment. There is also some impact of, as we mentioned, there is a new customer acquisition. An investment that we need to make that currently gets accounted for above NSV and not within the marketing expense line item, you know. So that is also playing a role. And third, you know, there is, you know, brands are choosing because of the muted demand environment. They have chosen to accelerate brand funded discounts which does come at the expense of advertising dollars right, because it's fungible for them whether they spend on discount or they spend on advertising. It's difficult for them to do both at scale. So, some money that used to go towards advertising is going has gone towards discount this year. I don't think it's a long- term trend. Brands do not like it at all. They are very keen to stop it, but they do need to see a revival in the overall demand outlook, not just on Nykaa for that to for that to change.

I just want to remind that the gross profit margin is improved sequentially for the beauty business in the fourth quarter, compared to earlier quarter, third quarter. So, we're seeing some revival. But I think it should be clear to all of you that we are upping the investment in marketing, which is up from 7.9% a year ago in beauty to 9.0% now and overall, at the Consolidated Level also, it has increased from 10.8% to 11.3%. We would like to see this extremely positively, because our marketing investment pay off quick within a very short term. So, we think this should be taken as indicative of a strength that we see in our ability to recruit right customer with the right profile with the right unit economics for us to feel so confident, to recruit at this level.

Thanks so much, FN, and I think that's I would agree with that. That's the right strategy. So, my related question, then, is that. Shouldn't we more double down on it, for example, you know, if I were to construct, a bit of simpler sort of analogy here that you are a business who's recruiting customers on behalf of every other branded that sales on the platform. And you do that by way of customer acquisition and marketing spend. In some sense, then brands should partner with you in recruiting those customers because they benefit from that. So, in some sense the advertising income is that a source of that spend indirectly or directly. So, what I was thinking was, is there another way to think about this, where advertising spends can be funded through, maybe co creation or value of some sort with brands that they need to also partner with you in that, and you double down on that investment rather than worrying about that investment. I would agree with that should be perhaps accelerated even more to retrieve, more consumer base. That raises the power of platform. So how do you think about that? You know, in terms of, you know, sourcing that money where the advertising, the, you know, marketing spend dollars comes from? And can it be passed on to brand slightly, more actively.

It is being done. So, I think if you see the individual presentation in the beauty section we talk about talked about 3 big initiatives on CSMS, healthy hair habits as well as prep, you know, the makeup color cosmetic routine on, you know, Prep the skin and all of those had more than 200 million reach of the campaign, and led to pretty accelerated group of individual segments. So, I would say that we are doing exactly what you're suggesting and it's being accelerated clearly. This is the chart I was talking about and you can see the impact of it like sunscreen growing at 65% year on year on our platform, and as a result, a lot of sunscreen brands are also growing well in the ecosystem. You know the ones catering to this. So, I think there's a very big effort that Nykaa is doing, and we remain quite excited overall beauty consumption is so low that I think we could generate multi year growth and we don't see competition. We think that the market has enough play available to continue to grow it and benefit for as Nykaa as a frontrunner, and whether it is like this kind of marketing campaigns ability to have brand partners and brands that can benefit and grow on our platform as well as, you know, the tech platform and customer engagement and customer, you know, databases that we have where we can sell like we've always said that it's not about selling yet, you know, Kajal to the next marginal customer, but it's all about selling more products to the already existing database of customers, and that leads to repeat behavior. And we're trying to match the new customer growth also to that healthy repeat growth. So, I think we are really trying to optimize for the best possible outcomes.

Great good that's very helpful. Thank you so much. And lastly, if I may. Just advertising, we went to a new model of more tactical, and you know, from more valid based to being more tactical and view based. Has that started to, you know, make a big change in the way advertising was bought, and you were able to monetize it. Is there something that you would like to share.

Yeah. So, I'll ask Anchit to answer this, but before that, I always like what Anchit says that, you know, if we were to say that advertising income will go up, we are almost saying that the ROAS, for the brands will go down because we won't convert adequately. So, our effort is to keep capturing bigger and bigger marketing income, but deliver high revenues against that. So, I think with that I hand over to Anchit to say this, what do you exactly say at every meeting.

Yeah, I think you summarized it. Well, I think Amit for us, you know, launching the ability for brands to buy more lower funnel ad real estate. So, PLAs and such was really a push towards giving brands more opportunity to serve ads, lower down in the consumer journey, when the intent to convert is higher. So, in a way, it is to try to help our brands to maintain and improve the return on ad spend on Nykaa, because longer term brands will prefer channels where they see a better ROAS. So, we we're not looking to increase the ad dollars and not see the same incremental growth in revenue. The real goal for us is to have revenue growth and ad dollar growth in line, and some of the features like PLAs that launched as well as some of the personalization work we're doing, and some more initiatives that you'll see soon are all in order to help brands realize better ROAS so that they are able to spend more absolute dollars on the platform and you know it is journey building an ad platform in houses is a tremendous amount of tech work and development, and I think a lot of the heavy lifting is done, features are now out and available to brands. There is a bit of change management to do for brands, to understand the value, and to really come up with the right marketing constructs for them. But there is very good early adoption, and we'll continue to focus on really moving ad dollars into these new ad opportunities and not being so heavily dependent just on selling banners on the homepage, as you said. So that is a process it takes time, but brands have appreciated that we're doing this for their benefit. And I think, as this price intensity that brands are facing amongst each other as that subdues, as that resides, then you'll start to see those dollars moving back into the ad income bucket.

Got it. Thank you so much, Anchit. Thank you, FN. Congratulations once again for great set of numbers. Thank you.

Alright next in line is Percy Panthaki. Please go ahead.

Hi! Am I audible?

Yes.

Yeah. Hi, this is Percy Panthaki from IIFL. So, firstly, I have to congratulate you on your category building efforts and your growth in the private brands. However, we are an audience of investors and analysts and profits do matter a lot in our evaluation framework. So, the FY24 EBITDA, I was just looking at the model I had 2 years ago. The actual FY24 EBITDA has come about 40% below the estimate I had 2 years ago. I don't think this would be too different versus what the consensus would have expected at that time, either. Apart from the losses in the other businesses. Even the BPC EBITDA margins seem to have peaked out at low double-digit levels versus earlier expectations of mid to high teens in the medium to long term. The overall company EBITDA margins has increased 100 basis points over 2 years. So, my question here is, are we, as analysts and investors, quite disconnected from reality on the profitability part of the business, or have your own EBITDA estimates too reduced versus your original expectations and in case it is the former, I think the IR function of the company should make some effort to not keep estimates completely divorced from reality. I can understand that you may not want to give a guidance, but if the consensus estimates are nowhere near achievable, maybe sharing your thought process on profitability will help. So, for example, consensus estimates for the company overall build 450 basis points EBITDA margin expansion over 3 years versus a hundred basis points over the past 2 years. Is this within a likely range of outcomes? Your thoughts on this, please.

I think you are going back too far. I think, you know, during Covid times what the outcome and outlook was for e-commerce was very different, I think. We have said that e-commerce growth last year especially, you know, for this year ended March was little bit below long-term trajectory, and we expected to revive, and some more of work needed to be done. But I think, as we look at the near-term expectation of all the analysts for FY24. I think we are pretty much in line with what the analyst expectation. So, if you want, I think we can connect with our IR team, and we can show you what we see in terms of expectation and where we've come out at. So, I think, of course, you know, it's businesses are managed for long term growth and long term value creation, and sometimes a short term expectation of every analyst may be slightly, but I think overall, if you look at the consensus estimates, we are quite a bit in line from a near term perspective. For 2 years trajectory, it's difficult to say. I think what probably was not very well built in was you know, definitely in fashion where we thought that during the Covid time the growth came in very easily and post Covid, I think the physical fashion market was quite strong, and as a result, you know, the ability for fashion portals to grow and, you know, get to the right size, of course, slow down, and I think it's a very large business, and lot of it is marketing optimization. I keep seeing again and again, that marketing optimization to achieve the right results. And then the markets are larger. It takes time to get to those optimizations. And in the bargain, what very often happens is that you discover certain wrong categories, wrong customer segments that you may have betted on, and you choose to, you know, not focus on those and choose to focus on the right segments. So, in the market it looks like a noise, but underlying right segments are always growing the way we look at it. Sometimes, you know, entry and exit out of a segment that we reject ends up creating a noise of not adequate growth. So, quarter to quarter growth has seen from outside from an investor perspective tends to be slightly different than how we look at it internally where we look at it by category segments, and of course, you know, we obviously look at all of these, even versus android, IOS app versus mobile and versus mobile web. So, it's a combination of so many things that it's not a number, you know. It's a consolidation of a lot of numbers, and many things impacted.

Sure, Falguni. The only reason that I'm asking this and belaboring this point is that the consensus expectations is really a 450 basis points on the overall company level over a 3 year. I can understand quarterly estimates, etc. I'm looking at medium term, a 3 year basis of around 450 basis points versus the history of about a hundred basis points over a 2 year. So that's like, on a per year basis. What you've achieved is approximately 50, expectation is 150

No. But why are we looking at the past? I can't go back to understanding what consumers understood then. Also, like I said, there is a private label brand component in there. There is a dot com component in there. There's a physical retail component in there. So, there is a lot of combinations there. So, it is not a very simplistic way to assume. I don't know from IPO time but definitely, if I look at the near term expectation of what were the expectation this year which we have looked at, we think that the investor understanding of our business model has improved over last one year, and we are trying to make sure that happens.

Fair point. The only reason to bring up the past is that do we see an acceleration in the margin expansion versus what do we delivered? Or is that something that we should align with a historical number.

It's very difficult to answerover this thing. If you want, we can meet for few minutes that we can commit.

Maybe I can add, Percy, if I look at what was the BPC Segments margin, gross margin in Q4FY21 or even FY22, say 2 years ago, it was at 44.1%. That number is now at 46.8%. Right? So you're seeing almost a 270 basis point improvement and if we disclose contribution margin, if whoever's controlling the slides can show the contribution margins over the past 2 years the number was for BPC segment 2 years ago was, I think, yeah, so FY22, 2 years ago, the BPC Contribution margins is 21.7%, right? So even there, not only at gross margin, but even at the contribution margin level. The contribution margin for BPC has increased by almost 400, you know, 380 basis points. So more in line with what you had mentioned. And these are very, very healthy margins contribution margins for a retail business. Well, for a retailer plus their owned brands business that's still small, but growing within that. So, we feel that BPC segment margins are quite healthy in this range and you know, maintaining margins in this range, while also investing heavily behind new customer acquisition and you know, remember customers who are being acquired for the first time in Nykaa, generally tend to be new to the categories, so there is a lot of work to be done on them to improve their average order values over time, because, you know, they're new, they are shopping limited assortment there. They need a lot of work to get them to higher AOVs and higher ACV over time, and I think, the fact that we've managed to keep still deliver growth on margins, despite accelerating and acquiring many more millions of customers and continue to expand physical retail stores and take more and more brands shows you that. You know, it is clearly a focus area for us, and it has moved considerably at the Consolidated level. If the Delta is appearing less, it is in part, because eB2B has grown faster and has grown to a size and scale that, whereby now it is having an impact on the consol. margins, Right? So, some of it is business mix, some of it is also investment in customer acquisition, but still a very healthy growth over 2-year period.

Very, very helpful. I'll just take this offline more with Namrata. Thank you. Thank you very much.

Next in the queue is Sachin Dixit. Please go ahead.

Hi, so congrats on decent set of results. My first question was, largely on fashion. So, if we try to see where is a fashion segment headed? Right? Obviously, we are currently around 3 odd million customers. And I do understand our positioning, which is slightly premium more focus on having a curated assortment and all, where do you think like if let's say, potential customer base is X, what percentage of X have we captured. And where do we see reaching like? Maybe not in exact numbers, but more like vaguely, how do we see that.

Yeah, I think. You know, the kind of the kind of way we look at it is that we believe that we've captured about 15 to 20% of the premium fashion market in the country. So, we do feel that there's a lot of scope to continue growing within the premium segment. So, you know, for us, AOVs and so forth, are a good indicator of, you know, being focused on our positioning. And we feel that there's easily room to grow the new customer acquisition at least for the foreseeable future. While remaining focused on this positioning.

And do you believe your marketing expenses can still continue to maybe see a show leverage while you do that?

100%. I think today, like what we know about marketing and what we know about where to acquire customers, how to acquire the quality of customers, the quality of brands. How to bring down returns is all of that is now knowledge that we have. And we feel that, you know, using a lot of that, there's still loads of scope going into FY25 to reduce marketing in particular. And so, when we think a lot of our contribution margin expansion for FY25. There's a little bit of gross margin expansion on the back of ad income and so forth. But there's a lot of contribution margin expansion on the back of marketing expenses that we'll strive for.

Understood. Thank you. My second question is on beauty global brands, basically. So, we did highlight a bunch of brands that work with us that we have imported and brought to India. On this right. Is there any sort of specific effort that you put in place to make these brands exclusive to Nykaa? Or are there any brands which are exclusive to Nykaa yet.

Yeah. So, we have a very strong team that does a lot of business development and traveling around the world to identify very popular global brands, trending brands and convince them about the India opportunity and coming into the country. Out of these brands there are a significant number which are exclusively retail on Nykaa like Charlotte Tilbury, and Fenty Beauty and Dr. Barbara Strum, and Elemis, and so on. Here. So there are. Many of them are exclusive. Some of them used to be exclusive, like Huda Beauty, which is no longer exclusive, but it was with us exclusively for 3 years before they expanded their distribution beyond Nykaa. It's a mix. What I would also say is, there are some brands which we are importing through like a global store, which are more mass, masstige in nature, whereby it's actually in the best interest of the brand to have much wider distribution than Nykaa especially through what we call general trade and modern trade, and we would never look to stifle a brand's growth by not ensuring that they are available in the right channels, basis the brands, you know, mix or basis the brands positioning. So, sometimes we proactively guide the brand that they should have distribution through GTM or even through horizontal platforms, if it's relevant. To answer your question, it's a mix. Many of them are still exclusive. Some of them are no longer exclusive, and some from day one we recommend that they don't be exclusive, because that's the best way to maximize the potential.

But do you proactively try to make some of them exclusive like? Do you push them.

Yes, yes, of course, especially for prestige and premium brands and for brands within color cosmetics or skin care, We are able to deliver a lion share of the revenue for the brand in the country, and we do recommend that they come exclusive, and they do obviously listen. And, as I said, most of the brands I just mentioned, a large number of them continue to remain exclusive with us.

Just one.

Go ahead!

Yeah, sure. Just one housekeeping question. Why do we have a customer acquisition expense that's above NSV, can you explain the nature of it?

To do with the new customer acquisition coupons that can be given through company funded which is seen as a discount on the revenue rather than marketing costs.

Got it. Got it.

Customer acquisition coupon. So, coupon indicates that we're passing a certain, in a way, it's almost a discount at the cart level. So that's why it's been asked by the auditors to be booked as a discount and not as a marketing expense.

It’s an accounting requirement.

Sure Sure, fair enough. Thank you.

Next question is from Vijit Jain. Please go ahead.

Hello!

Yeah, we can hear you now.

Yeah. Sorry about that. Yeah. Just 2 questions. One you know, just looking at BPC and fashion business. And in terms of you know. The number of orders you get per annual transacting users in general fair to assume right that fashion should see more engagement over time. more orders per actual transacting customer per year for you guys right now, it's about maybe 2-2.5 for fashion, for beauty is about 4, 3 to 4. Now, I'm wondering. Because in fashion, you focus a lot on, you know right mixing your customer site, etc. Shouldn't we expect that order volume per transacting customer to go up? Your thoughts on that one, please.

Yeah. You know, I think broadly that, you know the math of how many transactions every customer does. We tend to look at it a little bit more in detail through the cohort view. But even, you know, just answering your question, do we in general see the transactions per customer will go up. That is definitely part of the whole repeat exercises that we're doing. So, we are pushing the average transaction per customer per year to go up, and I think by adding more categories, by being able to service more of their needs. I mean States are different points of time in the year and in their life is the way to do it. So, I definitely feel the platform is still young, the categories in so many ways still developing. So, there is 100% expansion on transactions per customer that can be expected.

Yeah, maybe I can add, it's also a couple of things on the beauty side. As I said, we're doing a lot of work in terms of category expansion through what we're calling driving awareness for the stepification and regimentation of beauty so that can help orders per visit, orders per transacting customer. But 2 things; one is, please remember, this is not a grocery category where these products need to be replenished very frequently. In fact, if you've ever bought a perfume, or you ever bought eyeshadow palette, these are categories which these are SKUs that take time to finish and therefore replenish. So, it's not like a food category or a grocery category slightly different. So, number of orders per transacting customer would never have that same frequency and categories, like personal care, like shampoos and soaps and oral care, which would have a higher replenishment rate. Those are not our core, because those are not what we see as beauty. We see that more as personal care. And it's not something which we're overly focused on. It's important as cart fillers and other things. But it's not where our core lies. So that's another thing. And finally, it's about how low the per capita consumption of beauty is right. Average Indian spends less than 15$ per annum. So, a lot of work for us to do to increase the per capita consumption which should reflect in orders. And the other thing is, you know, we also try to push consumers to increase the size of the order. So, the average order value for us is much higher than that of competitor platforms, both in fashion and beauty. we think that's a better model that, could we try to push consumers to do more orders for a customer, but a lower AOV we could. But that, then, doesn't make sense on the unit economics of the order. You know because there is a fixed cost of fulfillment as a fixed cost of acquisition. We'd rather try to maximize the return on that investment through trying to maximize the AOV, and not necessarily the sheer quantum of all those.

Got it. My last question, this is basically, if I just look at the store addition that you've done this year, right? You've mentioned some details around where you've opened them. Just looking at FY25 and onwards. If you can give a color on where your store additions is going to be, and with your owned brand do you have plans to go on to some of those quick commerce platforms? Thank you.

Yeah, on store expansion. What I'll say is that, you know, we we've learned physical retail quite well over the past decade that we've been in the business of physical retail. And it's not always very easy for e-commerce companies to develop that physical retail muscle. And you know, I can ask you to, maybe let me know if some other online retailers who manage the transition well. But we have managed it quite well, and as a result, you know, we're delivering profitable growth in our physical retail segment. So, it's working very well for us. We think physical retail is a huge opportunity, so much of beauty retail in India still being done offline and so the potential for store additions is huge. What we've said publicly in the past that basis, our e-commerce data and our consumer data. We believe there's an opportunity for about 350 to 400 stores in the country. We're not even halfway there yet. You will see a similar pace, if not a slightly accelerated pace, of store addition over the next several years. In terms of cities, today, we have stores across 68 cities and 106 out of our 187 stores come from non-metros. So, we are very well diversified. We've penetrated quite deep into tier 2 markets and in terms of new store openings and FY25, I think you again see a similar mix of non- metro, and metros.

Got it. Thanks, Anchit, and just wondering also. Sorry I missed the part. I don't know if you reply to the quick commerce bit, and also on besides tier 2, tier 3 cities are there other kinds of retail so that you could open like travel retail in airports and those kinds of things. Thoughts on that segment of the business. Thank you.

Yeah. So, it's a good question. What I will say is, we're always we're always thinking about, can we try a different format that could be more scalable because our existing format is very specialty. It's a relatively premium. And as a result, it's important to be in premium destinations. Could we do a slightly more drug store like format for beauty products? We could. And it's something which we will evaluate, and we are evaluating that could, of course, increase the expansion of our network. But we will obviously disclose that as and when it's the right time, if we are going ahead with that. In terms of quick commerce, what I would say is quick commerce, the assortment. See? We see that quick commerce is not a demand generation channel. It just needs existing demand. It doesn't create new demand because customers don't discover products. They don't learn about brands. They kind of just replenish SKUs that they're already aware of. So the demand generation work, we will have to continue to do. In terms of yeah, for very limited assortment of very basic SKUs quick commerce could be a channel for certain brands of ours. I think one of our brands Dot and Key is already retailing a limited assortment through quick commerce. So, it's something that again, we're evaluating, and we will, you know, as in when that happens, we can disclose more.

Great. Thank you so much.

Thank you. That was the last question we can take today. There were a few questions on the chat box. These may be taken up separately with Nykaa's investor relations team. I would now like to hand the conference over to the management for closing comments.

Thank you. Thank you, Garima and thank you everyone for being with us today, I just also wanted to mention about one more announcement that you'll see in our filings with exchange. There is a board member who has come onto the board. His name is Santosh Desai. He brings with him immense marketing experience and can add a value to and contribute to Nykaa. So, you'll hear about that. We are quite happy and proud to have him as part of our board members, and yes, some of the restructuring announcement that we talked about again have been intimated to the Exchange, and we do see that at the parent level, you know, getting FSN E-commerce, which is the stand-alone company of the listed entity. We want to make it stronger. It needs to be under the structure of Indian own and manage company needs to be a manufacturing and a brand company rather than a retailer. And as a result, when the brand show promise of being quite sizable and having a journey of its own. We are restructuring it all under at the top level, and we are really happy to say that in this house of brand, is the word we don't like, but because it is a collection of beauty and fashion brands, you're not able to say like a consumer company, but we are really proud to say that close to Rs 1,500 crores of GMV can be now reported amongst our brands that we manage in our building for the long term. We remain excited about the future promise that these hold. So, if I may say that at this juncture, with a pretty recent performance in third quarter against market expectation, and a stronger performance in fourth quarter for all our businesses, and a lot of work towards having a cost structure for new businesses like fashion and eB2B, which tells us that we are able to get scale with right unit economics. We remain very excited about what the future holds for Nykaa. And as part of that we are investing clearly in customer acquisition. We've always strongly supported customer acquisition in post covid, but if I may say so, it is accelerating a bit. Our physical retail also is a very exciting opportunity, thanks to the market creation, that Nykaa has done so far. So, when we entered the market it was per capita consumption of beauty in 2012 was only $6 per capita. Today it stands at $15 per capita and with that I do believe that today it surprises us when we go to smaller states smaller cities like Bareilly or other smaller cities Jamshedpur or others, we are quite surprised to see the kind of revenue momentum we see. So we do feel that since we already had a well laid out part on what we wanted to do towards 350 stores, we're accelerating that and you'll see a good growth in the coming year. You can see that the 5-year GMV of physical retail business, also 50% plus. And we think we will continue to accelerate that. And obviously, we are premiumizing certain high end stores with largest store footprint again shows our confidence. And then beyond that also, we are obviously putting our thinking hat on to see whether we would like to do more services. You know we already have some salons in Aveda. We may do more some services. Not, I mean, I'm not making big announcement about what we do. But I think, as a beauty retailer, whatever opportunities lie in the industry. I think we remain ready to capture, be it in form of additional stores. You know, be it investment and technology that we will make towards greater, you know, investment in our platform or in personalization, Gen AI, Chat GPT, all of those can be very interestingly leveraged. So I'm just back from the US and I feel that India is a big in a beneficiary of a tech revolution, that we are seeing India and US a big beneficiary, and I remain very excited about what future holds for us. With that I thank everyone.

We'll end the webinar now.

Thank you.