Nykaa Sees Profit Erosion Thanks To IPO Marketing Spending

5 August 2022
3 mins read
Nykaa Sees Profit Erosion Thanks To IPO Marketing Spending

Indian beauty giant Nykaa saw an erosion in its profits because of the excessive advertising surrounding its IPO. After a massive and stellar performance on the IPO and later on the bourse, Nykaa has reported a marginal profit after tax. Here are the details regarding this story.

Main details regarding Nykaa’s profit erosion

  • Nykaa has reported a profit after tax of Rs. 1.2 crores in July to September quarter 2021. This posting is lower than the Rs. 27 crores profit it had posted in the same quarter last year.
  • Experts and data highlight that this decrease in net profit is because of the vast sums spent across digital and mass media advertisements. Ahead of its IPO, Nykaa was forced to amp up its visibility to gain the trust of retail investors. Consequently, it spent one in ten rupees trying to get the necessary eyeballs. After all, it’s another generation that is investing in the company!
  • Thestrategy may have paid off for Nykaa given that it was listed on the bourse at a premium of 77%, but after the company posted news of its earnings, the stock declined by 5.5%.

Nykaa’s expenses in the July September quarter

There is no denying that Nykaa’s expenses grew in the July-September quarter. Here is a table regarding some of their costs.

Type of Expense July Sept 2020 July Sept 2021
Fulfilment expenses Rs. 58 crores Rs. 91 crores
Marketing and advertising expenses Rs. 31.5 crores Rs. 121 crores
Employee benefits expenses Rs. 69 crores Rs. 92 crores
Other expenses Rs. 23 crores Rs. 44.8 crores

From this above table, you can note that Nykaa’s marketing cost trebled in the quarter. A  primary reason for this was the need for marketing before the IPO. Nykaa had to reach out to a whole new spectrum of audience to ensure that their IPO investors subscribed to their initial public offer.

Bottom Line

While the net profits may have declined, Nykaa has gained immensely from spending on marketing and advertising. A whole new clientele has opened up for the company in the country.

 

Frequently Asked Questions

  1. What is Nykaa’s operational revenue for FY 2021?

Ans. Nykaa’s operational revenue for the financial year 2021 is around Rs. 885 crores.

  1. Who is the founder of Nykaa?

Ans. Falguni Nayyar founded Nykaa.

  1. What is Falguni Nayyar’s take on this plunge in profits?

Ans. Nykaa’s CEO said that their plunge in profits wouldn’t have a negative impact as their unique site visitors have gone up both in the beauty and fashion segments.