Cosmetics is one of the best performing consumer sectors: Susmit Patodia, Associate Director & Fund Manager-PMS, Motilal Oswal AMC
Nykaa is a very interesting company compared to any of the rest because there is a third leg to the service that they provide, apart from what almost all related companies like Zomato’s of the world do, which is give you governance and market infrastructure, Nykaa goes one step forward, and actually adds value, not only to the customer but also to the brand. We should not forget that this is not a marketplace, it is actually a selling model, so the numbers that come out of this are different. So, it just happens to come in the way of the tech IPOs and we start thinking of this also as a tech company. But there is a lot of physicalities involved in Nykaa as well – it sells online, but a lot of their model is physical, actually.
Buying it depends on your time horizon, globally, cosmetics is one of the best performing consumer sectors. Because it is a product that once you start using an age of 16, the usage actually goes up the age. So keeping that macro construct, I am pretty confident that cosmetics as a space and hence Nykaa should do very well in the long term. If you start looking at the trailing 12 months PE, or even a full year PE, it starts looking very different. But if you take 5-7 year view, I am sure this company will still do well.
Moreover, the potential addressable market is going to go up because this is a classic $2,000 to $4,000 per capita GDP segment that is cosmetics. If detergents soaps and shampoo were from $1500 to $2,500, then cosmetics is the forefront and China is a great example of that when the per capita GDP goes from $2500 to $5000. So the target market is going to explode.
We should also remember one more big difference whenever we make a comparison with respect to India and any other country is there is a lot of unorganized slashes which has been the problem of cosmetics in India. So you know, you might get it cheaper on another website but unlikely that people are going to buy it because you want to put it on your face or your body. So that is one nuance of India, which is probably not present outside India when you make the comparison.
In terms of a theme, convincing sort of path to profitability, would you rather go with the food aggregators, would you rather go with the payment interfaces/insurance aggregate - what part of it looks most convincing to you?
The most convincing to me right now looks anyone who has got the unit economics already right - that is the most important aspect. Then, the whole path to profitability at the company level depends on unit economics. If your unit economics itself is not stable, then that is very difficult to get to company profitability. So, that's why Nykaa is one company where unit economics is very strongly positive.
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