Nykaa Buys Stake In Earth Rhythm, Nudge Wellness And Kica In House-Of-Brands Push

FSN E-Commerce Ventures Ltd., parent of the fashion and beauty retailer Nykaa, has invested about Rs 50 crore to acquire stake in three companies, as it seeks to evolve as a ‘house of brands’ via acquisitions.

The company bought 18.51% stake in clean beauty brand Earth Rhythm Pvt. for Rs 41.7 crore; 60% stake in dietary supplement and nutricosmetics product maker Nudge Wellness for Rs 3.6 crore; and acquired the activewear athleisure brand Kica for Rs 4.5 crore, it said in a stock exchange filing on Friday.

The Earth Rhythm transaction is expected to be completed by May 31, 2022, while the Nudge Wellness transaction is likely to be completed in June this year. It didn't give a tentative deadline for closing the Kica acquisition.

"Nykaa, which has long believed in staying steps ahead of consumer trends, aims to become the first mover in the nutraceuticals category in India," said Anchit Nayar, chief executive officer-e-commerce beauty, Nykaa, in a press statement.

The company is emulating the house-of-brands model pioneered by the U.S.-based Thrasio, which acquires private labels on Amazon and scales them. Competition is intensifying in India as companies from Reliance Industries Ltd. to Tata Group hunting for direct-to-consumer brands and expand them as part of a larger platform.

"With entry of players like Reliance, Tata, MyGlamm, Purplle, etc., the acquisition costs to become a 'house of brands' may inch up for all, and this remain a risk," said Himanshu Shah, vice president-research analyst, Dolat Capital Market Pvt.

Brand Fact File

Earth Rhythm, formerly known as Soapworks India, was launched in 2015 "in a home-based set-up" by erstwhile banker Harini Sivakumar.

"Over the years, it has earned its credentials as a sustainable and inclusive brand amongst beauty consumers," Nykaa said in the filing.

Earth Rhythm clocked revenues of Rs 18.6 crore in FY22.

Nykaa's partnership with the incubator Onesto Labs to create a new category of wellness products under the brand Nudge Wellness is among a slew of recent partnerships with homegrown direct-to-consumer brands, aimed at bolstering early-stage beauty and lifestyle startups.

This acquisition also marks Nykaa’s entry into dietary supplements and nutricosmetics or products and ingredients that act as nutritional supplements for skin, nail, and hair care.

The acquisition of Kica, the company said, will help strengthen Nykaa's activewear play. Kica will be housed under its fashion vertical Nykd.

Expansion Spree

The Falguni Nayar-led newly listed company has been rapidly expanding into more categories adjacent to the lifestyle sector.

Nykd, Pipa Bella, Twenty Dresses, RSVP, Gajra Gang, IYKYK, and Likha are part of Nykaa fashion’s market expansion this year. Unlike Nykaa’s core business, the fashion vertical operates through a marketplace model.

In the beauty space, Nykaa has bought Dot & Key last year. It struck a partnership with Elca Cosmetics to launch Aveda X Nykaa—a premium salon offering: the first salon spanning 1,700 sq. ft. has launched in Bengaluru.

Overall, Nykaa houses 1,434 brands and 3.1 million stock-keeping units.

According to Shah of Dolat Capital, Nykaa may acquire more direct-to-consumer brands over the next couple of years to accelerate its growth journey.

While the current acquisitions are limited in size, the key aspect to evaluate ahead would be valuation, portfolio fit, and value creation thought process, he said.

"For big-ticket acquisitions, Nykaa would be better off acquiring them through its own expensive currency of share issuance (than cash)."

Shares of Nykaa, which went public in November, closed for trade at a price of Rs 1,843 on April 22. It has a market cap of Rs 86,773 crore or $11 billion.