The beauty and skincare segment took a hard hit during 2020 due to COVID 19 disruptions as buying preferences swayed toward essential products and conventional supply chains for the segment went through an upheaval.
D2C focused brands felt the heat of the countrywide lockdowns which took some steam out of their growth numbers during the first half of last fiscal. Sugar Cosmetics has bucked the trend as it managed 22% growth in its operating revenue during the last fiscal year.
The Vineeta Singh-led company booked operating revenues of Rs 126.4 crore during FY21 as compared to Rs 103.71 crore earned in FY20, according to the company’s annual financial statements.
The cosmetics startup positions itself as an omnichannel brand, with a presence in over 10,000 retail stores while also selling its products on e-commerce marketplaces including Amazon, Nykaa and Myntra. Sugar Cosmetics also retails via its own website and mobile app facilitating sales outside India as well.
The nine-year-old company made 93.1% of its sales in India with domestic collections surging by 34.1% to Rs 117.61 crore during FY21 from Rs 87.7 crore collected in FY20. Export sales bore the brunt of travel and freight disruptions, dropping 45.4% from Rs 16 crore to a little over Rs 8.7 crore during FY21.
Sugar procures cosmetics products from manufacturers in India and abroad, and the cost of stock in trade (including testers and consumables) is the largest cost centre for the company, accounting for 28.6% of its annual expenses. This cost remained relatively flat due to a slow down in demand and procurement roadblocks, amounting to Rs 42.6 crore during FY21 (including imports of Rs 25.9 crore).
Freight and packaging expenses grew in line with order volume, increasing by nearly 24% to Rs 8.8 crore in FY21 from Rs 7.1 crore during FY20. Importantly, Sugar managed to localise all of its packaging procurement to India in FY21 as opposed to FY20 during which it imported packaging worth Rs 53.5 Lakhs.
The D2C brand leverages social media channels to reach its target audiences via ad campaigns, paid partnerships and influencer marketing programs. That makes advertising and promotional expenses the second largest cost on the company’s expense sheet, making up 23.1% of its annual costs. Such expenses grew by around 21% to Rs 34.36 crore in FY21 from Rs 28.43 crore spent during FY20.
Further, Sugar Cosmetics pays commission on sales to retailers and online marketplaces and these payments ballooned by 129% YoY to Rs 3.5 crore during FY21 as buyers preferred these established sellers including Amazon and Nykaa.
The growth stage startup also increased its employee base during the last fiscal with employee benefit payments accounting for nearly 13% of its annual costs. These payments grew by 51.2% from Rs 12.7 crore to Rs 19.2 crore (including ESOP related costs of Rs 4.61 Lakhs).
Sugar Cosmetics also employs outsourced support and labour for its supply chain operations and spent Rs 22 crore for the same while information technology costs amounted to Rs 1.6 crore during FY21.
Rent and utility payments of Rs 4.3 crore pushed annual expenditure to around Rs 149 crore in FY21, which grew by 18.2% from Rs 126 crore spent in total during FY20. Sugar Cosmetics spent Rs 1.18 to earn a single rupee of operating revenue during FY21.
While there was a slowdown in growth due to extraneous factors, the company has managed to improve EBITDA margins by 240 BPS to -11.98%. Improved margins coupled with 22% growth in scale, helped the company to curtail its annual losses by 25.3% to Rs 21.1 crore as opposed to Rs 28.23 crore lost in FY20.
Going by the CEO’s claims, Sugar Cosmetics is likely to grow its top line by over 2X to cross Rs 300 crore in revenue in the ongoing fiscal (FY22).
Sugar Cosmetics’ relative strength in tier I and II cities with products ‘tropicalised’ for local conditions in both price and feature terms has held it in good stead so far. However, just as digital media has enabled its growth, it will also throw up its biggest growth challenges, especially on the branding side, where ‘platforms’ like Nykaa seek to dominate, even as specific brands carve out their own niches. It will continue to be challenged by marketing costs for some time to come, and if does hit the Rs 300 crore milestone in 2022, expect it to rework its strategy in a big way to keep the momentum going. Be it in terms of new products, channels, or approaches to sell.