Wow Skin Science is one of the early evangelizers of direct to consumer (D2C) beauty and personal care space in India but the company appears to be in trouble as it’s finding it tough to score a new round and is now counting on a possible acquisition by Reliance.
While the acquisitions talks are in late stage and may materialise in the coming weeks, Wow Skin Science has filed its annual financial statement for FY21 which demonstrates hyper-growth in the company’s scale. Its operating revenue has soared 15X to Rs 100 crore in the fiscal year ending March 2021 from Rs 6.5 crore in FY20.
Wow Skin Science’s entire revenue came from the sale of goods. Apart from its own website, the company leverages third party e-commerce marketplaces such as Amazon, Flipkart and Nykaa besides brick and mortar stores as sales channels.
On the lines of its scale, the company’s expenses also shot up 17X to Rs 108.6 crore in FY21 from Rs 6.4 crore in the previous fiscal (FY20). Advertising and marketing form the largest cost center for Wow Skin Science, accounting for 40% of the annual cost. This cost increased 17X to Rs 43.88 crore in FY21 from Rs 2.56 crore in FY20.
Cost of procuring traded goods is the second largest cost which formed 33.8% of the total cost. As revenue climbed 15X, cost of procuring traded goods also spiked 12X to Rs 36.6 crore in FY21 from Rs 3.08 crore in FY20. Importantly, the company purchased goods of Rs 11.7 crore from its related party named Hindveda Private Limited which is currently under liquidation.
Wow Skin Science spent 13X more on employee benefit expenses in FY21 and this cost stood at Rs 2.30 crore in the fiscal as compared to Rs 18 lakhs in the previous fiscal year (FY20). Importantly, freight and shipping cost surged 90X to Rs 14 crore in FY21 from Rs 15 lakhs in FY20. The company spent Rs 3.7 and Rs 2.57 crore respectively on legal-professional fees and sales commission in FY21.
Since the company chased scale at all costs, its unit economics turned negative and the company recorded a loss of Rs 8.8 crore in FY21 as compared to Rs 9 lakh profit in the preceding fiscal year. On a unit level, Wow Skin Science has spent Rs 1.09 to earn a single unit of operating revenue.
As per the financial statement filed by the company to MCA, we noted that Wow Skin was running its business under the legal name Vivayogi Private Limited formerly known as Fit and Glow Healthcare Private Limited. On 19th March 2021 Wow Skin Science entered into the business agreement of slump sale with Vivayogi Private Limited for a consideration of Rs 210 crore.
Despite the pandemic, Wow Skin Science’s financial performance in FY21 has been impressive and this is evident from the 15X jump in its scale. The good thing is that it managed this scale with a tight control on expenses in FY21 and is expected to perform even better during the last financial year (FY22). Perhaps even a move into profitable territory. While the growth numbers look healthy, that places its failure to stitch new funding round in focus and raises questions about issues that may not be apparent in the books perhaps. In a market that is rapidly turning more conservative and favoring established players with even more funding over smaller ones, it also highlights the risk of a growth at all costs strategy, when you don’t have enough in the bank to sustain such a push.
