Rating Rationale
March 24, 2021 | Mumbai
FSN E-Commerce Ventures Private Limited
'CCR BBB+/Positive' rating assigned
 
Rating Action
Corporate Credit RatingCCR BBB+/Positive (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its corporate credit rating of ‘CCR BBB+/Positive’ to FSN E-Commerce Ventures Private Limited (FSN).

 

The rating reflects CRISIL’s expectation that FSN will be able to consolidate its business risk profile with higher penetration into a large untapped market, backed by its established market position in the e-commerce beauty products segment, diverse product range across categories, long relationships with reputed principals, omni-channel presence, and prudent risk management policies. The ratings also factor FSN’s strong financial risk profile marked by comfortable capital structure and adequate debt protection metrics. These strengths are partially offset by its exposure to intensifying competition, working capital intensity, and yet to stabilize offline retail business model

Analytical Approach

For arriving at its ratings, CRISIL Ratings has consolidated the business and financial risk profiles of FSN and its 5 subsidiaries, which are strategically important to, and have a significant degree of operational integration with FSN. These companies are - FSN Brands Marketing Private Limited (FSN Brands), FSN International Private Limited (FSN International), Nykaa E-Retail Private Limited (Nykaa E-Retail), Nykaa Fashion Private Limited (Nykaa Fashion) and Nykaa-KK Beauty Private Limited (Nykaa-KK). CRISIL Ratings considers these entities as being strategic to FSN in view of their strong integration with FSN’s operations.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths

  • Established market position in e-commerce space and omni-channel presence: FSN has a strong market position in the e-commerce beauty products segment, backed by strong position for the ‘Nykaa’ brand. It has been able to establish and retain a large customer base, leading to repeat orders from majority of the retail customers.  The established position in the e-commerce space, helped it to launch its own brand of products and diversify into fashion and apparels segment as well as offline retail model. It has presence across through 75 stores across India, which also helps in acquisition of new clients and ensuring timely delivery of products for the e-commerce segment. Increasing presence in the growing e-commerce segment has helped increase revenues steadily from Rs.574 crores in fiscal 2018 to an estimated revenue of Rs.2500 crores in fiscal 2021.

 

  • Long relationship with reputed principals and wide product portfolio: FSN has longstanding relationship with the principals with which it has been associated for more than a decade. It has tie-ups with more than 2000 brands and has over time consolidated its position as one of the leading distributors for some of these brands. Direct purchases from brands ensures quality and genuineness of the products being sold. FSN has a diversified product profile with more than 700, 000 stock keeping units (SKUs) across various price categories in the categories of make-up, skin, personal care, hair, wellness, fragrance, among others. Hence, there is no dependence on any particular principal, brand, or product.

 

  • Prudent risk management practices: FSN has followed prudent risk management practices that have enabled it to mitigate risks inherent in the trading kind of business. Risks include vendor concentration and product obsolescence. There are numerous suppliers, thus reducing revenue concentration on any single supplier. The quick cash conversion cycle and the strong relationship with vendors also ensures limited inventory-related risk. A robust management information system helps keep track of inventory levels and expiry dates. Adherence to such risk management policies whilst growing at a rapid pace will remain a key rating sensitivity factor.

 

  • Strong financial risk profile: With steady infusion from investors and improvement in profitability, networth is strong, estimated at Rs.510-520 crores as on March 31, 2021. This has led to low dependence on debt to fund capital expenditure and working capital requirements. The total outside labilities to adjusted networth (TOLANW) is estimated at 1.1-1.2 times as on March 31, 2021. Debt protection metrics has improved over the years, due to improvement in operating margins and moderate debt levels. Interest coverage is estimated at 5.8-6 times in fiscal 2021. Financial risk profile will continue to remain strong with healthy accruals, which will help fund capital expenditure and incremental working capital requirements.

 

Weaknesses:

  • Exposure to intensifying competition: Although FSN has established its market position in the online beauty products segment, it remains exposed to intense competition from unorganised players and e-commerce portals in the industry. Intense competition requires players to provide periodic discounts and attractive schemes in order to stave-off competition and retain customers. Aggressive expansion by existing competitors and emergence of new large players may impinge upon the profitability and revenue of FSN.

 

  • Exposure to risks associated with stabilisation of new stores: FSN plans to add 50-70 retail stores per annum, and its future performance will be dependent on its ability to leverage on its brand image to maintain growth while sustaining margins. Moreover, FSN operates on company owned company operated (COCO) model, wherein growth is gradual and the break-even levels are reached only after the store is able to attract optimal volumes, which will depend on its ability to position itself in the locality and attract loyal clients. Higher than expected loss from the retail segment, may impact the overall credit profile of FSN, and will remain key monitorable.

Liquidity: Adequate

FSN has adequate liquidity driven by expected cash accruals of more than Rs.200 crore per annum in fiscal 2022 and 20223, against  negligible repayment obligation of Rs.0.07 crore annually. Cash and cash equivalents were Rs.175 crore as on March 31, 2020. FSN and its subsidiaries also has access to fund based limits of Rs.364 crores, which is 50% utilized to on an average over the ten months ended December 2020. FSN has capex plans of around Rs.50-60 crore per annum, which will be funded via internal accruals

Outlook: Positive

CRISIL Ratings believe FSN will continue to benefit from the extensive experience of its promoter, and established relationships with clients

Rating Sensitivity factors

Upward factor

  • Sustained revenue growth and improvement in operating margin above 8% leading to higher cash accruals
  • Improvement in the financial risk profile while sustaining working capital cycle

 

Downward factor

  • Sharp decline in revenue or operating margin below 4%, due to increased competition
  • Increase in TOLANW ratio above 2 times, due to stretch in the working capital cycle, significant debt-funded acquisitions or capital expenditure (capex), or any change in existing risk management policies.

About the group

FSN, incorporated in 2012 in Mumbai, undertakes e-retailing of beauty and fashion products through 3 web portals – nykaa.com, nykaaman.com and nykaafashion.com. It also has 75 retail stores across India under the name of Nykaa. It also undertakes manufacturing and sales of private label beauty products under the brands – Nykaa and Kay Beauty.

 

FSN is promoted by Mrs. Falguni Nayar and is managed by her along with his son, Mr. Anchit Nayar and her daughter, Ms Adwaita Nayar. They are supported by a second line of professional management.

Key Financial Indicators

As on / for the period ended March 31

Units

2020

2019

Operating income

Rs crore

1850

1159

Reported profit after tax

Rs crore

(23)

(26)

PAT margin

%

(1.2)

(2.3)

Adjusted debt/adjusted networth

Times

0.87

1.05

Interest coverage

Times

2.10

0.98

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Complexity Levels

Issue size

(Rs Cr)

Rating assigned with outlook

NA

NA

NA

NA

NA

NA

NA

NA

 

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Nykaa Fashion Private Limited

100%

significant operational, and financial linkages

Nykaa E- Retail Private Limited

100%

Nykaa-KK Beauty Private Limited

100%

FSN International Private Limited

100%

FSN E-Commerce Ventures Private Limited

100%

FSN Brands Marketing Private Limited

100%

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT   --   --   -- 04-06-19 Withdrawn (Issuer Not Cooperating)* 30-06-18 CRISIL BB /Stable(Issuer Not Cooperating)* CRISIL BB/Stable
Corporate Credit Rating LT 0.0 CCR BBB+/Positive   --   --   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
 

        

Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Approach to Financial Ratios
CRISILs Criteria for Consolidation

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