India's FMCG-Led Skincare-To-Cosmetics Brands Losing Shine, Says Redseer-PeakXV Report

Pure-play brands, with a razor-sharp focus on the latest trends, have grown more than twice as fast as the big conglomerates between 2019 and 2022 in India's $19-billion beauty and personal care market, according to a new report.

While the pure-play retailers—where BPC contributes more than 70% of revenue—grew 9% and 15% in 2019 and 2022, respectively, the dominant FMCG players operating in the beauty segment rose 4% and 7% over the same period, the joint report by Redseer Strategy Consultants and Peak XV Partners said.

Pure-play brands have led this disruption through their specific and differentiated offerings. By 2027, these brands are expected to contribute 42% of the domestic market, up from 33% in 2022, the report said.

"Globally, there's a growing need among consumers for products that are made for them, tailored to individual skin or body types, and the trend is catching up fast in India," said Rohan Agarwal, partner at Redseer Strategy Consultants.

As the market matures, the report forecasts the emergence of multiple $100 million pure-play beauty and personal care brands in the country.

The pure-play BPC players are performing better in terms of growth and margin as well. In 2022, the average gross margin for major pure-play BPC companies globally was significantly higher at 72% than that of FMCG-led BPC companies at 44%.

Despite their heavy investments in research and development as well as customer education, these pure-play companies have managed to maintain a bottom line that is competitive with FMCG-led companies, the report said. The average earnings before taxes stood at 12% for large pure-play companies globally, as compared with 14% for FMCG-led companies.

This results in pure-play BPC companies being valued better. The price-to-earnings ratio for the large pure-play global BPC companies is 1.8 times higher at 51, as compared with FMCG-led companies, which are at 28.

L'Oréal India Pvt. has been the flagbearer for Indian beauty and personal care brands, according to the report.

"The brand has effectively bridged the gap between global beauty norms and Indian sensibilities, becoming one of the pioneering global pure-play brands to adeptly tap into the potential of the Indian market," it said.

Other relatively new players, such as Nykaa and Honasa Consumer Ltd.—the owners of FMCG brands Mamaearth and The Derma Co.—are also among the front-runners in the pure-play beauty and personal care space in the country. They are winning the game at the expense of companies like Hindustan Unilever Ltd.

As of FY23, Nykaa's revenue from beauty and personal care stood at Rs 4,482 crore. Honasa is yet to file FY23’s financial numbers, but it recorded an operating income of Rs 722 crore in the first six months of FY23.

Launched in 2016, Honasa Consumer registered a two-fold growth in scale to Rs 943 crore in FY22. Its Mamaearth brand touched an annual revenue of Rs 1,000 crore within six years of launch, as of September 2022. The startup's plans to list on the bourses are underway. It has recently received regulatory approvals for its initial public offering.

BPC is still evolving in India. Yet, the country is a shining star as compared with global peers.

India's beauty and personal care market will expand the fastest globally among comparable countries in size, with a likely compounded annual growth rate of 10% between 2022 and 2027, according to the report. It is poised to reach $30 billion in size by 2027, comprising 5% of the global market.

In comparison, China's BPC is projected to grow 7%, while Indonesia's market will expand 8%.

Lower per capita spending in India offers significant headroom for domestic players to grow, it said. India has per capita spends of $14 in the BPC category, as compared with the U.S., which has the highest spends at $313, and China, which spends $38 on a per capita basis.

Other factors, such as rising income, the higher propensity to purchase branded products among the middle class, urbanisation, evolving customer needs, and a higher interest in ingredients that tackle specific issues, will also fuel consumption of beauty products in India, the report said.

The domestic pure-play BPC players are operating through the philosophies of localisation, fast execution, and omnichannel disruption, it said. Indian pure-play BPC players are getting better by layering their capabilities with learnings from the incumbents, such as the importance of the offline channel. The digital-native brands have also built a strong network of physical outlets, aiming to grab a bigger slice of the BPC pie, the report said.

However, online is still a significant channel for BPC in India and is projected to become a $10 billion market by 2027, accounting for roughly a third of the overall market, according to the report.