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SUSTAINABLE PERFORMANCE ANALYSIS OF

NYKAA FOR DIGITALIZATION

A Financial Management Project Report by

Nikita Rathore (2019IMG-041)

Sankat Mochan (2019IMG-052)
Swarnim Gupta (2019IMG-060)

submitted to
Prof. Rajendra Sahu

ABV-INDIAN INSTITUTE OF INFORMATION

TECHNOLOGY AND MANAGEMENT
GWALIOR-474015
2023
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1. Abstract
Purpose - This study aims to investigate the impact of digitalization on the sus-
tainability of SMEs in India, using Nykaa, an India based brand that specializes in
multi-beauty and personal care products, as a case study.
Design/Methodology/Approach - A literature review was conducted to identify key
factors that contribute to the successful adoption of digital technologies in SMEs, in-
cluding digital infrastructure, knowledge and skills, and organizational culture. Ad-
ditionally, recent papers on the digitization of MSMEs in India were analyzed, and
a table was created summarizing their research methods, key findings, and implica-
tions.
Findings - To fully realize these benefits, SMEs need to focus on improving their
digital competencies, while the government and industry associations should pro-
vide more support in terms of infrastructure, training, and financial incentives.
Practical Implications- The results of this study may be useful for policymakers,
industry associations, and small business owners in India looking to promote the
sustainability of SMEs through the adoption of digital technologies.
Keywords - MSMEs, Economic Growth, Customer engagement, Policies, initiatives,
Sustainable performance analysis, Nykaa, Digitization, E-commerce, Environmental
impact, Social responsibility, Financial performance, Digital transformation, Busi-
ness strategy, Consumer behavior, Corporate social responsibility, Green technology,
Supply chain management, Competitive advantage.

2. Introduction
Small and medium-sized enterprises (SMEs) are crucial for driving economic growth
and creating jobs worldwide. However, these businesses often encounter various
challenges, such as limited resources, in adopting sustainable practices. Recently,
many SMEs have turned to digitization as a way of improving their sustainable per-
formance. Given the importance of SMEs in driving economic growth and creating
jobs, it is crucial to examine the impact of digitalization competencies on their sus-
tainability. This research paper aims to shed light on the factors that contribute to the
successful adoption of digitalization competencies in SMEs and their impact on the
sustainability of the firm.

2.1 Small and Medium Scale Enterprises (SMEs)

Small and Medium-sized Enterprises (SMEs) are businesses that are smaller in size
than large corporations, but larger than micro-enterprises. SMEs are an essential part
of the economy in India and other countries, creating job opportunities, promoting
innovation, and driving economic growth.
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In India, SMEs are defined as businesses with an annual turnover of up to Rs. 250
crores and a workforce of up to 250 employees. There are over 63 million SMEs in
India, which contribute around 45% of the country’s industrial output and 40% of its
exports. SMEs in India operate in a diverse range of sectors such as manufacturing,
services, and agriculture, producing various goods and services. Family-owned busi-
nesses and innovative entrepreneurs run many of them, and they have a significant
impact on their respective communities.
One of the major challenges that SMEs in India face is lack of access to finance. Tra-
ditional banks often hesitate to provide loans to them, citing their high-risk nature.
To address this issue, the Indian government has implemented various initiatives to
support SMEs, such as the Credit Guarantee Fund Trust for Micro and Small En-
terprises, which provides credit guarantees, and the Pradhan Mantri Mudra Yojana,
which provides loans to micro-enterprises. Despite facing challenges, SMEs in India
continue to prosper and play a vital role in the country’s economy. They provide
employment opportunities, promote innovation, and drive economic development,
contributing to India’s overall growth.

2.2 About Nykaa

Nykaa is a well-known Indian e-commerce platform that deals with beauty and well-
ness products. It has been able to establish itself as a prominent player in the market
since its establishment in 2012. Nykaa is an appropriate candidate for the study
on sustainable performance analysis on SMEs for digitization because of its com-
mitment towards sustainability in its operations. The company has taken multiple
initiatives to reduce carbon emissions and promote the use of eco-friendly products.
It has also invested in digitization to enhance customer experience and streamline
operations by implementing advanced technology systems like automated warehous-
ing and logistics. Studying Nykaa’s sustainable performance and digitization efforts
can provide valuable insights into the benefits of these strategies for SMEs, potential
challenges, and best practices for overcoming them. Overall, Nykaa’s achievements
in combining sustainability and digitization make it an interesting case study.

2.3 Recent Growth Trends of Nykaa

Nykaa is an Indian e-commerce platform that specializes in beauty and wellness
products. The company has experienced significant growth in recent years, with its
revenue growing by 66% in the financial year 2020-21 compared to the previous year.
In addition, Nykaa’s net worth has also risen, with the company achieving unicorn
status (a privately held startup with a valuation over $1 billion) in April 2020. Nykaa
has expanded its product offerings and now includes a wider range of categories
such as fashion, home décor, and electronics. The company has also launched its
own brand of beauty and personal care products, further increasing its revenue and
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market share in the beauty industry.

2.4 Impact of Digitization on SMEs

Nykaa, the Indian online beauty and cosmetics retailer, has experienced a significant
impact from digitalization. The company’s online presence has increased, provid-
ing access to a broader customer base, and leading to a significant increase in sales
and revenue. Nykaa has invested heavily in data analytics to understand customer
behavior and preferences, resulting in personalized recommendations and targeted
marketing campaigns. This has improved customer engagement and overall shop-
ping experience. The company has also leveraged social media platforms to connect
with customers and showcase new products, building a strong brand presence and
engaging with a wider audience. Digitalization has streamlined logistics and sup-
ply chain operations, resulting in faster and more efficient delivery of products to
customers. Overall, digitalization has played a critical role in Nykaa’s success, en-
abling the company to optimize its operations for greater efficiency and reach a larger
audience.

3. Literature Review
Small and medium-sized enterprises (SMEs) are an important sector of the Indian
economy, contributing significantly to employment generation, income growth, and
economic development. However, SMEs in India face several challenges, such as
limited access to finance, inadequate infrastructure, and low technological capabili-
ties. Digitization has emerged as a key solution to these challenges, enabling SMEs
to improve their productivity, efficiency, and competitiveness.
Jain and Pathak (2020) conducted a study to investigate the impact of digitization on
the financial performance of Indian SMEs. The study found that digitization posi-
tively affects the financial performance of SMEs by increasing sales, reducing oper-
ating costs, and improving profitability. This is consistent with earlier studies that
have shown a positive association between digitization and financial performance in
various industries and contexts (Bughin et al., 2018; Hu et al., 2019).
Singh and Singh (2019) examined the impact of digitization on the sustainability
of Indian SMEs. The study found that digitization positively affects the sustainable
performance of SMEs by improving their resource efficiency, reducing waste genera-
tion, and enhancing their ability to adapt to changing market conditions. The authors
argued that digitization can help SMEs overcome the resource constraints and envi-
ronmental challenges they face, leading to more sustainable business practices.
Chakraborty and Chatterjee (2020) investigated the impact of digitization on the envi-
ronmental sustainability of Indian SMEs. The study found that digitization positively
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affects the environmental performance of SMEs by reducing their carbon footprint,

promoting energy efficiency, and enhancing their ability to comply with environ-
mental regulations. The authors suggested that digitization can enable SMEs to track
and manage their environmental impact more effectively, leading to improved envi-
ronmental performance.The study also found that digitization positively affects the
social performance of SMEs by improving their ability to engage with stakeholders,
promote diversity and inclusion, and contribute to the well-being of their communi-
ties. The authors argued that digitization can help SMEs build stronger relationships
with their customers, employees, and suppliers, leading to more socially responsible
business practices.
Pandey and Agarwal (2019) conducted a study to explore the impact of digitization
on the operational performance of Indian SMEs. The study found that digitization
positively affects the operational performance of SMEs by improving their supply
chain management, enhancing their product quality and innovation, and reducing
their time to market. The authors suggested that digitization can help SMEs stream-
line their operations and improve their competitiveness in the market.
Kumari and Kumar (2021) explored the role of digital marketing in enhancing the
sustainable performance of SMEs in India. They found that digital marketing can
help SMEs reach a larger audience, improve customer engagement, and enhance
brand image, leading to improved sustainable performance. In addition, digital mar-
keting can help SMEs collect data on customer preferences and behavior, which can
inform product and service development.
Kumar and Singh (2021) explored the impact of digitization on supply chain man-
agement and sustainable performance in SMEs in India. They found that digitization
can help SMEs optimize their supply chain, reduce lead times, and enhance coordi-
nation with suppliers and customers, leading to improved sustainable performance.
Furthermore, digitization can help SMEs monitor and manage inventory levels, re-
duce waste, and improve quality control, further improving sustainable performance.

4. Methodology
4.1 Data Collection
The sample selection for this study is a crucial step in conducting pre and postdigital-
ization analysis.Nykaa was founded in 2012 as an online marketplace for beauty and
wellness products in India. So, from its inception, Nykaa has been a digital platform.
However, over the years, Nykaa has continued to invest in digitalization to enhance
the customer experience, streamline its supply chain management processes, and
stay ahead of the competition. Nykaa has introduced several digital initiatives, such
as a mobile application, virtual try-on tools, and augmented reality-powered makeup
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Table 1. Recent Studies on Adoption of Digitalization by SMEs

Author Methodology Study Focus Key Factors affecting performance

Jain and Survey- Digitization and Technology adoption, process im-
Pathak (2020) based sustainable perfor- provement, and competitive advan-
research mance of Indian tage
SMEs
Singh and Case study Impact of digitiza- CEmployee productivity, process im-
Singh (2019) tion on sustainable provement, and cost savings
performance of In-
dian SMEs
Chakraborty Survey- Impact of digitiza- Technology adoption, customer en-
and Chatter- based tion on sustainable gagement, and financial performance
jee (2020) research performance of In-
dian retail firms
Pandey and Case study Impact of digitiza- Process improvement, employee pro-
Agarwal tion on sustainable ductivity, and cost savings
(2019) performance of In-
dian SMEs
Kumari and Survey- Role of digital mar- Digital marketing, customer engage-
Kumar (2021) based keting in enhancing ment, and customer loyalty
research sustainable perfor-
mance of SMEs in
India
Kumar and Mixed- Impact of digiti- Digital supply chain management, in-
Singh (2021) method zation on supply ventory management, and cost savings
research chain management
and sustainable
performance of
SMEs in India
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tutorials, among others, to provide a seamless online shopping experience to its cus-
tomers. In this study, the pre-digitalization period refers to FY18 to FY19, while
the post-digitalization period refers from FY21 to FY22.The selection of these time
periods is based on the availability of financial statements and annual reports from
the firm. These periods allow for a comparison of the sustainability performance of
the firm before and after digitalization period. Another factor that influences sample
selection is the reliability and accuracy of financial data. The data has been ob-
tained from the official websites of the firm and is based on the annual reports for
the respective time periods. These reports follow specific accounting standards and
principles, ensuring the accuracy and consistency of financial data. Moreover, the
selection of ratios/indicators is based on their relevance and reliability in measuring
the overall performance of firm. These ratios were selected based on their use in pre-
vious research and their ability to provide valuable insights into the Economic health
of the firm. The research has been based on secondary data of Nykaa which were
collected from the annual reports and financial statements published by the firm for
the financial years FY18-FY22.

Table 2. Null and Alterante Hypothesis for t-test Analysis of Ratios in Pre and Post-Digitalization of
Nykaa

Ratio Null Hypothesis Alternate Hypothesis

Net Profit Mar- The mean net profit marginin the pre- The mean net profit margin in the
gin(%) digitalization period is equal to the pre-digitalization period is signifi-
mean net profit margin in the post- cantly different from the mean net
digitalization period. profit margin in the postdigitalization
period.
Current Ratio The mean current ratio in the pre- The mean current ratio in the pre-
digitalization period is equal to digitalization period is significantly
the mean current ratio in the post- different from the mean current ratio
digitalization period. in the postdigitalization period.
Inventory The mean inventory turnover ratio in The mean inventory turnover ratio in
Turnover Ra- the pre-digitalization period is equal the pre-digitalization period is signif-
tio to the mean inventory turnover ratio icantly different from the mean in-
in the post-digitalization period. ventory turnover ratio in the post-
digitalization period.
Total Asset The mean total asset turnover ratio in The mean total asset turnover ratio
Turnover Ra- the pre-digitalization period is equal in the pre-digitalization period is sig-
tio to the mean total asset turnover ratio nificantly different from the mean to-
in the post-digitalization period. tal asset turnover ratio in the post-
digitalization period.
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4.2 Statistical Test

The paired/dependent sample t-test is a popular statistical tool that determines whether
there is an observably significant difference in the mean values between two closely
related sets of data. It is most preferred while evaluating the change in observations
before(pre and post-experiment) and after an experimental test is administered. For
this research, the paired t-test was conducted in Minitab 17 platform, with a sig-
nificance level of significance = 0.05. The results from the paired t-test are useful
in determining whether the impact of digitalization on the performance of SMEs is
significant or not.

Table 3. Nykaa’s Performance Metrcs from 2018-2022

Year 2018 2019 2020 2021 2022

Net Profit Mar- 2.27 1.23 8.03 24.81 55.14
gin(%)
Current Ratio 1.16 1.19 3.76 5.14 7.53
Inventory 2.89 2.43 4.05 4.39 2.59
Turnover Ratio
Total Asset 1.49 1.65 0.42 0.25 0.12
Turnover Ratio

We are conducting a two-tailed t-test to compare the difference in ratios between the
periods. The level of significance considered for this test is 5%. We aim to deter-
mine whether the results obtained from the test are statistically significant, indicating
whether the difference in ratios is significantly different from zero in either direction.

Table 4. Comparison of Nykaa’s Performance Metrics from 2018-2022 between two periods taken
into consideration

Metric Mean (2018 Mean(2021 Standard Standard P-Value

& 2019) & 2022) Devia- Devia-
tion(2018 & tion(2021 &
2019) 2022)
Net Profit Mar- 1.75 39.975 0.7353910 21.4465486 0.02478887
gin(%)
Current Ratio 1.175 6.335 0.021213203 1.6899852 0.01431225
Inventory 2.66 3.49 0.325269119 1.272792 0.04323496
Turnover Ratio
Total Asset 1.57 0.185 0.113137084 0.0919238 0.0664078
Turnover Ratio
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Table 5. Hypothesis Acceptance/Rejection on the basis of P-Value for the period taken into consid-
eration

Metric P-Value (2018 Null Hypothesis Alternate Hypothesis

& 2019)
Net Profit Mar- 0.02478887 Rejected Accepted
gin(%)
Current Ratio 0.01431225 Rejected Accepted
Inventory Turnover 0.04323496 Rejected Accepted
Ratio
Total Asset 0.0664078 Accepted Rejected
Turnover Ra-
tio

5. Results
Net Profit Margin (%) : An increasing net profit margin ratio is generally con-
sidered a positive sign for a company, as it indicates that the company is becoming
more profitable over time. In the case of Nykaa, the increase in net profit margin
from 2.27% in 2018 to 55.14% in 2022 is due to digitalization efforts, it suggests
that the company’s investments in digital infrastructure and marketing strategies are
paying off.
Current Ratio: An increasing current ratio can generally be seen as a positive sign
for a company, as it indicates that the company has sufficient current assets to cover
its current liabilities. In the case of Nykaa, the increase in current ratio from 1.16 in
2018 to 7.53 in 2022 is due to digitalization efforts, it suggests that the company’s in-
vestments in digital infrastructure and marketing strategies are improving its liquidity
position.
Inventory Turnover Ratio: An increasing inventory turnover ratio is generally con-
sidered a positive sign for a company, as it indicates that the company is selling its
inventory more frequently and efficiently. In the case of Nykaa, the increase in inven-
tory turnover ratio from 2.89 in 2018 to 4.39 in 2021 is due to digitalization efforts,
it suggests that the company’s investments in digital infrastructure and marketing
strategies are improving its sales performance.
Total Asset Turnover Ratio: A decrease in the total asset turnover ratio can be con-
sidered a negative sign, as it indicates that the company is generating less revenue for
each unit of its assets. In the case of Nykaa, a decrease in the total asset turnover ratio
from 1.49 in FY18 to 0.12 in FY22 suggests that the company’s sales performance
has declined significantly over the past few years.
The results indicate that for most metrics, the null hypothesis is rejected and alternate
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hypothesis is accepted i.e., there is a significant change and a positive one due to dig-
italization on the firm (NYKAA). However, the asset turnover ratio metric shows a
significant difference, with the null hypothesis being accepted. It would be necessary
to examine the reasons behind the decrease in the total asset turnover ratio and eval-
uate the impact of other financial and operational metrics on the company’s overall
financial performance.
Overall, the findings suggest that digitalization had a significant impact on most fi-
nancial metrics, except for the asset turnover ratio, which doesn’t shows a significant
improvement.

6. Performance of the firm after the adoption of digitalization

Nykaa, a popular beauty and wellness e-commerce platform, has seen a significant
improvement in its performance since the adoption of digitalization. With the advent
of technology and the internet, Nykaa has been able to expand its reach beyond
traditional brick-and-mortar stores and has made its products accessible to customers
across India.
• Increased reach: With the adoption of digitalization, Nykaa has been able to expand
its reach beyond traditional brick-and-mortar stores, allowing the company to reach
customers across India.
• Improved sales and revenue: The use of digital marketing and e-commerce strate-
gies has helped the company increase its sales and revenue. Nykaa has been able to
leverage various digital marketing techniques, such as social media marketing, email
marketing, and influencer marketing, to attract and retain customers.
• Enhanced customer experience: Nykaa has introduced various features on its plat-
form, such as virtual try-ons and augmented reality tools, which have enhanced the
customer experience and made it easier for customers to purchase products online.
• Streamlined operations: Nykaa has leveraged technology to improve its supply
chain and logistics operations, leading to faster delivery times and improved cus-
tomer satisfaction.
• Increased brand recognition: By using digital channels, Nykaa has been able to in-
crease its brand recognition and establish itself as a leader in the beauty and wellness
industry in India.
• Data-driven insights: Digitalization has enabled Nykaa to collect and analyze cus-
tomer data, which has helped the company make informed business decisions and
improve its overall performance.
• Flexibility and scalability: Digitalization has also provided Nykaa with the flexibil-
ity and scalability to adapt to changing market trends and customer needs.
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7. Challenges faced by SMEs in adopting digitalization

Small and medium-sized enterprises (SMEs) face various challenges when it comes
to adopting digitalization. Here are some of the key challenges:
• Technological infrastructure: One of the biggest challenges that Nykaa faced in
adopting digitalization was creating the necessary technological infrastructure. This
includes developing a robust e-commerce platform, creating a mobile application,
and implementing data analytics tools.
• Customer behavior: Nykaa had to adapt to the changing customer behavior in the
digital age. Customers expect seamless online shopping experiences, personalized
recommendations, and quick delivery times. Nykaa had to invest in technologies
like artificial intelligence and machine learning to cater to these needs.
• Supply chain management:The adoption of digitalization required Nykaa to re-
vamp its supply chain management processes. The company had to integrate technol-
ogy into its inventory management systems, logistics, and transportation processes
to ensure that customers received their orders on time.
• Cybersecurity: As a digital platform, Nykaa faces the risk of cyber attacks and
data breaches. The company had to invest in cybersecurity measures to protect its
customers’ personal and financial information.
• Competition: The e-commerce space in India is highly competitive, and Nykaa had
to constantly innovate to stay ahead of the competition. The company had to offer
unique products, services, and experiences to retain its customers and attract new
ones.
In conclusion, Nykaa faced several challenges in adopting digitalization. How-
ever, the company has successfully navigated these challenges by investing in the
necessary technologies, adapting to changing customer behavior, revamping supply
chain management processes, implementing cybersecurity measures, and innovating
to stay ahead of the competition.

8. Government Initiatives for Digitization of SMEs.

The Digital MSME Scheme, launched in 2018, provides financial support to MSMEs
for the adoption of digital technologies and the creation of digital infrastructure. The
Champions portal, launched in 2020, offers a single platform for MSMEs to access
various government services such as credit, market access, and technology support.
The Technology Upgradation Fund Scheme (TUFS), launched in 2020, aims to
promote technology upgradation in the textile sector by providing financial support
to textile MSMEs for the adoption of new technologies and machinery.
The MSME Sambandh portal, launched in 2021, is an initiative aimed at promoting
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digitalization and transparency in the MSME sector. This portal offers MSMEs a
single platform to register, apply for various schemes, and access information related
to government services.
The Start-up India program launched in 2016, aimed at promoting entrepreneur-
ship and innovation in India. The program offers various measures such as tax ex-
emptions, funding, and incubation support to startups.
The Make in India program launched in 2014 is another government initiative aimed
at promoting manufacturing and investment in India. The program includes measures
to improve infrastructure and simplify regulatory processes, making it easier to do
business in India.
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