Is Mamaearth's IPO an exercise to give its private investors a handsome exit?
₹1,000 crore annual revenue has been quick, within six years. But potential investors may need to look beyond that. Online channels contribute over 60% to Honasa’s revenue.
A significant portion of Honasa’s online sales depends on third-party e-commerce marketplaces, which exposes it to risks such as changes in contractual terms. Further, aggressive marketing has been a factor that aided in the scale up of Honasa’s brands, including Mamaearth. The company’s portfolio also includes other brands—The Derma Co., Aqualogica, Ayuga, BBlunt, and Dr.
Sheth’s. In FY23, Honasa’s revenue stood at ₹1,493 crore, clocking CAGR of 80% over FY21-23. In the June quarter (Q1FY24), year-on-year revenue growth stood at 49%.
To be sure, the company enjoys an eye-popping gross profit margin of about 70%. But since it is currently building its brands, a good chunk of the gross profit is invested in marketing, thus weighing on operating profit. Sure, reported operating profit margin in Q1 improved to 6.3% from a loss in the year ago period helped by a fall in advertisement expenses.
“Post listing, investors will watch if its Q1FY24 performance will sustain," Arun Kejriwal, founder of Kejriwal Research and Information Services, said. In general, it is wiser to take isolated single quarter results declared before an IPO with large doses of salt, he added. A large part of the IPO’s proceeds will be for advertising.
Honasa plans to raise ₹1,700 crore, including ₹365 crore from fresh issue and a large part from offer for sale (OFS) of 41.2 million shares. “Mamaearth’s IPO is an exercise to give an exit to its private equity investors who are walking away with handsome returns," said Kejriwal. A price band of ₹308-324 means the enterprise value to
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