Honasa Consumer, the owner of well-known Mamaearth brand, submitted its Draft Red Herring Prospectus (DRHP) to market regulator Securities and Exchange Board of India (SEBI) on December 29 to raise around €2,900 crore through an initial public offering (IPO). The company plans to raise funds through the public offering of shares with a par value of Rs. 10 per share. Mamaearth’s IPO consists of a new share offering worth up to €400 crore and an Offer to Sell (OFS) by selling up to 46,819,635 shares to shareholders.
However, a recent initial public offering (IPO) has the internet chock-full of Mamaearth, whose annual profit was about €14 cr last year, aiming for an IPO rating €24,000 cr. In January 2022, Mamaearth’s last valuation was $1.2 billion; However, the company is currently targeting a $3 billion valuation for its forthcoming IPO. So you’re trying to raise 400 million rupees at a valuation of $3 billion.
Anirudh A Damani, Founder of Artha Group, said: “The reported valuation for Mamaearth’s IPO is attached €24,000 crores, which is almost 25 times FY22 revenue and 1600 times FY22 earnings (PE). These are incredible premium valuations compared to established brands like Marico or Dabur trading between 50x and 60x PE with legacy brands and deep offline distribution. Also, I’m seriously concerned about IPOs, as more than 25% of IPO sizes are committed to an offer to sell. Also, it is reported that in the case of Mamaearth €2500 crores the €2900 crore IPO will provide liquidity for early investors and prominent influencers of the company. This is a red flag to me, largely due to a company’s incredibly high valuation expectations €14 million profit in fiscal year 22.”
Sunil Damania, MarketsMojo’s Chief Investment Officer, said: “There is much conjecture about the price Mamaearth will set for its IPO. Normally, the dealer banker would set the price closer to the IPO date. Right now everyone is making assumptions based on publicly available information. We doubt management will go ahead with the higher price tag as there has been a lot of backlash on social media, especially given the amount of money Mamaearth is asking for; Whether you’re looking at the market cap to sales ratio or the price to earnings ratio, it seems a bit high. Many IPOs, including Zomato, Paytm, and others, failed to maintain their lofty valuations. And they’ve fallen significantly since the listing. Something similar could happen if Mamaearth decides to give it such a high rating. However, these are all speculative at the moment as neither the merchant banker nor the company have confirmed that they will proceed with this pricing.”
Siddharth Mody, Senior Partner, Desai & Diwanji said: “Honaso Consumer (commonly known by its flagship brand ‘Mamaearth’) opens the 2023 IPO season with an INR 2400 billion IPO (IRR 400 billion through a new issue and the rest by an OFS component). Mamaearth’s IPO (which was also the first unicorn of 2022) represents a growing trend of investments/acquisitions in the DTC startup space in 2022, which has included deals involving several major FMCG players such as HUL, ITC, Marico invested in DTC startups like OZiva, Mother, Sparsh and HW Wellness.”
“While market participants have raised concerns about Mamaearth’s valuation (Mamaearth is reportedly targeting a valuation of INR 24,000 against earnings of INR 943 crores with net income of INR 14 crores for FY22) and comparisons to Paytm’s IPO have been drawn by others It is important to note that SEBI’s regulatory framework (which was amended after Paytm’s IPO) prevents non-promoter shareholders from fully exiting via an OFC component, thereby ensuring that those shareholders are aware of the post-IPO assessment of the company in question. This restriction applies only to issues made pursuant to Rule 6(2) of the SEBI ICDR rule, which to my knowledge (based on public information) is applicable to Mamaearth’s IPO. Such restrictions could serve as an incentive for existing shareholders to realistically value IPO-bound companies. These restrictions did not apply during Paytm’s IPO,” said Siddharth Mody.
“However, it remains to be seen whether retail investors would express similar optimism as private equity players / large FMCG groups in the DTC startup space. Mamaearth’s IPO would be a real test of that,” claimed Siddharth Mody.
Promoters Varun Alagh and Ghazal Alagh, investors Fireside Ventures Fund, Sofina, Stellaris, Kunal Bansal and Rohit Bansal, Rishabh Harsh Mariwala of FMCG company Marico and Bollywood celebrity Shilpa Shetty Kundra are among those who have stakes in Mamaearth OFS Offer IPO. Valued at $1.2 billion in early 2022, a valuation of $3 billion is expected at listing, indicating a 3x increase in valuation.
The views and recommendations made above are those of individual analysts or brokerage firms and not Mint.
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