MAMAEARTH – A new Adani in the market?

There may be a new Adani in the market in terms of share valuation and this time it is whispering about Mama earth’s IPO.

A beauty and personal care company Mamaearth plans to come out with an initial public offering (IPO). The company filed its draft IPO papers on 30 December 2022.

This blog will help to give you a clear idea about this company as well as its IPO. And help to analysis this type of startup companies.

ABOUT THE COMPANY

#MamaEath

Mamaearth
  • Honasa Consumer Private Ltd was the first unicorn of 2022 and the parent firm of brands such as Mamaearth, The Derma Co and BBlunt.
  • The fast-growing D2C (direct to consumer) firm, present in the beauty, babycare and skincare segment, was co-founded in 2016 by the husband-wife duo of Varun and Ghazal Alagh of ‘Shark Tank’ fame.

BUSINESS MODEL OF THE COMPANY

  • The manufacturing of all products is outsourced to third-party producers, primarily under non-exclusive contract arrangements.
  • Honasa said that “We do not own any manufacturing facilities”.
  • Mamas earth Sales of its top 10 products contributed 38.4 percent, 30.38 percent and 30.17 percent to its overall revenue in FY20, FY21 and FY22, respectively.

FUNDAMENTALS OF THE COMPANY

  • The company reported net sales of₹932 Cr. in FY22.
  • The amount spent on advertising and influencer marketing stands out in the company’s draft red herring prospectus. As of September 30, 2022, the company worked with 3,958 influencers.

In FY22, it spent about ₹391 Cr. on advertising against net sales of ₹ 932 Cr. – that’s 40 percent of revenue spent on marketing.

ROAS parameter : ROAS is a metric that measures the amount of revenue earned for every rupee spent on advertising.The return on advertisement spend (ROAS) is 2.6 and it has not improved over the past three years, as compared to Nykaa’s FY22 ROAS stood at 7.8 and big fish Hindustan Unilever’s at 10.6.

Mamaearth2
  • The company reported a net profit of ₹14 Cr. against total revenue of ₹932 Cr. in FY22.

THE IPO

  • The company has filed draft papers with SEBI for listing to raise funds through a combination of a fresh issue and an offer-for-sale on 30 December 2022.
  • The IPO consists of a fresh issue of equity shares worth ₹400 Cr.
  • Offer-for-sale (OFS) component of 4,68,19,635 equity shares worth ₹ by the promoters, investors, and other selling shareholders.

OBJECTIVES

  • According to the company, the net proceeds of the IPO will be used for advertisement expenses to improve brand visibility and awareness, setting up new exclusive brand outlets, investment in BBlunt for setting up new salons, general corporate purposes and inorganic growth.

Pushing For Offline Growth

#Growth

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For instance, the number of SKUs grew from 159 in March 2022 to 225 by September 2022. This is 2.6X the median number of new SKUs in the industry, according to the DRHP. And this strategy is clearly working in scaling up offline sales.

CONCERN ABOUT VALUATION

  • Mamaearth IPO Fund Raise Plans: Through the IPO, Mamaearth is looking to raise around ₹ 2,900
  • Issue Details: Mamaearth IPO will consist of a fresh issue of shares worth ₹400 and an OFS of up to 46,819,635 shares worth ₹2500 Cr.

In FY22, the business achieved a net profit of only ₹14 Cr. It means price-to-earnings ratio (P/E) of about 1714 times, compared to Nykaa’s 960x, HUL 62x, Godrej Consumer 57x.

Mamaearth3

EARLY INVESTORS PROFIT BOOKING ?

  • The shareholders who will dilute their holdings include the Alaghs,  Sofina Ventures SA, Evolvence, Fireside Ventures, Stellaris Venture Partners, Snapdeal founder Kunal Bahl, Bollywood actress Shilpa Shetty Kundra, Rishabh Harsh Mariwala and Rohit Kumar Bansal.
  • Sequoia Capital is not participating in the OFS.
With This Ultra High valuation, will Mamaearth go way of listing like Paytm, Zomato?
Learn from previous IPOs before investing in this ultra High Valuated IPO.

PREVIOUS IPO EXAMPLES

#Zomato #Paytm

Mamaearth4

Paytm IPO, the case of deliberate overpricing

  • Paytm made debut by IPO in 18 November 2021 at a listing price of ₹1950.
  • A major part of the issue, i.e. ₹10,000 Cr. of total size of ₹18,300 Cr. was offer for sale from the existing shareholders who used the IPO to Earn huge profit from this business
  • Company does not have very strong Fundamental points

Zomato IPO, another case of overpricing

  • Zomato Limited made debut by IPO in 23 July 2021at a listing price of ₹126, which was 65% premium.
  • IPO price of the share at ₹76/share with face value of ₹1 each.
  • The stock made a high of ₹169 and since then it started to correct and quickly fell to a low of ₹60, that painful experience again happened.
In this article, we have discussed all the valuation factors of Mamaearth IPO. Will Mamaearth be listed as another over-pricing case study? What do you think? Write us in the comment box.

Arunava Chatterjee
Founder of INVESMATE. I am a Certified Research Analyst, Value & Growth Investor, Trainer and Tech Entrepreneur. With 15 years of capital market experience, I have trained 10000+ students on INVESMATE. I have created several YouTube videos, mostly related to in-depth fundamental analysis.



14 Comments

  1. Avatar photoRam Saran Beshra Reply

    এই রকম গুরুত্বপূর্ণ তথ্য সমৃদ্ধ সংবাদ পরিবেশনার জন্য অনেক অনেক ধন্যবাদ 1এই রকমই চাই1

  2. Avatar photoSubrata Reply

    There was no difficulty in understanding everything written in simple language in such detail. I look forward to reading more blogs like this.

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