Companies
Mamaearth's current valuation reflects consensus, says CEO Varun Alagh
Summary
- Mamaearth’s first IPO attempt last year had faced criticism over its valuation target of over $3 billion
Mumbai: Honasa Consumer, parent company of the beauty and personal care brand Mamaearth, is looking to tap the public markets to raise ₹1,701 crore, with the issue set to open on 31 October. Claiming to be the fastest company in the category to hit revenues of ₹1,000 crore, it plans to earmark ₹365 crore primarily to amplify its offline presence, explore inorganic growth, and enhance its research and development efforts.
With a valuation pegged at $1.2 billion, or ₹10,000 crore at ₹324 per share, Honasa has garnered significant attention and critique on social media regarding its IPO strategies and red herring prospectus.
Varun Alagh, co-founder and chief executive of the company, in an interview talks about launching an initial public offering (IPO) amid a muted market, its losses in FY23, and valuation.
Edited excerpts:
What was the thought process behind launching an IPO amid current market conditions?
We are in this for the long haul, have been doing this for a decade. So, in that sense, the IPO is just another event. Market conditions fluctuate regularly, and it isn't about timing but about creating value. We initiated this process in December 2022 and followed all necessary approvals. For companies with a clear path to value generation, anytime is ideal for an IPO.
The company's valuation hasn't grown proportionally since its last primary round in January 2022. Why is that?
Our primary round share price was ₹262 per share. Now, we're looking at an approximate 24% increase with ₹307-324 apiece. While we've seen growth, valuation is a collective exercise involving multiple stakeholders. This current valuation reflects a consensus that offers the most interest and value.
Why did you reduce your OFS and primary fund raise size?
Regarding the primary fundraise, the Securities and Exchange Board of India (Sebi) made a note on our draft red herring prospectus (DRHP) concerning the purpose for which we were raising funds, specifically related to the security for our upcoming stores. Since this security is refundable, Sebi advised us to omit it, and we found their observation to be valid.
For secondary shares, our initial DRHP filing indicated a 15% offer for sale (OFS). This has since been adjusted to 13%. The reduction is minor, and it's primarily because several of our investors foresee a promising future for the company and have chosen to retain a larger share, believing in its potential for significant growth.
How will you use the IPO proceeds? What are your primary growth engines?
The core business of the company is to build brands. And that's the first objective we will use the proceeds for, to strengthen and building our brands. The second objective is to open more external brand outlets for our products. Third is to expand the footprint, then fourth is general corporate purposes like potential acquisitions in future.
The company's discounting model and reliance on marketplaces have been critiqued. Your thoughts?
I would not like to comment on that.
Despite booking a loss for FY23, you reported a quarterly profit just before the IPO. How sustainable is this growth trajectory?
The FY23 loss was the result of a a goodwill impairment. Excluding this, our business is not at a loss. Our adjusted Ebitda for FY23 is about 3.4%, and it improved to about 6% in Q1 of FY24. This growth has been structural, and nothing has been done to create a short-term momentum play. About 97% of our holdings are within this business. Our largest investor, Sequoia, is not selling. This is a non-event for us.
For us, the focus is on sustaining our journey, enhancing our reputation, and leading the company forward over the next decade.
