Mamaearth IPO: What analysts predict amid valuation concerns?
4 min read 03 Jan 2023, 09:52 PM ISTHonasa Consumer, the owner of well-known brand Mamaearth, submitted its Draft Red Herring Prospectus (DRHP) to market regulator Securities and Exchange Board of India (SEBI) on December 29 in order to raise around ₹2,900 crore through an initial public offering (IPO).
PremiumHonasa Consumer, the owner of well-known brand Mamaearth, submitted its Draft Red Herring Prospectus (DRHP) to market regulator Securities and Exchange Board of India (SEBI) on December 29 in order to raise around ₹2,900 crore through an initial public offering (IPO). The firm plans to raise funds through the public offering of equity shares with a face value of Rs. 10 per share. The Mamaearth IPO consists of a new equity share offering worth up to ₹400 crore and an offer for sale (OFS) by selling shareholders of up to 46,819,635 equity shares.
However, a new initial public offering (IPO) has the internet chock full as Mamaearth, whose annual profit was about ₹14 Cr in the last year, is seeking an IPO valuation of ₹24,000 Cr. In January 2022, Mamaearth's last valuation was $1.2 billion; however, the firm is currently aiming for a $3 billion valuation for its upcoming IPO. To raise 400 crore rupees at a $3 billion valuation, they are thus seeking.
Anirudh A Damani, Founder – Artha Group, said “The reported valuation for the Mamaearth IPO is at ₹24,000 crores which is almost 25x FY22 revenues and 1600x FY22 profits (PE). These are incredibly premium valuations compared to established brands like Marico or Dabur that trade between 50x to 60x PE with legacy brands and deep offline distribution. Besides, I have serious concerns about IPOs, with more than 25% of the IPO sizes getting committed toward an offer-for-sale. Moreover, it is reported that in Mamaearth’s case, ₹2500 crores of the ₹2900 crore IPO will provide liquidity to early investors and celebrity influencers of the company. This is a red flag to me mainly due to the incredibly premium valuation expectations from a company doing ₹14 crores in profit in FY22."
Sunil Damania, Chief Investment Officer, MarketsMojo said “There is a lot of conjecture about the price Mamaearth will set for its initial public offering. Normally, the merchant banker would determine the price closer to the IPO date. Right now, everyone is making assumptions based on publicly available information. We doubt that management will go ahead with the higher price because there has been a lot of backlash on social media, especially given the amount of money Mamaearth is asking; whether you look at the market cap to sales ratio or the price to earnings ratio, which appears to be a little high. Many IPOs, including Zomato, Paytm, and others, were unable to sustain their high valuations. And they have dropped significantly since the listing. Something similar could occur if Mamaearth opts for such a high valuation. However, these are all speculative at the moment because neither the merchant banker nor the company has confirmed that they will proceed with this pricing."
Siddharth Mody, Senior Partner, Desai & Diwanji said “Honaso Consumer (popularly known by its flagship brand ‘Mamaearth’) is opening the 2023 IPO season with an INR 2400 crore IPO (INR 400 crores through a fresh issue and the remaining through an OFS component). Mamaearth’s (which was also 2022’s first unicorn) IPO represents a growing trend of investments/acquisitions in the DTC startup space in 2022 which included transactions wherein several large FMCG players such as HUL, ITC, Marico invested in DTC start ups such as OZiva, Mother Sparsh and HW Wellness."
“Whilst market players have raised concerns with respect to Mamaearth’s valuation (Mamaearth is reportedly seeking a valuation of INR 24,000 crores against revenues of INR 943 crores with a net profit of INR 14 crores for FY 22) and comparisons have been drawn with Paytm’s IPO amongst others, it is important to note that the SEBI’s regulatory framework (which was amended post Paytm’s IPO) restricts non-promoter shareholders from completely exiting via an OFC component thereby ensuring that such shareholders are conscious of the post IPO valuation of the relevant company. This restriction is applicable only for issuances made under Regulation 6(2) of SEBI ICDR regulation, which I understand (based on public information) is applicable to Mamaearth IPO. Such restrictions could serve as a driving factor for the existing shareholders to value IPO bound companies realistically. These restrictions were not applicable during Paytm’s IPO," said Siddharth Mody.
“However, it remains to be seen if retail investors would express similar optimism as that shown by private equity players / large FMCG groups in the DTC start-up space. Mamaearth’s IPO would be a true test of the same," 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 offering shares in the OFS of Mamaearth IPO. Valued at $1.2 billion at the beginning of 2022, $3 billion in valuation is expected at listing, indicating a 3x rise in valuation.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
