Mamaearth debuts on a quiet note; lists at 2% premium over its issue price

Honasa Consumer, the parent company of Mamaearth, made a lacklustre stock market debut, with its shares listed at Rs 330, a 2 per cent premium over its issue price of Rs 324 per share on the National Stock Exchange (NSE) on Tuesday. The stock of personal care products company listed at par or Rs 324 to its issue price on the BSE.

Post listing, shares of Honasa Consumer moved higher to Rs 334 on the BSE. At 10:02 AM; the stock was trading at Rs 331.95, up 2.5 per cent over its issue price. Around 8.9 million equity shares had changed hands on the NSE and BSE in the first few minutes of trade.

The IPO performed better than expected and received a decent response from investors, even though it was a loss-making company. The issue was subscribed 7.6 times with qualified institutional buyer (QIB) portion saw subscription of 11.5 times, followed by Employee portion at 4.88 times. Non-institutional investors' (NIIs') portion was subscribed 4.02 times, while retail portion subscribed 1.35 times. Honasa is the leading digital-first beauty and personal care (BPC) company in India, based on its revenue from operations in the financial year 2023 (FY23). Their flagship brand, Mamaearth, is designed to cater to the essential customer desire for safe and natural products. Mamaearth focuses on developing beauty products free from harmful toxins and made with natural ingredients. By the end of the FY23, Mamaearth had become the fastest-growing BPC brand in India, achieving an annual revenue of Rs 1,000 crore within six years of its launch.

Honasa has achieved impressive growth in revenue from operations, with a Compound Annual Growth Rate (CAGR) of 80.14 per cent between FY21 and FY23, increasing their revenue from Rs 459.99 crore in FY21 to Rs 1,492.75 crore in FY23. In comparison, the median revenue CAGR of other BPC companies with available data during the same period was 28 per cent. The company intends to open new Mamaearth EBOs (Exclusive Brand Outlets) across a mix of mall stores and high-street outlets in India. The company has also identified expansion opportunities in priority markets such as the United Arab Emirates, Nepal and Bangladesh, both organically and through strategic acquisitions.

At the upper price band of Rs 324, Honasa was available at a Mcap/sales of 5.6x (FY24E annualised), which appears to be expensive. Considering its strong topline growth, decreasing trend of Ad spends, expansion plans, asset light business model and promising industry outlook, the brokerage firm Geojit Financial Services had assigned a “Subscribe” rating on a long-term basis. However, the company doesn’t produce its products but relies solely on third-party manufacturers for production. This dependence on external manufacturers exposes the company to risks. If these risks materialize, they could negatively impact the business, operational results, cash flows, and financial health.

The company derives almost 30 per cent of its revenue from its top 10 products. Any decrease in the sales of the key products will adversely affect the business, cash flows, financial condition, and results of operations. The company boasts strong capabilities of building/ acquiring successful brands. The company sees immense potential in the BPC sector as more and more women are joining the workforce. As work from office resumes the demand for BPC products is expected to shape up positively. However, the company has seen negative EBITDA and PAT in the past years under consideration. The advertisement expenses form a huge part of its revenue. The company is currently expecting to utilise approximately Rs 186 crore for advertising expenses from the IPO proceeds. It is keen to observe if with such heavy advertisement expense, the company will be able to sustain its growth levels and thereby affect the profitability, analyst at Sushil Finance had said in IPO note.