Mamaearth IPO sails through despite falling GMP, low retail interest

At 2:20 PM, the issue was subscribed 5.6 times (5.6x) with QIB portion seeing subscription of 9.4x, followed by Employee portion at 4.34x. Retail investor portion stood at 91 per cent

The initial public offer (IPO) of Mamaearth-parent Honasa Consumer sailed through on the final day of the offer amid a strong buying interest from qualified institutional investors (QIBs).

At 2:20 PM, the issue was subscribed 5.6 times (5.6x) with QIB portion seeing subscription of 9.4x, followed by Employee portion at 4.34x. Non-institutional investors' (NIIs') portion was subscribed 100 per cent, while retail portion stood at 91 per cent. 

The Beauty and Personal Care (BPC) e-retailer's IPO has opened on October 31 with a price band of Rs 308 to Rs 324. At the upper end of the price band, the company is looking to raise Rs 10,400 crore. 

 

The company's grey market premium (GMP) has been falling consistently. It stood at Rs 10 per share as on November 2, down from Rs 30 as on October 29, and Rs 45 as on October 25.

GMP is the premium that a company's shares command in the unlisted market.

Notably, the IPO had failed to garner thumbs up from analysts given its expensive valuations, and ambiguous profitability path. 

"Bolstered by a commendable gross margin of over 70% and an asset-light business model, the company has charted an impressive trajectory marked by exponential growth over the last half-decade, indicating promising future prospects. However, along with its recent attainment of profitability, the organization's ongoing struggle to fortify its bottom line and ensure sustainable earnings growth demands cautious consideration," analysts at StoxBox wrote in their IPO note.

Honasa reported a revenue CAGR of 80 per cent during FY21-23 period to reach Rs 1,492.7 crore vs. 28 per cent CAGR for other BPC companies and it swung to a Ebitda of Rs 22.8 crore in FY23 from a loss of Rs 1,334 crore posted in FY21. 

"Based on its annualized FY24 EPS, the IPO appears to be aggressively priced at 97x, discounting all immediate positive factors and seems like the company is leveraging its proven track record to justify a premium valuation. We, therefore, recommend an 'AVOID' rating for the issue and would revisit the company following consistent and sustainable improvement in profitability," they said.

Honasa Consmuer was incorporated in 2016 and possesses multiple brands, with the premier and flagship brand being Mamaearth. Mamaearth was built to service a core customer need for safe-to-use natural products, and focuses on developing toxin-free beauty products made with natural ingredients. 

While Mamaearth was a brand built from scratch in 2016, Honasa Consumer Limited has strengthened its position in the market by acquiring five other major brands, namely The Derma Co., Aqualogica, Ayuga, BBlunt and Dr. Sheth's, and have built a 'House of Brands' architecture. Its portfolio of brands with differentiated value proposition includes products in the baby care, face care, body care, hair care, colour cosmetics, and fragrances segments. 

"Honasa Consumer is a new-age company that is well-known for its flagship brand, Mamaearth. However, the financial performance of the company has been

inconsistent, and it has reported losses in recent fiscals. Subsidiaries that it has acquired have also incurred losses. Additionally, the company does not manufacture its products and relies on third parties for that, and it also does not hold any patents over its product formulas," said Swastika Investmart.

The brokerage, too, suggested to 'Avoid' the IPO as the business' return on advertising has also been consistent for a few years, i.e., 2.5 per cent. Thus, the company's client retention is very low.