MamaEarth IPO Analysis

MamaEarth IPO Analysis

**IPO size**

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Total offer \~ 1699cr

**Offer for Sale 1334cr**
Fresh issue 365cr

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QIB 75%
NII 15%
Retail 10%

Post listing promoter holding 35%

Price band- 308-324
Market cap post listing \~ 10420 cr
OFS sellers are promoters, Sofina, Fireside, Harsh Mariwala and others

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**Purpose of IPO**

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Ad spends 182cr

Capex ( EBOs) 20.6cr

Capex (BBlunt) 26cr

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**Business**

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Launched in 2017 by Varun Alagh (CEO) and Ghazal Alagh.
Most popular brand under Honasa is Mamaearth.
focus on **natural, toxin free beauty products**.

Other five newer brands are The Derma Co., Aqualogica, Ayuga, BBlunt and Dr. Sheth’s.

Honasa product range caters **baby care, face care, body care, hair care, color cosmetics and fragrances.**

**Strategy**

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produced through **contract manufacturing**\- tie-ups with 37 contract manufacturers.

**digital-first omnichannel-** primary sales channel being marketplaces like Amazon /Flipkart.
**target segment is millennials** who are increasingly getting conscious about hair care, make-up and believes in brands with purpose behind it.

Like Nykaa, Mamaearth also significant uses **influencer marketing.** In FY23, they worked with 4025 influencers.

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**Offline Channel**

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have has 85 EBOs (exclusive brand outlets).
541 distrbutors/ stockist/ sub-stockist.

1269 beauty advisors work to promote their product sin these channels.
Their current reach is around 154447 retail outlets.
13 warehouses across India cater to their inventory.

market share ( GMV) of 5.4% of the online BPC market ( DTC and e-commerce) in CY 2022
1.5% market share of total BPC market in CY22.

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**Industry overview**

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Beauty and Personal Care in India is Rs 1,64,000cr market ( 2022), and expected to grow at 11% for next 5 years. The online BPC market is Rs 24.600cr

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**Offline ( Unorg) 57%**

**Offline (Org)27%**

**Online 16%**

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**Operating metrics**

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Total sales FY 23 1490cr, out of which
Mamaearth 1170cr ( Online/ Offline 650cr/ 510cr)
Other 5 brands 253cr ( Online/ Offline 23cr/250cr )
Ad expenses for Mamaearth is 370cr ( 31%of sales)

**Ad expenses for other brands is 160cr ( 62% of sales) which is way higher.**

Total ad expenses Rs 570cr ( 35% of revenues)
Nykaa BPC spends 12% of revenues as ad spends, Hindustan Unilever 9%, Marico 12%
**Revenue channels**

Online 59% ( 81% in FY21)
Offline 36%
Services 4.5%

**Marketplaces ( Amazon/Flipkart) forms 34% of total sales**

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**Financials**

Annual revenues of Mamaearth is 1490cr. 
**PAT  -150cr ( loss)**
**Revenues CAGR of 80% in last 2 years** ( FY21 revenues Rs 460cr)
Gross margins of 70%( Nykaa 44%, HUL 50%)
EBITDA margin of 1.6% ( HUL 26%)

Borrowings ( including lease liabilities) at 77 cr ( Debt/ Equity 0.13)
Cashflow from operations  -50cr ( negative)
Cash & cash equivalents 4.6cr

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**Points to consider**

1. While Mamaearth has positioned itself as digital first brand, **dependence of e-commerce marketplaces (34% of sales) can affect margins** in case marketplace decides to increase commissions.

2.Though placing themselves as digital first brand, **metrics of their website ( customer visits/ average spends/ user) are yet to to disclosed. Neither any plans to increase DTC sales disclosed in RHP.**

3.FMCG being a distribution led model, strong offline presence is important for a brand to attain significant scale and sustain against established giants in the long run.

4.Bulk of Sales comes from Mamaearth brand ( 79%),ad spends 31% of sales for Mamaearth. **But ad spends on rest 5 brands is 162cr ( 62% of sales). And still they mentioned they will keep adding brands, acquiring new brands. Points to capital allocation priorities of company.**

5.New SKUs launched in FY23 contributed 57% of sales- **which puts a question on the traction of earlier vintage SKUs amongst customer mindspace**. If vintage products are not generating repeat sales, leads to a cause of concern.

6.Giants like Marico also entering digital first space through acquisitions, own brands- so competition from established players has to be considered.

7.Fresh issue being only 365cr ( ad spend of FY23 was 530cr, cash balance is 4cr), will not serve any significant purpose for growth of the company

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**Valuation**

Mamaearth is valued at Price/ Sales of 7 . Nykaa trades at similar valuation of P/S of 8 ( PAT of 20cr), though Nykaa has achieved a scale of 4000cr in BPC, and has significant traction in its own website and much deeper content marketing/ influencer marketing presence.


View on r/IndianStreetBets by TheMoatInvestor


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