Mamaearth playbook for all Honasa brands to sharpen house-of-brands strategy: Ghazal Alagh

Ghazal Alagh, Co-founder and Chief Innovation Officer (CIO) at Honasa Consumer, finds herself short of words when asked how the public listing process made her feel.

“The public listing is a few days away and is an overwhelming and emotional moment for Varun (Co-founder and Chief Executive Officer) and me,” Alagh tells YourStory in an interview.

Founded by Ghazal and Varun Alagh in 2016, Honasa Consumer—the parent to six brands, namely Mamaearth, The Derma Co., Dr Sheth’s, Aqualogica, BBlunt, and Ayuga—was born out of the need to create safe and toxin-free products for children. Seven years later, the Mumbai-based company has diversified into skincare, beauty and haircare, and is now all set to hit the public markets on the back of strong growth and a laser-sharp focus on the bottom line, according to Alagh.

Earlier this week, Honasa Consumer filed its red herring prospectus with the Securities and Exchange Board of India (SEBI), expressing its intention to raise up to Rs 365 crore in fresh issue of shares and offer for sale (OFS) of about 4.12 crore shares.

While both co-founders will sell a part of their stakes, early investors, including Sofina, Stellaris Venture Partners, Fireside Ventures, actor Shilpa Shetty Kundra, and Snapdeal Founder Kunal Bahl, are also looking to offload some shares.

The pre-IPO placement will open on October 30 and the public issue will close on November 2.

The direct-to-consumer (D2C) brand will allocate close to Rs 182 crore of the initial public offering (IPO) proceeds towards advertisement expenses (mainly television campaign spends and digital branding) to generate greater brand recall and acquire customers for new and existing brands, according to the prospectus.

In FY23, Honasa spent Rs 504.5 crore on advertising on a standalone basis—up 29% from the previous year. Digital advertising via social media and search engines was the biggest cost centre within marketing expenditure, as per numbers available in the prospectus.

While it is typical for D2C firms to spend massively on marketing, Alagh says that the trade-off is natural and will help the company grow.

“Mamaearth has grown tremendously in a short span of six years, and the only way to reach the consumers is to be out there through effective marketing,” she remarks, adding that the company valued growth over other factors in the short term.

However, Honasa’s ad spends have now come down to 35% of total revenue from operations in the first quarter of FY24 from 43% in the same period last year, which indicates improvement in the topline and bottom line and the effectiveness of the business model, Alagh says.

“We take pride in the fact that Honasa Consumer is a brand-builder and now owns six brands. While Mamaearth took 36 months to hit an annual recurring revenue (ARR) of Rs 100 crore, The Derma Co took 34 months, and Aqualogica less than 18 months. We know that we are doing something right,” she adds.

Growth strategy

According to the prospectus, Honasa will use some part of the proceeds towards strategic acquisitions to expand its house-of-brands portfolio. The co-founder and CIO says that the company will continue to look at acquiring brands through a consumer lens.

“When we launched Mamaearth, we spent a lot of time listening to the needs of consumers and had to give up some opportunities because we had just one brand with a specific focus. But now we have six brands, which have the capability to take on these opportunities,” Alagh says.

The company has replicated the lessons from its Mamaearth playbook to other brands, including The Derma Co and Aqualogica, and will continue to implement the strategy for new acquisitions, according to Alagh.

“We have built sufficient strength and capability to use Mamaearth’s business principles in other brands,” she asserts.

Honasa also intends to use Rs 20.6 crore from the IPO proceeds towards setting up 132 new exclusive brand outlets (EBOs) across the country by FY27. As of June 30 this year, the company had 85 EBOs across 46 districts in India for the Mamaearth brand.

The new Mamaearth EBOs will be spread across a mix of mall stores and high-street outlets in India, which the company hopes will help curate a richer brand experience for consumers and deepen engagement in the offline retail environment.

“We also intend to use our EBO channel to further develop strategic categories such as colour cosmetics that require a more personalised service and experience to facilitate purchase conversion,” Alagh says.

Scaling down Momspresso

Honasa Consumer posted a loss of Rs 151 crore in the financial year ended March 2023 against a profit of Rs 14.4 crore last year, largely due to an impairment caused by content platform Momspresso.

Honasa acquired Momspresso in 2016 to double down on its content-to-commerce strategy. However, the efforts did not materialise and dragged down the company’s P&L, which prompted Honasa to scale it down last year, Alagh explains.

“The performance and profitability of the company were deteriorating with the business significantly underperforming (vis-à-vis business plan FY22-23) during Q4 of FY22-23. Further, the business synergies envisaged from the investment could not be realised despite the best efforts of the management,” as per the prospectus.

“The management also presented multiple scenarios with medium-term to long-term estimates for the acquired business, but none of the scenarios demonstrated considerable improvement in profitability profile and any sight of realising synergies for the core product business,” it added.