Mamearth’s IPO is just another chapter in its story

Honasa Consumer, Mamaearth’s parent company, is hours away from being the first Direct-to-Consumer (D2C) company to list on the Indian stock exchanges. The company aims to raise Rs 1,701 crore through its public offer, which includes Rs 365 crore of fresh shares and an offer for sale of 41.3 million shares by existing shareholders. The initial public offering (IPO) opened for subscription on October 31 and will close on November 2. As of 5 pm on November 1, the issue was subscribed 69.7%. 

Some interesting details have emerged from its pre-IPO excitement. 

1. Honasa Consumer raised Rs 765.2 crore from 49 investors at a price of Rs 324 per share. 
2. Abu Dhabi Investment Authority, Carmignac Portfolio, Fidelity Funds, and Goldman Sachs were part of the round.
3. Employees oversubscribed to the issue at 1.98 times the quota on day one.  
4. Large early-stage venture capital firms such as Stellaris, Fireside Ventures, Sofina Capital, and Evolvence India are set to make exits. 
5. Analysts predict that if the stock lists at its target price, early employees and VC firms will make exits at 8 to 108 times their initial investment. 
6. The company’s revenue grew close to 100% from FY21 to FY23 while finally turning profitable according to its last financial statements.
7. This will be the second value-creation moment within the same year after Mithun Sacheti’s blockbuster exit from CaratLane.

For its co-founders Ghazal Alagh and Varun Alagh, the IPO means a lot more. The “couplepreneurs” plan to utilise the IPO capital to expand their brand presence internationally. 

For context, Honasa has two international subsidiaries, one in Dubai and the other in Indonesia. The public issue is expected to accelerate its international ambitions. Apart from the subsidiaries, the company also sells to markets such as Mauritius, Maldives, Qatar, and Nepal through e-commerce platforms. 

“Going public is an integral part of the journey of building a business. However, it is not just about money and valuations alone,” Ghazal explained in a vibrant and candid conversation recently. 

“Yes, the IPO is a positive feeling because our buyers can become our investors and get a share of the value created. However, the IPO is just an event in our journey,” said Varun in the same conversation. 

But I would like to zoom out. The company has reined in spending over the past few years. Honasa’s marketing spending is down to 35% of the revenue in the June quarter as against 43% in the same period the previous year. At the same time, its brands are breaking even at a quicker pace than earlier. 

Let’s break this down. Companies such as Mamaearth need to constantly reinforce their importance to their customers but when the revenue continues its upward trajectory while marketing spend drops, it means brand recognition has reached a point where it can now increase margins. Margins, however, are an interesting beast, as they have a lot of moving parts including input costs but as per the numbers available, Honasa has those under control. Will that change? Only time will tell.

Ghazal told YourStory in another interview that 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 we are doing something right,” she added.

What has worked well for the company is its asset-light and business model getting closer to the black. As of June 30, 2023, Honasa had a profit of Rs 24.17 crore as against a loss of Rs 11.52 crore in the same quarter the previous year. 

A report by Redseer Strategy Consultants and Peak XV said that the beauty and personal care industry will be valued at $660 billion by 2027. For context, the average gross margin for pure-play beauty and personal care companies was around 1.6 times that of FMCG-led players. 

Mamaearth’s journey

Honasa’s flagship brand Mamaearth, which started off as a BPC player for the mother and child segment, has expanded to multiple categories. Through its subsidiaries and e-commerce networks, it has expanded outside India. 

The IPO will enable the company to build similar visibility and presence for its other brands. The emphasis, however, will remain on clean and toxin-free ingredients. Ghazal said in a LinkedIn post that Honasa Consumer has grown from six products to over five products across six brands in a matter of seven years.

The next phase involves the creation of products centred around ancient Indian wisdom and then taking it to global markets. As Varun puts it, “The world should look up to our products and traditions”.

To ensure that the products are safe to use, Ghazal explains that the company performs clinical tests on our products and works with certified safety labs. The company has also built R&D facilities in Delhi, Gurgaon, and Mumbai to test and innovate products. 

Moving beyond valuation

While there is a sense of euphoria over Honasa’s IPO, Ghazal and Varun have faced their share of challenges as well. 

The biggest one, which in reality is a misconception, has been over its valuation. In December 2022, Honasa filed its draft papers with market regulator Sebi. News reports incorrectly stated that it was raising capital at a valuation of $3 billion (~Rs 25,000 crore). 

However, Ghazal clarified that the $3 billion valuation was never publicly stated by the company and that it was simply a rumour. 

“We are a profit-making company, and there should be an understanding that there have to be more reasons than just money for us to decide to go public,” said Ghazal. For the record, as per the final offer documents, the company’s valuation is $1.2 billion (~Rs 10,000 crore).  

For the Alaghs, the IPO is just one milestone in their multi-decade growth story. Varun and Ghazal believe they have that “creation kick” to innovate for the next two to three decades and want to keep going. They want to build, innovate, and create world-class products that are rooted in India. The IPO is just the icing on the cake.