Mamaearth’s Shares Fizzle on Debut: A Wake-Up Call for Indian D2C Brands Eyeing IPOs?

Despite mixed views from industry analysts, Honasa Consumer's public offering garnered notable attention from institutional investors, resulting in an overall subscription rate of 7.6 times.

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Shares of Honasa Consumer, the parent company of FMCG brands like Mamaearth, made a modest entrance on Dalal Street. The stock is listed at a slight 1.8% premium over its IPO price, with an opening price of ₹330 on the National Stock Exchange (NSE), compared to the IPO price of Rs 324. Meanwhile, on the BSE, the stock debuted flat at ₹324 per share. This performance was a far cry from the earlier excitement in the grey market, where Mamaearth shares were trading at a premium of ₹26 per share, indicating an anticipated listing pop of 8%.

In the grey market, unofficial trading takes place before the IPO allotment and listing day, providing investors with a sneak peek into the potential listing price.

IPO Subscription Status

Despite mixed views from industry analysts, Honasa Consumer’s public offering garnered considerable attention from institutional investors, resulting in an overall subscription rate of 7.6 times. Qualified institutional bidders (QIBs) oversubscribed their quota by 11.50 times, while the employee portion was subscribed 4.87 times. Non-institutional investors also showed strong interest, with their portion being subscribed 4.02 times.

In contrast, Honasa IPO failed to create any excitement among the retail investors, as their portion was subscribed just 1.35 times. This is mainly due to Honasa’s high valuation and the losses that the company has reported.

While the Mamaearth IPO was subscribed just 12% on the first day – lower than 17% of Paytm IPO on its first day – it took a surprise turn and was 70% subscribed on the second day.

“The market view on Mamaearth has now turned neutral from cautious, despite the risk of investing in a loss-making nature of the business and high competition with margin pressure,” said Prashanth Tapse of Mehta Equities.

Honasa Consumer IPO Details

Honasa Consumer sold its shares in the price range of ₹308-324 apiece with a lot size of 46 shares. At the upper end of the price band, the company is valued at ₹10,424.53 crore and is anticipated to raise about ₹1,701.44 crore via the IPO.

Honasa Consumer IPO opened for bidding from October 31 to November 2, comprised a fresh issue of ₹365 crore and an offer-for-sale (OFS) of up to 4.12 crore equity shares. Under the OFS, founders Varun Alagh and Ghazal Alagh, along with investors Kunal Bahl, Shilpa Shetty, and Rishabh Mariwala, divested partial stakes.

The IPO proceeds will be utilized for advertising expenses, capital expenditure for setting up new exclusive brand outlets (EBOs), investments in subsidiary BBlunt to open new salons, general corporate purposes, and potential inorganic acquisitions.

Honasa Consumer operates six brands, including Mamaearth, The Derma Co, Bblunt, Ayuga, Aqualogica and Dr Sheth. Among these brands, Mamaearth stands out as a leader, driving substantial revenue for the company.

Honasa Consumer witnessed a strong 58% YoY growth in its operating revenue, amounting to ₹ 1,492.75 crore in FY23. Mamaearth accounted for nearly 82% of the total revenue. However, the company reported a loss of ₹ 150.97 crore in FY23, a notable contrast to the previous year’s profit of ₹14.4 crore.

The most recent June quarter showcased the company’s resilience and progress, as Honasa Consumer reported a remarkable 49% YoY upswing in revenue from operations, reaching ₹464 crore. Even more impressive was the transformation in profitability, with a net profit of ₹9.24 crore, a significant leap from the ₹2.51 crore loss recorded in the corresponding period the previous year.

In a Nutshell

Honasa Consumer’s modest stock market debut provides valuable insights into the evolving landscape of the Indian direct-to-consumer (D2C) sector. It is a reflection of investors’ changing priorities and their increasing emphasis on profitability and sustainable business models. The days of sky-high valuations for loss-making companies may be waning, and this shift has implications for D2C brands planning to go public.

For D2C brands eyeing the public stage, the key takeaways from Honasa Consumer’s IPO are clear: prioritize building strong brands, achieving profitability, and maintaining healthy margins. Investors are seeking companies with solid fundamentals and sustainable growth strategies. These factors will be critical in attracting investor interest and ensuring success in the public markets.

It’s worth noting that India’s D2C sector is still in its infancy, with potential growth to reach $100 billion by 2025. As the sector continues to evolve, D2C companies have a significant role to play in shaping the future of Indian commerce. Those who adapt to the changing investor landscape and focus on building robust, profitable businesses will be well-positioned to thrive in this dynamic market.


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