Mamaearth IPO opens for subscription: Should you bid or skip?

The initial public offering (IPO) of Honasa Consumer Limited, the company behind the popular brand Mamaearth, opened for subscription on Tuesday. Investors will be able to subscribe to the issue till November 2.

As the IPO opened for subscription today, several investors are wondering whether they should subscribe to the IPO or skip it in the wake of volatile market conditions. It has garnered mixed reviews from analysts, especially due to its relatively high valuation.

The IPO’s price band is set at Rs 308-324 per share, implying a valuation of approximately Rs 10,500 crore at the upper end of the range.

Subscribe or skip?

Swastika Investmart’s Shivani Nyati highlighted that while Honasa is a new-age company that is well-known for its flagship brand Mamaearth, the financial performance of the company has been inconsistent.

“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,” Nyati added and advised investors to avoid subscribing to the issue.

Avinash Gorakshakar of Profitmart Securities told The Economic Times that investors with a long-term perspective may consider subscribing to the offering, betting on the company's growth potential. However, he highlighted that short-term investors may not witness substantial listing gains due to the pricey valuation.

Meanwhile, StoxBox also highlighted that the IPO is aggressively priced and recommended an ‘avoid’ rating to the issue.

Details about the IPO

The IPO consists of a fresh equity issue of Rs 365 crore and an offer for sale of around 4.12 crore shares. Founders Varun Alagh and Ghazal Alagh, along with investors like Kunal Bahl, Shilpa Shetty, and Rishabh Mariwala, will partially divest their stakes in the offer.

This comprises a primary share offering amounting to Rs 365 crore and the sale of 4.13 crore equity shares by the company's promoters and investors. With the public issue, the company plans to raise Rs 1,701 crore.

Investors can place bids for a minimum of 46 shares in a single lot, with multiples allowed thereafter. For retail investors, the investment threshold starts at Rs 14,904 for a minimum of 46 shares and can extend up to Rs 1,93,752 if they opt for 598 equity shares.

In terms of allocation, 75 per cent has been reserved for qualified institutional buyers, 15 per cent for non-institutional investors, and the remaining 10 per cent for retail investors.

Furthermore, the company's employees will receive a discount of Rs 30 per share, along with a reservation of equity shares worth up to Rs 10 crore.

The funds raised from this IPO will be allocated towards advertising expenses, capital expenditure to establish new exclusive brand outlets (EBOs), investment in subsidiary BBlunt for opening new salons, and general corporate purposes, including unidentified inorganic acquisitions.

Key banks involved in the IPO include Kotak Mahindra Capital Company, Citigroup Global Markets India, JM Financial, and JP Morgan India.

Financially, the company reported a loss of Rs 151 crore in FY23, a significant shift from the Rs 14.4 crore profit recorded the previous year. However, it did report a notable 58 per cent increase in revenues, reaching Rs 1,493 crore in the same period.

In the most recent June quarter, the company's revenue from operations witnessed a 49 per cent rise to Rs 464 crore, while net profit amounted to Rs 9.24 crore compared to a Rs 2.51 crore loss in the corresponding period of the previous year.

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