Mamaearth Parent Company Honasa Consumer's Stock Makes Tepid Debut

Honasa Consumer, the parent company of the popular brand Mamaearth, made a rather tepid debut on the stock exchanges. The stock was listed at ₹333 on the National Stock Exchange (NSE), with just about a 3% premium over its issue price of ₹324 apiece. A similar listing price of ₹324 was recorded on the BSE.

Just a day before its listing, the shares of Mamaearth were trading at a premium of ₹26 per share in the grey market, indicating an expected listing pop of 8%. However, the stock's performance on the day of listing fell short of these expectations.

The grey market, where shares are traded unofficially before the IPO allotment and listing, had generated significant interest, with many investors tracking it to gauge the potential listing price.

The IPO had garnered strong demand from institutional investors, with an overall subscription of 7.6 times. Qualified institutional bidders (QIBs) exhibited robust interest, oversubscribing their quota by 11.50 times. Non-institutional investors also showed interest, with a subscription rate of 4.02 times. In contrast, retail investors displayed comparatively weaker enthusiasm, with their portion being subscribed 1.35 times.

Honasa Consumer's IPO involved the sale of shares within the price range of Rs 308 to Rs 324 apiece, with a lot size of 46 shares. At the upper end of this price band, the company's valuation stands at Rs 10,425 crore, and the IPO is set to raise approximately Rs 1,701 crore.

The IPO included a fresh issue of Rs 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, alongside investors like Kunal Bahl, Shilpa Shetty, and Rishabh Mariwala, partially divested their stakes.

The capital raised through the IPO is earmarked for various purposes, including advertising expenses, capital expenditure for establishing new exclusive brand outlets (EBOs), investments in subsidiary BBlunt for opening new salons, and general corporate needs, including potential inorganic acquisitions.

JM Financial, Citigroup Global Markets, Kotak Mahindra Capital, and JPMorgan played key roles as the book-running lead managers for the IPO, while Kfin Technologies served as the registrar.

One notable aspect of Honasa Consumer's IPO is that it is the first direct-to-consumer (D2C) company to go public in India, marking a milestone in the country's investment landscape.

Despite the tepid stock debut, Honasa Consumer holds a significant position as the largest digital-first beauty and personal care (BPC) company in India, in terms of revenue from operations for the fiscal year 2023. The company's revenue exhibited remarkable growth, with a Compound Annual Growth Rate (CAGR) of 80% over the period of FY21-23, coupled with a striking volume growth of 102.28%.

Moreover, the company's adjusted EBITDA as of FY23 stands at 3.4%, owing to an asset-light business model that enables greater investments in marketing, technology, and product innovation, resulting in a negative working capital.

Honasa Consumer operates an array of brands in various segments, including baby care, face care, body care, hair care, colour cosmetics, and fragrances. Among these, Mamaearth is the flagship brand, contributing the highest revenue to the company's operations.

In the financial year ending in March 2023, Honasa Consumer reported a net loss of Rs 142.8 crore, a noteworthy shift from the profit of Rs 15.7 crore recorded in the previous year. It's important to note that the loss in FY21, amounting to Rs 1,332.2 crore, was largely attributed to changes in the fair valuation of preference shares.