Mamaearth IPO: Netizens' Concerns, Analysts' View, And High Valuation Of Honasa Consumer. All You Need To Know

Mamaearth's IPO will comprise a fresh issue of shares worth Rs 400 crore ($48.30 million) and an offer for sale of 4.68 crore shares, which is totaling up to Rs 2,900 crore

There has been a buzz regarding the initial public offering (IPO) of personal care products start-up Mamaearth. Netizens and market analysts have raised concerns about the high valuation of Mamaearth parent firm Honasa Consumer. Honasa Consumer Ltd on December 29 filed draft papers for an IPO to the market regulator SEBI.

The Sequoia- and Sofina-backed company's IPO will comprise a fresh issue of shares worth Rs 400 crore ($48.30 million) and an offer for sale of 4.68 crore shares, which is totaling up to Rs 2,900 crore, Reuters reported. 

Mamaearth, a direct-to-consumer brand, is co-founded by Varun Alagh, a former Hindustan Unilever executive, and his wife Ghazal Alagh.

Reuters reported in June that Mamaearth was in talks to raise at least $300 million for the IPO scheduled for 2023. The company was last valued at $1.2 billion in January 2022 when it raised $52 million from investors, including US-based Sequoia and Belgium's Sofina. Investors, including Sofina, Stellaris Venture Partners, Fireside Ventures, and Bollywood actor Shilpa Shetty are among those selling their stake in Honasa via the offer for sale.

From, a valuation of $1.2 billion in January 2022, the company is reportedly seeking a valuation of $3 billion through its IPO, which is more than 1,000x its profits, according to a Finacial Express report. It is being questioned by many. Some have compared the high valuation of the Mamaearth IPO to that of Paytm. 

"If you applied for IPO and lost money with PAYTM, DELHIVERY, CARTRADE, ZOMATO & FINO PAYMENT … One should learn a lesson atleast for the MAMAEARTH IPO… Ridiculous pricing, seems to be only interest in providing an exit for early investors," said one social media user.

Another user said, "Seeing how quickly and desperately founders and early investors want to offload their stake and rotate by investing in another small start-up, expecting the same story to repeat tells us the quality of Indian start-ups."

Analysts have also raised concerns about Mamaearth's IPO.

Nikhil Kuruganti, marketing analytics and director of Qentelli, wrote on Linkedin, "There is something striking here - The valuation that is is being asked is 17X of their FY23 Revenues (H1-FY23 Revenues of Rs 722 crore *2) and 26X of their FY22 revenues of Rs 943 crore. It's at a P/E ratio of 3400X (considering H1-FY23 PAT of Rs 3.67 crore*2) and 1700X considering FY22 PAT of 14.44 crore."

Honasa Consumer posted a net profit of Rs 14 crore and revenues of Rs 943 crore at the end of FY22. For the six months ending September 2022, the company posted revenues of Rs 722 crore and profits of Rs 3.6 crore. According to the company’s DRHP documents, the company reported a loss of Rs 1,332 crore in FY21 and Rs 428 crore in FY20.

"We doubt that management will go ahead with the higher price because there has been a lot of backlash on social media, especially given the amount of money Mamaearth is asking; whether you look at the market cap to sales ratio or the price to earnings ratio, which appears to be a little high," Sunil Damania, chief investment officer, MarketsMojo told Finacial Express (FE). 

Recently, many IPOs, including Zomato, Paytm, and others, have not been able to sustain their high valuations, and have dropped significantly since the listing. The stocks of many new-age internet startups have been suffering big losses last year, given the somber mood in the market. Many have even delayed their IPO plans.

There are other risk factors in Mamaearth's IPO. The company spent about Rs 391 crore on advertising against net sales of Rs 932 crore. Around 40 per cent of revenue was spent on marketing in FY22. It was somewhat similar in FY21 and FY20. 

Aditya Kondawar of Complete Circle Capital in a tweet said, “This is way too high.” 

He also tweeted, “Life has come full circle for Shark Tank Judges. They were questioning start-up valuations on the show. Now all listed market investors are questioning the IPOs of the Shark Tank Judges!”

Responding to these concerns, the company’s co-founder Ghazal Alagh said, "In our DRHP as is the standard practice there is no mention of valuation."

She said, "We have not quoted or subscribe to the valuation numbers which are getting mentioned in various posts on social media." "Valuation discovery is a process which will take place over time as we get into deeper conversations with investor community," Alagh added.