India’s largest D2C beauty company to raise ₹1,701 crore via an IPO

• Mamaearth parent Honasa Consumer plans to raise as much as ₹1,701 crore via an IPO.
• The price band is fixed at ₹308-324, and the IPO will open on October 31 and close on November 4.
• The company intends to use net proceeds towards ad expenses, set-up outlets, and others.

House of brands Honasa Consumer is planning to raise as much as ₹1,701 crore from its maiden public offer. The IPO of the parent company of Mamaearth brand will open on October 31 till November 4.

The price band for the issue has been fixed at ₹308-324. Investors can bid for a minimum of 46 shares in multiples thereof.

The issue is a combination of a fresh issue and an offer-for-sale. Some of its selling shareholders include its celebrity investor and actress Shilpa Shetty, Snapdeal’s Rohit Kumar Bansal and Kunal Bahl; and Rishabh Harsh Mariwala of the Marico family.

This is apart from promoters Varun and Ghazal Alagh, Fireside Ventures Fund, Sofina and Stellaris.

The company intends to use net proceeds from the fresh issue towards advertisement expenses, to set-up exclusive brand outlets, investment in its subsidiary, BBlunt, general corporate purposes and unidentified inorganic acquisitions.

The issue allocates 10% of the offer to retail investors, 15% to non-institutional investors and 75% to qualified institutional buyers (QIBs).

Kotak Mahindra Capital, Citigroup Global, J M Financial and J P Morgan are the book running lead managers of the issue and KFIn is the registrar.

Loss on account of impairment

The company has reported a progressive growth in revenue for the last three years. It slipped back into losses in FY23, after posting profits in FY22. It was due to an impairment loss it had to take in the last financial year to the tune of ₹154 crore.

“This was primarily due to the management decision to scale down the majority of the business verticals of Momspresso, a content platform operating under our subsidiary, Just4Kids Services, and acquired by us in December 2021,” the company said.

Source: RHP
* it represents a loss

A top heavy profile

While the BPC D2C brand has a wide array of products, most of its revenues depend on top 10 products. As of June 2023 end, a third of revenues from operations or around 29% of revenues came from these products.

“While our dependence on sales of our top 10 products has been declining with increasing contributions from our other products, any decrease in the sales of our top 10 products, whether due to increase in sale of products or market share of competitors with similar products or any other reason, will adversely affect our business, results of operations, financial condition and cash flows,” the company said.

Its top products include the Mamaearth brand, the Derma Co, Dr Sheth’s, and Aqualogica brands in the face care and hair care categories. Around 9% of its revenues came from the same two products.

Moreoso, the auditor’s report on internal financial controls issued on its standalone financial statements in FY21 contains a disclaimer of opinion. The opinion relates to the auditors’ inability to obtain appropriate audit evidence to provide a basis for opinion on adequate internal financial controls.

The company which depends on influencers also sees them as a business risk. “Influencers may use their platforms to communicate directly with our consumers without our knowledge in a manner that reflects poorly on our brands and may be attributed to us,” Honasa said.

The company sells its products via its own D2C channel like its brand and mobile websites, and mobile applications. But its third party e-commerce marketplaces bring in the most sales. As of June 2023 end, it derives 64% of its revenue from operations from e-commerce marketplaces.

High ad expenses & heightened competition

The company’s ad expenses stood at 34.99% of its revenue from operations as of June end. The company is also in a segment that’s extremely competitive. And some of these competitors are larger and have substantially greater resources than them. That gives them the ability to spend more on advertising and marketing and offer substantial discounts, the company says.

Then, there is also the threat of new entrants which may have more flexibility in responding to changing business and economic conditions. “As the BPC products space has a fairly low barrier to entry, these new entrants could potentially heighten the competitive landscape, which may lead to intensified competition on pricing,” the company said.

It also said that its subsidiaries acquired in the past, including Just4Kids, BBlunt, B:Blunt Spratt and Fusion, have incurred losses for certain historical periods. There is no assurance that these entities will be profitable in the future,” the company cites as its risk factors.

The company has undertaken one criminal and three material civil proceedings. It has two tax and two material civil litigations proceeding against it, where the aggregate amount involved is ₹100 crore.