Mamaearth – A Deep Dive Into The Valuations!

As soon as Mamaearth filed its DRHP with SEBI, everyone started talking about its sky-high valuations. But is the high valuation justified? Let’s find out in today’s newsletter. 

What’s Happening?

Before we come to the valuation part, let us have a look at the issue size of the IPO. As per the DRHP, Mamaearth’s parent company – Honasa Consumer, is planning to raise Rs 400 crores from a fresh issue with a face value of Rs 10 each. 

Apart from this, promoters and other investors, and the brand ambassador (Shilpa Shetty Kundra) are selling around 4.7 crore shares through an Offer for Sale (OFS). 

According to Mint, the company is looking to raise Rs 2,400 crore through the IPO.

Valuation of Mamaearth

Just a year back, in January 2022, while raising a $52 million investment from Sequoia, Mamaearth was valued at $1.2 billion. According to Moneycontrol, exactly a year later, the company is seeking a target market capitalisation of $3 billion (about Rs 24,000 crore) with the size of its IPO.

That makes us wonder, what changed during this period?

Nothing much. The company just turned a little profitable.

The company has recently turned profitable with net earnings of Rs 14 crores in FY22, and with that confidence, they are seeking a valuation target of over 1,000x of its FY22 profits!

Alarming Spendings on Advertisement and Marketing

The next thing that stands out in the DRHP is the insane amount spent on advertisements and marketing of their products. As of 30th September 2022, Mamaearth has worked with 3,958 influencers.

Basically, if a company has a well-established foundation, the more recurring customers they gain and the less they have to spend on advertising.

According to Moneycontrol, the Return on ad spend (ROAS) of Mamaearth has ranged from 2.4 to 2.6 since FY20, indicating less improvement. On the other hand, Nykaa has a ROAS of 7.8!

Where Will The Accumulated Capital Be Used?

According to the DRHP, the company will use a chunk of its capital for advertising its products. Next, the company wishes to set up Mamaearth’s brand outlets, invest a chunk in its subsidiary business Bhabani Blunt Hairdressing (BBlunt) and set up new salons. 

To conclude, in the previous season of Shark Tank India, Ghazal Alagh, one of the co-founders of Mamaearth, kept saying, “Aapka valuation jyada hai, main invest nahi kar payungi” (Your valuations are high, I won’t be able to invest). It seems they are on the receiving end this time. 

As an investor, what are your views on Mamaearth IPO? Let us know your thoughts!

*The article is for informational purposes. This is not investment advice.