Honasa Consumer, the parent of direct-to-consumer (DTC) brand Mamaearth, is going to be the second company to launch its public issue in this week, after Cello World.

The Honasa Consumer IPO will open on October 31 and the last day for bidding would be November 2. The investment by anchor investors in the IPO will be disclosed by the company on October 30.

The price band for the offer has been fixed at Rs 308-324 per share.

The company that operates several consumer brands including Mamaearth, The Derma Co., Aqualogica, Dr Sheth's, Ayuga, and BBLUNT is planning to mop up Rs 1,701 crore via public issue, at the upper price band.

The IPO consists of a fresh issuance of shares worth Rs 365 crore, and an offer-for-sale of 4.13 crore equity shares by promoters and investors.

Promoters Varun Alagh and his wife Ghazal Alagh, and investors Fireside Ventures Fund, Sofina, Stellaris, Kunal Bahl, Rishabh Harsh Mariwala, Rohit Kumar Bansal, and Shilpa Shetty Kundra are the selling shareholders in the offer.

The offer included a reservation of Rs 1 crore worth shares for its employees and hence. excluding their portion, the offer is the net issue. They will get shares at a discount of Rs 30 per share to the final IPO price.

The Gurugram-based beauty and personal care (BPC) company will spend Rs 182 crore for its advertisement expenses towards enhancing the awareness and visibility of the brands, and Rs 20.6 crore for setting up new exclusive brand outlets (EBOs).

Further, Rs 26 crore will be spent for investment in its subsidiary, BBlunt for setting up new salons, and the remaining part of the net fresh issue proceeds will be kept aside for general corporate purposes and unidentified inorganic acquisition.

The minimum bids can be made for 46 equity shares and in multiples of 46 shares thereafter. The minimum investment by retail investors in the IPO would be Rs 14,904 for 46 shares and the maximum will be Rs 1,93,752 for 598 equity shares as they can not invest beyond Rs 2 lakh in the IPO.

The firm has reserved 75 percent of the net issue for qualified institutional buyers (QIB), 15 percent for high net-worth individuals (non-institutional investors), and the remaining 10 percent for retail investors.

Honasa Consumer claimed to be the largest digital-first beauty and personal care company in India in terms of revenue from operations for the fiscal FY23. Its Mamaearth brand, which launched in 2016, has emerged as the fastest growing BPC brand in India to reach an annual revenue of Rs 1,000 crore within six years.

The direct-to customer company that has built a portfolio of brands caters to the baby care, face care, body care, hair care, color cosmetics and fragrances segments.

In the year 2022, it had a market share (in terms of gross merchandise value) of 5.4 percent in the online BPC market (i.e. DTC and e-commerce), 1.5 percent of the total BPC market, and approximately 28.9 percent in the DTC BPC market in India.

Varun and Ghazal Alagh-owned Honasa Consumer said its revenue from operations grew at a CAGR of 80.14 percent during FY21-FY23, to Rs 1,492.75 crore in FY23. It has seen volatility on the profitability front, but performance at EBITDA level remained strong.

It had a net loss of Rs 142.8 crore during the year ended March FY23, impacted by the impairment loss on goodwill and other intangible assets (Rs 154.7 crore), against profit of Rs 15.7 crore in previous year. In FY21, it had a loss of Rs 1,332.2 crore largely due to the change in fair valuation of preference shares.

Its EBITDA (earnings before interest, tax, depreciation and amortisation) for FY23 surged nearly 98 percent on-year to Rs 22.8 crore with margin expansion of 30 bps at 1.52 percent compared to previous year.

For the June FY24 quarter, net profit stood at Rs 25.96 crore against loss of Rs 9.3 crore in corresponding period last fiscal. Revenue from operations during the same period surged 49 percent to Rs 464.5 crore.

Promoters including Varun Alagh and Ghazal Alagh hold 37.41% equity shares in Honasa, and the rest of shareholding is owned by public including US venture capital firm Sequoia Capital.

PXV VI, and Fireside Ventures Fund are the largest public shareholders in the company with 19.38 percent shares and 10.34 percent shares respectively, while Stellaris and Sofina hold 9.45 percent stake each.

Varun Alagh is the Chairman, Whole-time Director and Chief Executive Officer of the company, while his wife Ghazal Alagh is the Whole-time Director and Chief Innovation Officer. Ishaan Mittal, the nominee of Peak XV and Sequoia Capital, is the Non-executive Director on the board.

Risk Factors

a) Honasa does not manufacture any of its products and relies entirely on third-party manufacturers. In FY23 and Q1FY24, the top three manufacturers contributed 51.73 percent and 46.01 percent of the total value of its purchase of traded goods, respectively.

b) The company derives a significant amount of revenue from a limited number of products. The top 10 products contributed 27.38 percent to revenue in FY23 and 29.1 percent in the June FY24 quarter.

c) The substantial majority of its revenue from operations comes from the sale of products under the flagship Mamaearth brand, which contributed 82 percent to total revenue from operations in FY23.

d) The launch of new brands or products that prove to be unsuccessful could affect its growth plans.

e) The firm has experienced negative cash flows from operating, investing and financing activities in the past.

f) The company faces intense competition which may lead to a reduction in its market share.

Last But Not Least

The Sequoia Capital-backed firm will finalise the basis of allotment of IPO shares by the end of November 7. Equity shares will be credited to demat accounts of successful investors by November 9.

The trading in its equity shares will commence on the BSE and NSE, with effect from November 10, as per the IPO schedule.

The equity shares seem to be getting muted response in the grey market, trading at around 2-3 percent premium over the upper price band, analysts on anonymity said. The grey market is an unofficial platform for trading in IPO shares till the listing.