The current investors of Mamaearth (Honasa Consumer), which opens for IPO subscription on October 31, feel the company's current valuation is not convincing enough for them to sell shares immediately.
That means investors like Peak XV Partners and Evolvence, who have either opted out of Mamaearth's offer-for-sale (OFS) or have reduced the number of shares they are willing to sell, see more upside and will hold the shares longer to bag better returns after it lists on the stock exchanges.
The optimism is understandable because Mamaearth’s current valuation of Rs 10,423 crore (around $1.25 billion) is unchanged from what it commanded during its fundraise in January 2022. In fact, the $1.25 billion valuation that Mamaearth is eyeing from its public market debut is a steep discount, of about 20-25 percent, from $1.5-$1.7 billion that it was seeking during its pre-IPO round of $150 million in August.
Even though Mamaearth's pre-IPO round did not happen, such rounds -- which involve a component of secondary sales -- are already done at a discount of 25-30 percent.
“On the OFS portion, investors thought that at this value it is not as attractive to sell. It is, of course, attractive for investors to buy and hence the decrease in the size of the IPO,” Arvind Vashishtha, MD, Citi Investment Banking, India, a book running lead manager for Honasa Consumer, said at a company event in Mumbai on October 26.
Kotak Mahindra, JM Financial and JPMorgan are the other lead managers for Honasa, whose IPO price band has been fixed at Rs 308-324 per share.
As indicated in its updated red herring prospectus (RHP), Mamaearth has scaled down its primary capital raise to Rs 365 crore, from Rs 400 crore earlier. The company plans to use most of the proceeds to increase brand awareness.
Even the secondary component will see fewer shares of Honasa being traded.
Mamaearth’s early investors – Shilpa Shetty Kundra, Rishabh Harsh Mariwala, Fireside Ventures, Sofina, Stellaris Venture Partners, Kunal Bahl, Rohit Kumar Bansal and the Alaghs – will together offload only 4.13 million shares instead of 4.68 million shares as planned earlier.
Evolvence and Peak XV Partners, the largest external shareholder in Mamaearth, will not be diluting their stake in the offer-for-sale component.
“Like Varun (Alagh) said, the net invested capital was enough to fuel the growth of the business for the next two years, which also tells you about the asset light model of the business which will deliver growth,” Vashishtha said.
Momspresso shuttered
Gurugram-based Mamaearth has also been making efforts to improve its financial health. In FY22, the company clocked Rs 943 crore in revenues which helped it earn a profit of Rs 14 crore, but it slipped into losses in FY23.
In the fiscal year gone by, Mamaearth managed to grow its top line by 58 percent to Rs 1,493 crore but ended the year with a loss of Rs 151 crore. The drag was largely because of an impairment loss on goodwill which amounted to Rs 155 crore on the back of shutting down Momspresso.
“We had a certain vision on how it will be able to add efficiencies through the content-to-commerce funnel in our business…but after working on it, and spending a fair bit of management bandwidth, we realised that we don't see it to be able to create the value that it was supposed to create in the longer term and it was also bleeding our overall P&L (profit and loss) statement,” Varun Alagh, co-founder and CEO, Honasa Consumer said.
“We don't expect to see that impairment on Momspresso any further because we have actually shut the business down,” CEO Alagh added.
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