The most remarkable thing about life, as many world-weary philosophers have pointed out, is that it can always get worse. Many Mamaearth investors would have concurred with this sentiment on November 7 following the lackluster market debut of the D2C personal care brand.
Shares of Mamaearth’s parent Honasa Consumer closed just over 4 percent higher on its first day as a listed company. The saving grace? At least investors did not lose money.
The single-digit pop, however, still ranks as among the worst IPO showings of this year so far.
For a company which markets tear-free soaps and shampoos, its IPO was hardly a cheery affair, at least for retail investors.
Not that many analysts were surprised.
Mamaearth’s steep valuation of Rs 10,000 crore, unusually high ad spends (30-40 percent of sales, compared to around 15 percent for traditional consumer companies) and heavy reliance on e-commerce platforms to drive sales are being viewed unfavorably by the analyst community.
Not only that, Honasa reported a net loss of Rs 150.9 crore during the year ended March 2023, impacted by an impairment loss on goodwill and other intangible assets, against a profit of Rs 14.4 crore in the 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.
Mamaearth IPO: An empty vessel making loud noise?
"While Honasa Consumer is still a relatively young company, it has quickly grown to become a major player in the Indian BPC market. However, the financial condition of the company is facing some turbulence, and there are other operation-related risks as well," Shivani Nyati, head of wealth at Swastika Investmart said.
Nyati suggested investors book profit and exit their position.
Mamaearth’s IPO had sailed through, led by qualified institutional buyers (QIB) who bought 11.5 times while retail investors remained cautious, subscribing 1.4 times the allotted quota.
Prashanth Tapse, Senior VP Research analyst at Mehta Equities, remains cautious about Mamaearth on the back of the loss-making nature of the business, high portion of offer for sale (OFS) in the IPO, high competition with margin pressure, low promoter stake, and weak financials.
The company raised Rs 1,701 crore via public issue of more than 5.2 crore equity shares. The issue comprised a fresh issuance of shares worth Rs 365 crore and an offer-for-sale of Rs 1,336 crore by promoters and investors.
The Varun and Ghazal Alagh-owned company has a diverse product portfolio that includes face care, baby care, hair care, body care products, colour cosmetics, and fragrances.
The worst market debut this year so far has been that of electronic manufacturing services company Avalon Technologies, which closed nearly 9 percent lower on its listing day. The stock is up around 12 percent as of today.
The Rs 865-crore maiden public issue of Avalon Technologies had seen 2.21 times subscription during April 3-6, mainly aided by qualified institutional investors. QIBs bought 3.57 times the allotted quota and majority of their subscription was seen on final day, while there was muted response from retail investors and high net worth individuals, who subscribed 84 percent and 41 percent of their allotted portion.
More surprising has been the showing of Cadila Pharmaceuticals-backed IRM Energy.
The Gujarat-based city gas distribution company's IPO saw strong over-subscription of 27.05 times. Retail subscribers subscribed 9.29 times, while non-institutional investors subscribed 48.34 times, and qualified institutional buyers subscribed 44.73 times.
The stock is still down 6.5 percent from its issue price.
In contrast, the star performer has been drone maker Ideaforge Technology, which was also the first initial public offering (IPO) since 2022 to get subscription of more than 100 times.
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