Rural growth may help reduce e-commerce heat over next 2 quarters, says Mamaearth CEO Varun Alagh

Meanwhile, it recorded a free cash flow of Rs 224 crore in FY24.
After the company announced its March quarter results, Moneycontrol caught up with Mamaearth founder and CEO Varun Alagh to talk about profitability, the cost of competing online, how quick commerce is doing as a sales channel, and more.

Edited excerpts:

You have logged your highest quarterly profit after tax for FY24. What are the levers that have been pulled to achieve this?

There are three areas in which we have worked as an organisation in terms of becoming more efficient. First has been improving our gross margins, which has happened because of category mix as well as our negotiation in terms of bringing costs down. The second area has been advertising and promotion spends (ANP), which continue to grow slower than the company’s growth.

For example, if the company has grown at 31 percent, the ANP cost has grown at 24 percent. Hence, the gap between the two is the leverage. And the third is leverage in terms of opex costs like salaries.

Has the cost of competing on e-commerce marketplaces decreased because of the funding winter?

While from startups, there is some sanity because of the focus on profitability coming into play, but then competitive intensity did increase from incumbents as rural growth was slow. Now, with rural growth kicking in, hopefully that intensity over the next two quarters will also go down.

We have seen a trend of large shareholders in new age companies starting to offload shares after the 6 months lock-in post IPO. Are you expecting anything like that?

I can only say this for promoters that we are not looking to sell anything. From an investor perspective, it's an open market, whereby we are not supposed to have any information on selling plans of anyone else. What I can say is that since the lock-in period has ended, we haven't seen any major transaction taking place.

You have acquired the assets and intellectual property of a company called Cosmogenesis for Rs 4 crore. How does it fit into your business?

It is basically a research and development company. It is helmed by Rohini who has had experience of over two decades in helping companies build and commercialize formulations. They have their own lab and manufacturing where they have developed 4,000 formulations as yet with the help of a team of scientists.

Are you also getting any brand IP from them? And do you have an acquisition pipeline for FY25?

This is no other brand acquisition. This is purely R&D capability. We currently have no plans for further acquisitions in the short term.

How is quick commerce as a channel doing for you?

As a channel it was really non-existent two years back. Last year, it started growing and making its impact felt. Now it's actually growing almost four to five times faster compared to the other ecommerce channels. If last year ecommerce channels were not even in the top 10 customers, now they feature in the top 5.

You have said that selling on quick commerce is more profitable. Why is that?

The profitability difference is not very significant. But the difference there exists is on account of category mix, limited SKUs, and the fact that it is B2B in nature.

You have recently launched a Gen Z focussed make-up brand. How is it doing?

We just launched it two months ago. Of course, the response because of the innovative products that we have launched like three-in-one lipstick has been fairly positive to start with. But it's too little a baby to actually ask these questions. We only like to review the performance of brands after 12 months and 24 months.

Your ESOP costs in FY24 dropped by half to around Rs 13 crore. Meanwhile, this is weighing on the profitability of other new age companies. How have you been able to control it?

I think there is also the play of accounting here. For us, three years back when we were building our leadership team and management we were issued strong stock options. The accounting for it is actually very accelerated in nature under the IndAs norms. As the years move on, the impact of the stock options reduces.