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From Unicorn Dreams to IPO Reality: MamaEarth's IPO and Its Tumultuous Valuation Ride

By AltG Innovation Centre On Behalf Of Poornima Vardhan And Taponeel Mukherjee

Photo of Mama Earth IPO

Honasa Consumer, the parent company behind the direct-to-consumer brand Mama Earth, is gearing up for its second attempt to go public through an Initial Public Offering (IPO), aiming for a valuation of approximately INR 10,500 crore, which is around 1.2 billion USD. This marks a significant shift from their previous IPO attempt in December 2022 when they had set their sights on raising up to $300 million. So, what has transpired in the past 10 months that has led to these changes?

Substantial Valuation Reduction: In the initial stages, there were whispers in the industry that Mama Earth was looking to secure around $300 million at an impressive valuation of $3 billion. However, the company has made significant adjustments, slashing the capital raise by 33% to roughly $200 million, and reducing the valuation by a staggering 58% to $1.25 billion.

Negative Projected Returns: With Mama Earth's trailing twelve-month earnings totaling INR 10.8 crores, the implied Price-to-Earnings (P/E) ratio for the IPO stands at a lofty 972, which is 23.5 times higher than the industry median P/E ratio of 41.4 for leading Indian personal care and beauty companies.

  • Scenario 1 - Industry Median P/E (41.34): With earnings growth rates of 10%, 15%, and 20%, Mama Earth could anticipate five-year returns of -41%, -39%, and -36%, respectively. These figures strongly suggest that the valuation is exorbitant and not conducive to generating satisfactory stock returns.

  • Scenario 2 - P/E Compression to 25% of Listing P/E (729): Even under this scenario, with earnings growth rates of 10%, 15%, and 20%, Mama Earth might expect five-year returns of only 4%, 9%, and 13%, respectively.

Photo Of Mama Earth IPO Returns

These developments seem to typify the familiar narrative surrounding New Age Startup IPOs, which have seen their share prices decline significantly post-listing.

Indian Tech Stock Performance

Future Growth Concerns: As per the company's IPO filings, the capital raised will be allocated towards advertising and establishing exclusive offline stores for Mama Earth. However, a pressing question arises: for a brand deeply rooted in the digital realm, accounting for 65% of its sales from online channels, is venturing into the offline market a viable strategy? The primary distribution channel for the offline beauty industry is third-party general trade stores, and the competition from established brands in this sector is fierce. Opening a limited number of exclusive stores may not translate into significant growth. This move raises doubts about how Mama Earth plans to compete effectively.

Furthermore, one of the key advantages touted for digital brands is higher margins compared to traditional personal care brands. Nevertheless, with an EBITDA margin of approximately 3.7%, Mama Earth does not seem to fully capitalize on this narrative.

In summary, with an astronomical P/E of 972, constrained growth prospects, a valuation of INR 10,500 crores, and trailing twelve-month earnings of around INR 11 crores, there appears to be little room for upside potential in the stock price. Caution is advised for potential investors.

Disclaimer: Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.


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