🌍💄 Mama earth or 💸 Mama dearth?

We charge into 2023 with some introspection, inspiration and investigation into the Mamaearth IPO only in RoundOp 48.0...

Barely Opinionated

Jan 04, 2023

📦 What’s inside?

BO wishes you a happy 2023!
Never underestimate the power of one…
Mamaearth’s big IPO - hit or miss?

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🐬 Deep Dive

Our top stories of the week

Mama Earth and its IPO Woes

Sequoia Capital-backed Indian skincare startup Mamaearth is in talks to raise at least $300 million in a planned IPO next year and is seeking a valuation of around $3 billion.

Mamaearth’s parent company, Honasa Consumer Ltd, filed a draft red herring prospectus (DRHP) ahead of its planned initial public offering (IPO) to raise Rs 400 crore (US$48.3 million)—a flotation that will also see its founders and investors, like actress Shilpa Shetty selling shares.

Since then, the startup's valuations have been questioned by many. Some have even compared Mamaearth IPO to that of Paytm's. Here are the top concerns -

Last valuation for Mamaearth was $1.2 billion in January 2022. The company is now seeking a $3 billion valuation for its upcoming IPO.
Mamaearth reported profits of 22 cr last year. If the company goes public at its target valuation, it would be valued at a multiple of 1,000 times its profits.
Mamaearth IPO comprises of fresh issue of equity shares aggregating up to ₹400 crore and offer for sale (OFS) of up to 46,819,635 equity share by selling shareholders.
The company relies on relationships with certain marketplaces and web traffic drivers for sales through online channel.

💰 If the company is unable to expand its offline sales network, it might have an adverse impact on the firm's revenues…

What’s particularly fascinating is that the share of the offline channel kept rising through the pandemic years of 2020 and 2021, when e-commerce was a big gainer in general. Even if one could discount it thanks to the offline business’ low base back then, the trend has continued in 2023.

On the face of it, Mamaearth seems to be heading in the right direction. After all, 85% of the personal-care market was offline in 2021, according to the IPO filing. And three-quarters of it comprised small, unorganised retailers.

It’s a no-brainer, then, to make deep inroads into this segment. The flipside is that even with far better profit margins, selling through physical stores will be a relative cash guzzler. Mamaearth will have to find the sweet spot between retaining its digital-first identity and having a large enough market to sustain investor interest.

🔴 Bottomline: Mama Earth’s plans are currently being viewed as a ‘bailout IPO’ as the company has sufficient cash and momentum to attract investors in the private market. Being the test IPO in such a choppy market, it will set the tone for the remaining IPOs of the year.

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