The initial public offering (IPO) of Honasa Consumer, the parent company of Mamaearth, the direct-to-consumer (DTC) brand, is set to open for subscription on October 31, 2023. The company raised ₹765 crore from anchor investors ahead of the IPO, and its shares are commanding a marginal premium of ₹10 in the unlisted market. However, analysts hold mixed opinions on whether investors should subscribe to this ₹1,701 crore issue.

Mamaearth follows an asset-light business model with high growth potential, which has piqued the interest of investors. Nevertheless, experts raise some important considerations. Prashanth Tapse of Mehta Equities points out that the company’s focus on product development and innovation R&D might affect short-term profitability due to high advertising expenses and capital expenditure. New investors are advised to be cautious, especially given the IPO includes a fresh share issuance of ₹365 crore and a low promoter stake of 37.41%. For conservative investors, a wait-and-watch approach is suggested, while risk-takers could consider long-term investment for potential growth.

Tapse also mentions that the IPO appears to be overvalued in current market conditions, noting that historical listings with high valuations have often faced post-listing challenges.

Sushil Finance recommends applying for the IPO with a medium to long-term view, emphasizing that investors may observe the company’s profitability over a few upcoming quarters before making a decision.

Swastika Investmart, on the other hand, advises against subscribing to the IPO, considering the company’s loss-making status and high valuation. The financial performance has been inconsistent, and the company relies on third parties for manufacturing, without holding patents over its product formulas.

The Mamaearth IPO, closing on November 2, comprises a fresh equity issue of ₹365 crore and an offer for sale of about 4.12 crore shares. The company has set a price band of ₹308-324 per share, valuing the company at ₹10,425 crore, with a plan to raise ₹1,701 crore. A significant portion of the public offer is reserved for qualified institutional buyers (QIB), while the rest is allocated to high net-worth individuals and retail investors.

The use of net proceeds from the listing includes advertising expenses, capital expenditure for exclusive brand outlets, investment in subsidiary BBlunt, and general corporate purposes. However, concerns include potential unsuccessful product launches, reliance on third-party manufacturers, and historical losses.

Despite challenges, Honasa Consumer has established itself as a prominent digital-first beauty and personal care company in India, with brands like Mamaearth, The Derma Co., Aqualogica, and Ayuga under its umbrella. The company’s revenue has grown significantly, and its Mamaearth brand reached ₹1,000 crore in annual revenue within six years.

While Mamaearth’s IPO is generating interest, it’s important for potential investors to carefully weigh the risks and opportunities before deciding to subscribe.

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