Mamaearth IPO made simple: Invest in a Growing Brand easily
Have you ever wondered about investing in a company but found financial jargon and complex terms to be a barrier? Fear not, for today, we are going to simplify the concept of an Initial Public Offering (IPO) using the example of the much-anticipated Honasa Consumer IPO, which owns the popular personal care brand Mamaearth. This Mamaearth IPO is scheduled to be open for subscription from October 31 to November 2, and it’s generating quite a buzz among investors.
Understanding the Mamaearth IPO
An IPO is when a privately held company offers its shares to the public for the first time, allowing individuals like you and me to become shareholders. The Mamaearth IPO is expected to offer shares at a price band of Rs 308-324 per share. But what does this mean for you as a potential investor? Let’s break it down.
At the upper end of the price band, the company aims to raise an impressive Rs 1,701 crore from the market. This sum represents the funds they need for various purposes, such as expanding their business, enhancing their brands, and seeking new opportunities. This is done by valuing the company at a significant Rs 10,425 crore.
The IPO comprises of two parts: fresh issue of shares worth up to Rs 365 crore and an offer for sale (OFS) of about 4.12 crore shares.
Who’s Involved?
At the higher price of Rs 324 per share, Honasa Consumer aims to raise a whopping Rs 1,701 crore from the market. That’s like a big piggy bank they’re opening, and it values the company at Rs 10,425 crore. Now, that’s a lot of zeroes!
The IPO includes two parts: fresh shares worth up to Rs 365 crore, and something called an “Offer for Sale” (OFS) of about 4.12 crore shares. That’s where some existing shareholders, including the company’s promoter Varun Alagh and his wife Ghazal Alagh, will sell their shares.
The IPO also includes some attractive features for Honasa employees, who will receive a discount of Rs 30 per share and a reservation of equity shares worth up to Rs 10 crore.
IPO Details:
How Can You Participate?
As an individual investor, you can participate in the Mamaearth IPO, but it’s important to understand how it works. The bid lot size has been set at 46 shares per lot, which means the minimum bid amount in the retail category would be Rs.14,904. Approximately 10% of the IPO size has been reserved for retail investors like you and me, whereas 15% for High-Net-Worth Individuals (HNIs), and the remaining 75% for Qualified Institutional Buyers (QIBs).
What Will the Funds Be Used For?
One key aspect you should consider as an investor is how the company plans to utilize the funds raised through the IPO. The funds raised will be allocated for several purposes:
Advertisement Expenses: The company intends to invest in enhancing the awareness and visibility of its brands.
Capital Expenditure: Setting up new Exclusive Brand Outlets (EBOs) to reach more consumers.
Bhabani Blunt Hairdressing: Financial support for the establishment of new salons under its subsidiary, Bhabani Blunt Hairdressing.
General Corporate Purposes: This includes the day-to-day operational needs of the business.
Unidentified Inorganic Acquisition: The company might be looking to acquire other businesses to further its growth.
The Numbers Game
It’s always a good practice to evaluate a company’s financial performance before investing. In the June quarter, Honasa Consumer reported revenue from operations of Rs 464.49 crore, a 49% increase from the previous year. Their net profit also improved, standing at Rs 9.24 crore, in contrast to a loss of Rs 2.51 crore in the year-ago quarter.
One of the key reasons behind this growth is the Mamaearth brand’s success. It witnessed higher sales across various categories, including face care, hair care, body care, baby care, and color care.
While the company did report a net loss of Rs 150.97 crore in FY23, it had reported a net profit of Rs 14.44 crore in the previous year. However, its operating revenue increased by 58% year-on-year to Rs 1,492.75 crore.
It’s important to note that Mamaearth’s substantial majority of revenue comes from its flagship brand. Any decrease in demand for Mamaearth products could affect the company’s business, cash flows, and results of operations.
The Potential
The Mamaearth IPO provides an opportunity to invest in a company that has experienced remarkable growth. Its impressive financial performance, combined with the company’s brand expansion strategy, positions it well for the future.
The company’s plan to use the IPO proceeds for expansion, advertising, and exploring new markets shows a commitment to growth and innovation. This could potentially lead to higher revenue and profits in the coming years.
Moreover, the successful turnaround witnessed in Q1-FY 2024, with a net profit of ₹24.71 crore, compared to significant losses in the previous fiscal years, demonstrates the company’s ability to adapt and thrive in the market.
Wrap it up
The Mamaearth IPO is an opportunity to invest in a company that has shown consistent growth and is determined to continue on an upward trajectory. With a strong financial performance, an array of popular brands, and plans for strategic expansion, Honasa Consumer is an interesting prospect for investors. However, like all investments, it carries risks. The success of the Mamaearth brand and the company’s future growth will depend on various factors, including market demand and competition.
