Mamaearth IPO valuation concerns: A look at firm’s finances and risks

Market


Just before the end of 2022, popular brand Mamaearth’s owner Honasa Consumer filed its Draft Red Herring Prospectus (DRHP) on December 29 with market regulator Securities and Exchange Board of India (SEBI) to raise around 2,900 crore through an initial public offering (IPO). 

Since then, the startup’s valuations have been questioned by many. Some have even compared Mamaearth IPO to that of Paytm’s. The main bone of contention is the valuation of the company.

In the year ended March 2022, the company doubled its revenue from operations to 943 crore compared to 459 crore in the previous fiscal; 109 crore in financial year 2020. For the six months period ended September 30, 2022, the revenue stood at 722 crore.

It reported a profit of 14.4 crore in FY22. In comparison, the company reported a loss of 1,332 crore in FY21 and 428 crore in FY20, according to company’s DRHP.

The company plans to raise funds through offer of equity shares (face value Rs10 each) through the public issue. 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 stocks of many new-age internet startups that listed on bourses recently such as Paytm, Nykaa, Zomato have been suffering big losses. Given the somber mood in the market, many startups even delayed or shelved their IPO plans.

Risk Factors

1. If the company fails to identify and effectively respond to changing consumer preferences and spending patterns or changing beauty and personal care trends in a timely manner, the demand for our products could decrease, causing our business, results of operations, financial condition and cash flows to be adversely affected.

2. It derives a significant amount of revenue from a limited number of products. Any decrease in the sales of key products will adversely affect its business, cash flows, financial condition and results of operations.

3. The company does not have its own production. It depends on third-party manufacturers for all our products – this subjects the company to risks, which, if realized, could adversely affect the business, results of operations, cash flows and financial condition

4. The brand is known by its brand ambassador Shilpa Shetty, who will be selling stake in the public issue. Reliance on celebrities and social media influencers as part of the marketing strategy may adversely affect the business and demand for our services.

5. The company relies on relationships with certain marketplaces and web traffic drivers for sales through online channel. “For Financial Years 2020, 2021, and 2022 and the six months period ended September 30, 2022, our revenue from online channels across all our brands amounted to 998.43 million, 3,742.93 million, 6,595.34 million and 4,291.15 million, respectively, representing 90.94%, 81.37%, 69.91% and 59.37% of our revenue from operations, respectively,” the company said in its DRHP. 

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


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