Mamaearth IPO - Another valuation enigma?

The top B2C brand in personal beauty care category is seeking to raise 2900cr at a valuation of 3 billion dollars (24000 cr). The company's profit last year was 14cr. Stunned? Read to know more.......

🤑What do they want from the IPO?

They want to raise 2900cr through public offering of equity shares with a face value of Rs. 10 per share. It’s offering 400cr worth of new equity share and the rest 2500cr as OFS (Offer-for-Sale - This will allow the present shareholders of the company to sell their stake at a premium valuation and make a very profiting exit ). Now what is the problem? Well everything we thought about Mamaearth is completely opposite and startling!

They don’t make anything themselves😲

You would expect from a personal beauty and care brand to create the formulation for the products they make and have their own manufacturing setup. Well, guess what? They outsource the manufacturing of all their products to third party manufacturers and that too under a non-exclusive agreement. This means you can go to the same manufacturer and ask them to make the same products for your company and Mamaearth cannot do anything about it. They have no defensibility! All they do is put their branding on the products and call it the best product available in the market. They have no patents to their name or even an application for a patent. They just don’t care!

So what is the secret formula?🤫

MARKETING!

Mamaearth is a marketing mammoth. You will be amazed by the amount of money they spend on marketing. 40% of their total revenue unlike its competitors like Hindustan Unilever which spends less than 10%. It works under the ‘House of brands’ strategy where the parent company Honasa Consumer Ltd. holds multiple companies like Derma Co., AYUGA, BBlunt etc. But the interesting thing is that they also acquired a content marketing platform for 150cr called Just4Kids (https://mymoney.momspresso.com). It is a network of about 50,000 influencers who advocate for Mamaearth and other products. That is when you realise that Mamaearth is all about marketing. They don’t care about soaps, serum or shampoos, in fact they can sell the crap out of anything. This is their competence and they have won so far. Their revenues have shot up from 100cr in 2020 to 900cr in 2022 but their marketing spend is eating up the margins.

Online D2C brand or Offline?🤔

Now, Mamaearth claims to be an online D2C brand but you will be amazed to know that 36% of their revenues are from offline channels. Now, offline business is a whole different ballgame where your margins are eaten up by distributors, retailers etc. and you probably have to spend more. In fact it pays commissions upto 50% to its distributors compared to 20% paid by it’s competitors. So,the question that remains is-

WHERE WILL THE MARGINS COME FROM?

So is the valuation justified?

HELL NO! The founder Ghazal Alagh came out to say that they are still discussing about the valuation but even if we consider their last round evaluation of 1.2 billion dollars in Jan 2022, the final number will be surely more than that and we think it is a lot to ask for. Please let us know in the comments what you think about this and follow us for more content. We will jump into your inbox weekly!

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