A Closer Look at Mamaearth's IPO Journey

Mamaearth, the renowned brand synonymous with natural and eco-friendly personal care products, has been a household favorite for health-conscious consumers. With a commitment to offering toxin-free, sustainable alternatives, Mamaearth has not only captured the hearts of millions but has also managed to make significant waves in the business world. The recent announcement of Mamaearth's initial public offering (IPO) is poised to mark a significant milestone in the company's journey. As it prepares to go public, Mamaearth IPO is generating immense interest and anticipation within the business community and among its loyal customer base. This article delves into the details of Mamaearth's upcoming IPO, exploring the implications, expectations, and exciting prospects that lie ahead for this pioneering brand in the realm of sustainable wellness.

Mamaearth IPO is all set to go live on 31st October 2023.

The company intends to raise Rs. 1,701 Cr. by issuing fresh equity shares. Let’s understand in detail with the help of a chart:

Mamaearth IPO Date/Timetable:

Mamaearth- IPO- Promoters & Management:

The company has 3 Directors including 2 Whole Time directors & 1 Non-executive Director. The company also has 2 Key Managerial Posts held by:
Varun Alagh: Chairman, Whole-Time Director and Chief Executive Officer (C.E.O)
Ghazal Alagh: Whole-Time Director and Chief Innovation Officer (C.I.O)
Ishaan Mittal: Non-Executive Director

Mamaearth- IPO- Grey Market Premium (GMP)

Mamaearth’s shares seem to be getting a muted response in the grey market, trading at around a 2-3% premium over the upper price band.

Mamaearth- IPO- Financial Performance (In Crores):

The company revenue has consistently grown over the past few years & as of 30th September 2022 stood at Rs. 11,559 Cr. in comparison to Rs. 10,350 Cr. in March 2022.

The company’s PAT has also seen a substantial decline from Rs. 144.13 Cr. as of 31st March 2022 to Rs. 36.67 Cr. as of 31st September 2022

Company net worth has also seen a steady hike from Rs. 2831.18 Cr. as of March 2022 to Rs. 3212.31 Cr. as of September 2022.

​Mamaearth- IPO- Comparison with Industry Peers (2022):

​Mamaearth has a market cap. which is almost 4 times smaller than its industry peer Nykaa while its Price to Earning stands at a whopping 495.1 which is still lower than Nykaa which stands at 1035.7 but considerably lower than the Industry Price to Earning (P/E). A sizable Price to Earnings which is considerably higher than Industry P/E is usually an indicator of a company being overvalued. Mamaearth has a book value of 30, which is 1.25x that of its peer Nyka (approx ~ 24.3). The company’s EV/EBITDA is in a very bright spot since it is 146x times less than that of its peer Nykaa, which makes it an attractive option to invest in.

Now we shall take a look at 3 reasons on why investors should avoid investing in Mamaearth IPO:

Upon engaging with retailers, it became clear that there was substantial brand awareness surrounding Mamaearth's products, and these items were readily available in retail stores. However, a puzzling trend emerged - customers were not inclined to purchase them. While there was an initial buzz surrounding Mamaearth's products, it had since waned. The products were relatively expensive in the market, and the promised attributes of being natural, safe, and eco-friendly were not perceived as delivered. In contrast, premium brands like Forest Essentials and Kama Ayurveda, though pricier than Mamaearth, consistently adhered to their commitment of offering natural and safe products, making them the preferred choice among consumers.

In terms of financial performance, Mamaearth faced several challenges. Despite a surge in revenue, the company grappled with low profit margins. Prior to the fiscal year 2022, the company had been incurring losses, and its FY23 results revealed a meager profit of just 4 crores. However, this profit was quickly overshadowed by a substantial loss of 151 crores after accounting for the impairment of goodwill. The impairment of goodwill may sound complex, but it essentially means that the value assigned to certain intangible assets has diminished significantly. Mamaearth's acquisition of Momspresso for a substantial 152 crores is an illustrative example. However, upon closer examination, the actual value of Momspresso's assets amounted to a mere 15-17 crores. The significant disparity in valuation was due to the premium placed on the business, referred to as "goodwill." Unfortunately, Momspresso ceased operations, rendering its value virtually worthless. As a result, Mamaearth had to recognize this as an impairment of goodwill in their financial statements, leading to a significant one-time loss and explaining the FY23 loss. Furthermore, Mamaearth's lavish spending on marketing emerged as another major concern. In FY2023, they allocated a staggering 530 crores for marketing, representing a substantial 36% of their total revenue. This figure significantly exceeds industry standards and raises questions about the sustainability of their marketing strategies.

Looking at key financial metrics, Mamaearth's FY23 profit had significantly declined, with an EBITDA margin of just 1.52%. The Return on Capital Employed (ROCE), a measure of capital efficiency, also dropped to around 2.94%. To put this in perspective, Mamaearth's ROCE signifies that for every unit of capital employed, they generated a return of just 2.94%. In comparison, parking funds in a standard savings account would yield a 6% return, which highlights the inefficiency of their capital usage.

To provide context, a comparison with industry giants such as Hindustan Unilever (HUL) and Loreal is necessary. HUL boasts an enormous revenue of 61,000 crores, offering a diverse range of products that extend beyond the Beauty and Personal Care (BPC) sector. Loreal, a direct competitor, nears 5,000 crores in revenue. The key differentiator is the EBITDA margin, with Mamaearth's EBITDA at a meager 2%, while Loreal enjoys a robust 21.7% EBITDA margin. Even Unilever PLC maintains an EBITDA margin of 23.6%, further underscoring the discrepancy. In the realm of investor attractiveness, Mamaearth's Earnings Per Share (EPS) for FY23 was negative, making it incomparable to companies like Hindustan Unilever, which boasts an EPS of 37.8. The Price-to-Earnings (P/E) ratio, a critical investor metric, was equally unfavorable. While Mamaearth did not disclose their FY23 P/E ratio due to negative EPS, their FY22 results showed a staggering P/E ratio of 495. To put it simply, investors would have to spend 495 rupees to earn just 1 rupee, in stark contrast to the industry average of 53. This stark discrepancy underscores the considerable gap Mamaearth needs to bridge to be on par with its peers.

In summary, Mamaearth faces a multitude of challenges, from market perception and profitability to financial performance and valuation metrics. To succeed and maintain investor confidence, the company needs to address these issues and improve upon its financial stability and operational efficiency.

Conclusion:

In conclusion, Mamaearth's journey from its humble beginnings to the cusp of an IPO is a testament to the power of purpose-driven entrepreneurship. The brand's commitment to providing natural, safe, and sustainable alternatives has not only resonated with consumers but has also set a remarkable example for the business world. That being said, it’s advisable for investors to review & analyse the performance of Financials of Mamaearth before making a strategic decision to invest.

Investors interested in accessing a comprehensive research report on this company, which includes information about the company itself, its assets, revenue breakdown, SWOT analysis, current capital structure, various key performance ratios (such as Growth, Leverage, Earnings yield), valuations, a comparison with industry peers across multiple metrics, shareholding patterns, and details on corporate events, including historical dividend history, stock splits, bonuses, and legal cases, can find the complete and detailed research report on Planify. You can also access the full report through Planify’s Android or iOS app for your convenience.