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Mamaearth’s parent company files IPO paperwork in order to sell fresh shares for $400 million.

Honasa Consumer Ltd, the parent company of personal care brand Mamaearth, has filed its draft red herring prospectus with the Securities and Exchange Board of India (SEBI) for an initial public offering (IPO).

Through the offer, there will be a fresh issuance of shares worth Rs 400 crore, in addition to an offer-for-sale (OFS) component for 46.82 million shares.

If it goes through, Honasa Consumer will likely be among the first new-age direct-to-consumer companies to have an IPO in India, after audiotech brand Boat withdrew its public offering plans earlier this year citing choppy market conditions.

The OFS will see founders Varun Alagh and Ghazal Alagh and investors such as Sofina, Fireside Ventures, Evolvence India, Stellaris, and angel investors such as Snapdeal founders Kunal Bahl, Rohit Bansal, Rishabh Mariwala of FMCG giant Marico, and actor Shilpa Shetty Kundra, part-sell their stakes in the firm.

The Gurugram-based company, which runs brands such as The Derma Co and BBlunt in addition to Mamaearth, was valued at $1.2 billion when it last raised $52 million in January this year. Mamaearth’s January funding round was led by Sequoia Capital but it is not selling its shares in the proposed IPO.

Kotak Mahindra Capital Company, Citigroup Global Markets India, JM Financial, and JP Morgan India are the bankers to the issue.

As per the offer document, Honasa Consumer reported revenue from operations of Rs 722.73 crore during April-September 2022 with a profit of Rs 3.67 crore. This compares to Rs 943.46 crore in operational revenue for the year ended March 31, 2022 on a positive bottom line of Rs 14.43 crore.

After Nykaa, this makes Honasa the second new-age firm to be aiming for a listing as a profitable firm. Startups like Paytm, Policybazaar, Zomato and others have seen public market investors questioning them on their profitability plans since listing last year.

In its offer document, Honasa Consumer said it plans to use the IPO proceeds towards advertising expenses, capital expenditure in setting up new exclusive brand outlets (EBOs), investment in its subsidiary BBlunt for opening up new salons, and general corporate purposes and unidentified inorganic acquisitions.

“We intend to utilise Rs 186 crore from the net proceeds towards marketing initiatives during financial years 2024, 2025 and 2026, including through offline and online media service agreements with entities that we engage in the ordinary course as well as any new vendors or agencies, as may be deemed appropriate,” the company said.

It added that it plans to spend Rs 34.23 crore during 2024-2026 towards “expansion of EBOs in India across a mix of mall stores and high-street outlets in India”. “Our Company proposes to set up 132 new EBOs across India,” it said. As of September 30, it had 35 such stores across the country.

Further, it also plans to spend Rs 27.52 crore from its IPO proceeds towards setting up 20 new BBlunt salons from FY24 to FY26.

Besides its offline stores, Mamaearth sells its products through its own platform as well as marketplaces like Amazon, Flipkart,Nykaa besides offline supermarket stores.

New economy IPOs

Honasa Consumer’s IPO plans come at a time when several firms in the new economy space have withdrawn or delayed their fundraising efforts through public markets on account of unfavourable market conditions.

The list includes companies such as API Holdings (PharmEasy), Oravel Travels (Oyo Hotels & Homes), Snapdeal and Droom among others.

Globally, too, with central banks hiking interest rates to rein in inflation, tech stocks are trading with market capitalisations 50-60% lower from a year ago.

This has also resulted in funding for late and growth-stage startups slowing down with private market investors becoming selective in their approach.

ET reported in its December 29 edition that venture capital funding for startups fell 30% in 2022 from the record highs of 2021 as turbulence in the technology sector made investors skittish, severely hitting late-stage fundraising. Indian new-age companies raised $23.95 billion across all stages as of December 28 this year compared with $35.46 billion, according to data from Venture Intelligence.

As per Tracxn data, there were 11 IPOs of new economy companies in 2022 compared with 16 public listings last year. The average IPO market capitalisation also fell to $517 million compared to $4 billion in 2021 – when the likes of Zomato, Nykaa, Paytm, and Policybazaar hit the public markets.

The shares of One 97 Communications Ltd, the parent entity of financial services company Paytm, plunged to Rs 474 per share on December 23 and has since recovered to trade at Rs 525 apiece as of Thursday afternoon. The fintech company’s shares are down by 75% since its listing on November 18, 2021.Its IPO issue price was Rs 2,150 per share.

Shares of food delivery platform Zomato, the first startup unicorn to go public in 2021, also took a beating as investors expressed concerns over profitability and high cash burn. The stock was down 56% from its price last year, trading at Rs 59.75 as of Thursday.

FSN Ventures, the parent company of omnichannel beauty retailer Nykaa, is down around 56% year-to-date, while PB Fintech, which operates insurance aggregator platform Policybazaar, is down almost 53%. Logistics and supply chain company Delhivery’s shares have dropped by 40% since the company’s listing in May this year.



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