Mamaearth IPO: Honasa Consumer's valuations factor-in growth prospects, says Emkay
Honasa Consumer, incorporated in 2016, provides beauty and personal care products through its digital platform and currently serves over 500 cities in India.
- Oct 30, 2023,
- Updated Oct 30, 2023 4:06 PM IST
Brokerage firm Emkay Global Financial Services said it believes that Honasa Consumer, the parent company of Mamaearth, is aptly equipped to capitalise on the swiftly-growing beauty & personal care (BPC) segment in FMCG space with its ‘house of brands’ portfolio.
Emkay Global sees Honasa’s fast scale-up and prospect of healthy sustained growth with its house of brands to keep its growth ahead compared with other listed peers in the listed FMCG space. It believes the company’s profitability will improve with scale.
Honasa Consumer's initial public offering (IPO) will hit the street on Tuesday, October 31 and can be subscribed till Thursday, November 2. The company is looking to raise a little more than Rs 1,700 crore from primary markets, by selling its shares in the fixed price band of Rs 308-324 per share.
Also read: Mamaearth IPO: Shilpa Shetty, Snapdeal's Kunal Bahl, Marico promoter to make up to 101x gains
Emkay said that post-issue implied market cap of Honasa Consumer depending on the price band is likely to be to Rs 10,425 crore, at the upper price band. Based on business valuations, implied market capitalisation, post listing the stock looks attractive, in a scenario where the company looks to double its turnover in the next three years.
Emkay said that valuations will be fairly priced in a scenario when the company would register a 20 per cent revenue CAGR with an EBITDA margin at 10 per cent. However, the domestic brokerage firm said it sees the valuations of Mamaearth expensive in a scenario where revenue CAGR would be 10 per cent with EBITDA margin at 6 per cent.
For the financial year 2023, Honasa Consumer reported a revenue of Rs 1,492.7 crore with an EBITDA of Rs 22.8 crore and EBITDA margins of 1.5 per cent. In its attractive, fair and expensive scenario, Emkay has pegged Honasa's revenue at Rs 3,000 crore, 2,580 crore and 2,000 crore and EBITDA margin of 26 per cent, 20 per cent and 10 per cent, respectively.
"Honasa has the playbook in place for its relatively recently incubated/acquired brands, which are seeing faster growth. It has expedited its offline journey with intent to reach a wider audience, gain predominance and drive scale. With a gross margin of more than 70 per cent, the company is looking to improve profitability in the business by scaling up operations," said Emkay Global.
Incorporated in 2016, Honasa Consumer provides beauty and personal care products through its digital platform and currently serves over 500 cities in India. The homegrown unicorn is supported by investors like Sequoia Capital India, Sofina SA, Fireside Ventures and Shilpa Shetty Kundra.
Prashanth Tapse, Senior VP (Research) at Mehta Equities said that Mamaearth operates an asset-light model with high growth potential, creating interest in the investor's community. The company's focus on product development and innovation R&D may impact short-term profitability due to high advertising expenses and capital expenditure.
"New investors should be cautious as the IPO includes fresh share issuance of Rs 365 crore and a low promoter stake," he added. "Conservative investors may wait and watch, while risk-takers can consider long-term investment for potential growth. However, the IPO appears to be overvalued in the current market conditions."
Also read: Q2 earnings effect: Adani Green Energy shares rise 8%; check details
Brokerage firm Emkay Global Financial Services said it believes that Honasa Consumer, the parent company of Mamaearth, is aptly equipped to capitalise on the swiftly-growing beauty & personal care (BPC) segment in FMCG space with its ‘house of brands’ portfolio.
Emkay Global sees Honasa’s fast scale-up and prospect of healthy sustained growth with its house of brands to keep its growth ahead compared with other listed peers in the listed FMCG space. It believes the company’s profitability will improve with scale.
Honasa Consumer's initial public offering (IPO) will hit the street on Tuesday, October 31 and can be subscribed till Thursday, November 2. The company is looking to raise a little more than Rs 1,700 crore from primary markets, by selling its shares in the fixed price band of Rs 308-324 per share.
Also read: Mamaearth IPO: Shilpa Shetty, Snapdeal's Kunal Bahl, Marico promoter to make up to 101x gains
Emkay said that post-issue implied market cap of Honasa Consumer depending on the price band is likely to be to Rs 10,425 crore, at the upper price band. Based on business valuations, implied market capitalisation, post listing the stock looks attractive, in a scenario where the company looks to double its turnover in the next three years.
Emkay said that valuations will be fairly priced in a scenario when the company would register a 20 per cent revenue CAGR with an EBITDA margin at 10 per cent. However, the domestic brokerage firm said it sees the valuations of Mamaearth expensive in a scenario where revenue CAGR would be 10 per cent with EBITDA margin at 6 per cent.
For the financial year 2023, Honasa Consumer reported a revenue of Rs 1,492.7 crore with an EBITDA of Rs 22.8 crore and EBITDA margins of 1.5 per cent. In its attractive, fair and expensive scenario, Emkay has pegged Honasa's revenue at Rs 3,000 crore, 2,580 crore and 2,000 crore and EBITDA margin of 26 per cent, 20 per cent and 10 per cent, respectively.
"Honasa has the playbook in place for its relatively recently incubated/acquired brands, which are seeing faster growth. It has expedited its offline journey with intent to reach a wider audience, gain predominance and drive scale. With a gross margin of more than 70 per cent, the company is looking to improve profitability in the business by scaling up operations," said Emkay Global.
Incorporated in 2016, Honasa Consumer provides beauty and personal care products through its digital platform and currently serves over 500 cities in India. The homegrown unicorn is supported by investors like Sequoia Capital India, Sofina SA, Fireside Ventures and Shilpa Shetty Kundra.
Prashanth Tapse, Senior VP (Research) at Mehta Equities said that Mamaearth operates an asset-light model with high growth potential, creating interest in the investor's community. The company's focus on product development and innovation R&D may impact short-term profitability due to high advertising expenses and capital expenditure.
"New investors should be cautious as the IPO includes fresh share issuance of Rs 365 crore and a low promoter stake," he added. "Conservative investors may wait and watch, while risk-takers can consider long-term investment for potential growth. However, the IPO appears to be overvalued in the current market conditions."
Also read: Q2 earnings effect: Adani Green Energy shares rise 8%; check details