Mama Earth IPO: Valuation Concerns

Overview Of Mama Earth And IPO :

An Indian company called Mamaearth sells goods for fitness, wellness, and health. Varun and Ghazal Alagh founded the business, which has its headquarters in Gurgaon. In just four years, it experienced exponential growth and amassed a net worth of INR 115 crore.

The company has proposed a 2900 crore INR initial public offering. The IPO will include a 400 crore rupee fresh issue of shares as well as a 46.8 million share offer for sale (OFS). The money raised through the IPO will be primarily used to launch exclusive brand outlets and increase brand visibility and advertising.

Overview of the angel investments made in Mamaearth :

The following list provides a thorough overview of the angel investments made in Mamaearth :

Mama Earth’s IPO was met with some concern from analysts due to the high valuation placed on the company. Some questioned whether the subscription model would be able to generate enough revenue to justify such a high valuation. However, others pointed out that the size of the digital streaming market provides ample opportunity for growth.

Detail Of The Business And Valuation :

Ghazal and Varun Alagh founded Mamaearth in September 2016 with the goal of making skincare routines more stylish while still providing the utmost care. Mamaearth, with its headquarters in Gurugram (India), stands out in the country’s cosmetics market as an online retailer of natural and toxic-free skin care products.

The majority stake in Mamaearth, or 38.72% of the company, is held by Varun Alagh. Sequoia Capital, which owns 15.22% of the stakes, is the following in line. Stellaris Ventures holds 10.42% of the stakes, followed by Fireside Ventures, which owns 12.04% of the stakes. 8.72% of the company’s shares are owned by Sofina Ventures, 3.58% by co-founder Ghazal Alagh, and 1.32% by Shilpa Shetty Kundra. As of March 2021 data, the remaining stakes, or roughly 10.44%, are with Others.

The business is praised for the growth it has experienced since its inception. With 30 lahks in revenue in just six months of operation, Mamaearth quickly grew. Mamaearth started selling exclusively online, to brand-new clients. The company started directly acquiring customers. The milestone of 2 crores in revenue was reached by Mamaearth, but that wasn’t the highest success rate. Shilpa Shetty was then hired by the business as an angel influencer, ushering in the era of the influencer mom. With this, the business quickly passed the 100K customer mark, and by 2019, it generated Rs 25 crore in revenue. Within just three years of operation, Mamaearth’s revenue surpassed the 100 crore mark by the year 2020.

The Sequoia and Sofina-backed company is valued at $3 billion, or roughly Rs24,000 crore, according to a Reuters report from June, even though neither the company nor its book running lead managers have confirmed its current valuation. In terms of valuation, Mamaearth would then rank among the most expensive businesses. Its price-to-earnings (PE) ratio equals 1,714.28 times based on a net profit of Rs. 14 crore in FY22. A metric for valuing companies and determining whether they are overvalued or undervalued is the PE ratio, also known as the price multiple or the earnings multiple. A higher PE ratio denotes an overvalued stock or company.

The company was valued at $1.2 billion in its most recent round of fundraising, which took place in January 2022.

The Concern Around The Valuation :

The internet is buzzing about a new initial public offering (IPO), as Mamaearth, which made about $14 Cr in revenue last year, is aiming for an IPO valuation of $24,000 Cr. Mamaearth’s most recent valuation was $1.2 billion in January 2022, but the company is currently aiming for a $3 billion valuation for its impending IPO. They are therefore looking to raise 400 crore rupees at a $3 billion valuation.

“Anirudh A Damani, the founder of Artha Group, stated that the reviewed valuation for the Mamaearth IPO is at 24,000 crores, which is nearly 25 times FY22 revenues and 1600 times FY22 profits (PE). These valuations are astronomically high when compared to well-known brands like Marico or Dabur, which trade between 50x and 60x PE with legacy brands and significant offline distribution. Additionally, I am very concerned about IPOs because more than 25% of IPO sizes are committed to an offer-for-sale.

Additionally, it is said that in the case of Mamaearth, 2500 crores of the 2900 crore IPO will give early investors and the company’s celebrity influencers liquidity. This is a concern for me because a company doing 14 crores in revenue is expected to have an incredibly high valuation.

There is a lot of speculation about the price Mamaearth will set for its initial public offering, according to Sunil Damania, Chief Investment Officer at MarketsMojo. The merchant banker would typically choose the price nearer the IPO date. Everyone is currently making assumptions based on data that is currently available to the public. Given the amount of money Mamaearth is asking for, as well as the market cap to sales ratio and price to earnings ratio, which seem to be a little high, we doubt management will proceed with the higher price because there has been a lot of social media backlash. Numerous initial public offerings, including Zomato, Paytm, and others, failed to maintain their high valuations. And since the listing, they have decreased significantly. 

Among those selling shares in the OFS of Mamaearth IPO are the company’s promoters Varun Alagh and Ghazal Alagh, investors Fireside Sofina, Ventures Fund, Kunal Bansal, Stellaris, and Rohit Bansal, Rishabh Harsh Mariwala of FMCG company Marico, and Bollywood star Shilpa Shetty Kundra. At listing, a $3 billion valuation is anticipated, representing a 3x increase in valuation from the $1.2 billion valuation at the beginning of 2022.

Conclusion :

By announcing an IPO at a time when tech stocks are experiencing a global downturn, MamaEarth is displaying incredible bravery. However, the company has room to grow and expand in the future due to rising digital penetration, high disposable income, and growing awareness in the beauty and personal care segment.