In contrast to the recent trend of healthy listings, the stock of Mamaearth parent Honasa Consumer made a tepid debut on the exchanges with just a 1.85% premium. The stock was listed at ₹330 on the National Stock Exchange (NSE), a premium of 1.85% over its issue price of ₹324 apiece. The stock was listed at ₹324 on the BSE.

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A day before listing, shares of Mamaearth were commanding a premium of ₹26 per share in the grey market, signalling a decent landing on Dalal Street with a listing pop of 8%.

The grey market is an unofficial trading platform where shares get traded well before the allotment in the IPO and until the listing day. Most investors track the grey market to get an idea of the listing price.

What should investors do?

After receiving a decent subscription, the stock was able to give a positive listing, said Shivani Nyati of Swastika Investmart, recommending investors to book profit and exit their position.

"While Honasa Consumer is still a relatively young company, it has quickly grown to become a major player in the Indian BPC market. The company has a diverse product portfolio that includes face care, baby care, hair care, body care, colour cosmetics, and fragrances. However, the financial condition of the company is facing some turbulence, and there are other operation-related risks as well," Nyati said.

Prashanth Tapse, Research Analyst and Sr VP Research at Mehta Equities advised allotted conservative investors to book profits on the listing day and wait and watch for better pricing post-listing while risk-takers can consider holding it long-term for potential high product growth.

Anushi Vakharia of StoxBox recommended investors who are allotted shares to book profits, if any, on the listing day and to revisit the company following consistent and sustainable improvement in profitability.

"We recommend booking for partial profit and holding partial allotment for long-term as the company has brand-building capabilities and repeatable playbooks. Also, the company’s customer-centric product innovation and digital-first omnichannel distribution along with data-driven contextualised marketing with the ability to drive growth and profitability in a capital efficient manner infuse optimism in the long-term growth outlook," said Astha Jain, Research Analyst at Hem Securities.

Speaking to CNBC-TV18, Varun Alagh, Chairman, Honasa Consumer says that he sees all of these brands growing really well. "We feel that all of our brands have potential to become ₹500 crore plus brands over the next three to five years."

The Chairman further said the company is not looking to divest anything at present. "But in future, we don't know how we look at things, we are in this for decades. We want to build this company and brands for decades," he stated.

He added that Honasa Consumer is not seeing any headwinds now. "We are growing very strongly and we see a lot of opportunity, BPC category continues to grow very well. We also see our shares in that category continuing to grow, we see the consumer evolving, and hence a lot of new opportunities are coming up."

Subscription status, other details

The IPO was subscribed overall 7.6 times, led by strong interest from institutional bidders. The quota for qualified institutional bidders (QIBs) was booked at 11.50 times, while the portion set aside for non-institutional investors saw 4.02 times bidding.

However, retail investors were not too excited by the public offer as the portion reserved for them saw relatively weaker interest, being subscribed 1.35 times.

Honasa Consumer sold its shares in the price range of ₹308-324 apiece with a lot size of 46 shares. At the upper end of the price band, the company is valued at ₹10,425 crore and will garner about ₹1,701 crore via the IPO.

The IPO, which was open for bidding from October 31 to November 2, comprised a fresh issue of ₹365 crore and an offer-for-sale (OFS) of up to 4.12 crore equity shares.

Under the OFS, founders Varun Alagh and Ghazal Alagh, along with investors Kunal Bahl, Shilpa Shetty, Rishabh Mariwala, will offload partial stakes.

The company will use the IPO proceeds for advertising expenses, capital expenditure in setting up new exclusive brand outlets (EBOs), investment in its subsidiary BBlunt for opening new salons, and for general corporate purposes and unidentified inorganic acquisitions.

JM Financial, Citigroup Global Markets, Kotak Mahindra Capital, and JP Morgan acted as the book-running lead managers, while Kfin Technologies was the registrar to the IPO.

It is also the first direct-to-consumer (D2C) company to go public in India.

Financials

The D2C company had recorded a net loss of ₹142.8 crore during the year ended March FY23, compared to a profit of ₹15.7 crore in the previous year. In FY21, it had a loss of ₹1,332.2 crore largely due to the change in the fair valuation of preference shares.

Honasa Consumer is touted to be the largest digital-first BPC company in India in terms of revenue from operations for the fiscal FY23. The revenue for the company has grown at a CAGR of 80% over FY21-23 with a volume growth of 102.28%.

It has an adjusted EBITDA of 3.4% in FY23 with negative working capital on account of an asset-light model that enables it to invest more in marketing, technology and product innovation.

Honasa Consumer has a product portfolio in the baby care, face care, body care, hair care, colour cosmetics and fragrances segments. The company operates six brands — Mamaearth, The Derma Co, Bblunt, Ayuga, Aqualogica and Dr Sheth. Mamaearth is the flagship brand, bringing in the highest revenue.

First Published:Nov 7, 2023 9:59 AM IST