The digital-first beauty and personal care company and Mamaearth's flagship brand, Honasa Consumer has opened for public bidding for its initial public offering (IPO) to raise Rs 1,701 crore.
The IPO opened for public subscription on 31 October and will be closed on 2 November 2023 and it will be listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
The total issue size is Rs 1,710 which is comprised of Rs 365 crore of fresh equity shares combined with Rs 1,336 of offer-for-sale (OFS) component with the price band of Rs 308 to 324 per equity share.
Those offering shares in the OFS include promoters and founders Varun Alagh and Ghazal Alagh and investors like Fireside Ventures Fund, Sofina, Stellaris, Kunal Bahl, Rohit Kumar Bansal, Rishabh Harsh Mariwala and Bollywood actor Shilpa Shetty Kundra.
Retail investors would be required to bid for a minimum of one lot consisting of 46 shares with a capital of Rs 14,904. Notably, employees of the Honasa group are offered a discount of Rs 30 and a reservation of upto 34,013 shares in the issue.
“The financial performance of the company has been inconsistent, and it has reported losses in recent fiscals. Subsidiaries that it has acquired have also incurred losses. Additionally, the company does not manufacture its products and relies on third parties for that, and it also does not hold any patents over its product formulas,” an expert stated in the Swastika Investmart report.
The business' return on advertising (ROA) has also been consistent for a few years, thus the company's client retention is very low. As it is a loss-making company, the expert added, "We cannot derive its actual P/E, but even after considering its outflow in the latest investment, the company is coming at an extremely high valuation. Thus, I will suggest to “Avoid” this IPO."
In the fiscal year 2022-23, the company reported an increase in total revenue of Rs 1,515 crore from Rs 964 crore in the previous fiscal year. However, the firm clocked a net loss of Rs 150 crore compared to a net profit of 14.44 crore in FY22.
“The company's focus on product development and innovation R&D may impact short-term profitability due to high advertising expenses and capital expenditure. Conservative investors should be cautious as the IPO includes a larger OFS offer followed by a low promoter holding and an overcrowded sector for high competition. Hence conservative investors may wait and watch post-listing performance, while risk-takers can consider long-term investment for high potential growth,” said Prashanth Tapse, Senior Vice-president (Research), Mehta Equities.
Kotak Mahindra Capital Company, Citigroup Global Markets India, JM Financial and JP Morgan India are the book-running lead managers for this offering and Kfin Technologies is the registrar to the offer.
Since the raised capital of Rs 1,336 is an OFS component, the firm will only receive funds of Rs 365 crore from the offer. The company intends to utilise the net proceeds for the acquisition of unidentified inorganic, advertising, capital expenditure and general corporate purposes. In addition, the firm also intends to invest in its subsidiary, Bhabani Blunt Hairdressing through net proceeds.
