In the cosmetic industry, consumer focus invariably gravitates toward the manufacturing processes behind the products. This focus has spurred a new era of cosmetic items: organic, crafted through natural methods, and utilizing ingredients free from toxins and chemicals.
The surge in demand for these organic products is evident due to their promise of being gentle on our skin, hair, overall health, and well-being. Capitalizing on this burgeoning interest in organic goods, Mamaearth has emerged as a promising startup within the cosmetics industry.
Mamaearth was established in 2016 by the duo Varun Alagh and Ghazal Alagh, and the company’s goal was to establish a health-conscious environment for mothers and their infants. Since its inception, the company has multiplied and diversified its product range to include hair care, skin care, baby care, men’s grooming, oral care, and wellness categories. For those seeking a promising investment prospect within the consumer sector, investing in Mamaearth IPO was worthwhile.
The Mamaearth IPO was priced at a premium valuation compared to its beauty and personal care peers. At the upper end of the price band, the company was valued at Rs 10,424 crore, translating to a price-to-earnings (P/E) ratio of 208.6 based on FY21 earnings. In comparison, some of its listed peers, such as Marico Ltd, Dabur India Ltd, Emami Ltd, and Godrej Consumer Products Ltd, had P/E ratios of 54.8, 64.9, 40.4, and 69.9, respectively.
The Strengths and Weaknesses of Mamaearth Company
Strengths
- Mamaearth company has been the most searched Personal care and beauty brand from January 2020 to November 2022.
- There was an increase in the contribution of new SKU sales to revenue from 39.75% in FY 21 to 42.17 in FY 22.
- There was a significant increase in brand-building capabilities with expertise in its existing domain.
- The brand focused on customer-centric product innovation and brand strategy.
- There was a high focus on the Beauty and Personal care category.
Risks
- Mamaearth could not identify and effectively respond to changing consumer preferences and spending patterns. The product demand was affected by the changing beauty and personal care trends. The business performance suffered.
- It was unsuccessful in maintaining the brands, and its reputation affected the business. Its marketing expenditure was at ~40% of revenue.
- The high product concentration affected the brand. The top 10 products contributed 30% of revenue, and the top 2 contributed 13%
- The rapid scaling of offline channel presence affected the brand.
- The competition with new brands and existing players that entered similar categories affected the brand.
Source: DRHP
Mamaearth Financial Analysis
A wealth creation strategy is essential for long-term investment goals. Mamaearth IPO was seen as a promising IPO. The company has strategically focused on crafting purposeful brands, fostering trust, and building strong consumer connections, significantly contributing to its business expansion. According to a RedSeer report, Mamaearth exhibited an exceptional Compound Annual Growth Rate (CAGR) of 193.15% in revenue from operations, surpassing the industry’s average of 13% during the same period.
Regarding revenue streams, Mamaearth held the top position among Beauty and Personal Care (BPC) companies in Direct-to-Consumer (DTC) revenue, constituting 52.37% of its overall revenue for the six months leading up to September 30th, 2022. In the fiscal year 2021, Mamaearth secured second position among digital-first BPC companies, boasting a gross profit margin of 71.15%. This achievement was attributed to its customer-centric approach, adaptable operational strategies, tech-driven methodologies, and distinctive business framework.
Mamaearth remained one of India’s two digital-first BPC companies to achieve a positive adjusted EBITDA margin (6.82%) during the fiscal year 2021. Moreover, its adjusted EBITDA has demonstrated consistent growth across preceding quarters, indicating promising financial stability and an upward trajectory in performance.
The Mamaearth IPO focused on generating capital for various purposes, including expanding its customer base, enhancing the percentage of recurring purchases, and promoting new product lines among its current clientele. Mamaearth planned to allocate the funds from the IPO for the subsequent goals.
| Purpose | Estimated amount in crores |
| Adv for increasing brand visibility | 186 |
| Capital expenditure toward the set up of new Exclusive Brand outlets | 34.23 |
| Investment in BBlunt for setting up new salons | 27.52 |
| General purpose and unidentified inorganic acquisition | Will be determined after finalizing the offer price |
Source: DRHP
Mamaearth IPO details
| IPO Status | Approved |
| IPO Date | October 31 to November 3, 2023 |
| Total IPO Size | Fresh issue – Rs.365 cr and OFS – Rs. 41,248,162 |
| Lot size | 46 shares |
| Price band | Rs. 308 to 324 per share |
| Issue type | Book Built Issue |
| Face value per equity share | Rs 10/- |
| IPO Listing at | BSE and NSE |
Source: DRHP
Considering the Beauty and Personal Care (BPC) industry’s projected 12% Compound Annual Growth Rate (CAGR) in India to reach $30 million by 2026, the Mamaearth IPO garnered considerable attention from investors.
FAQs:
- Listing Date: Mamaearth was listed on November 10, 2023.
- Share Price: The IPO’s price band was set at ₹308 to ₹324 per share, with a lot size comprising 46 shares each.