?? The D2C bet on Mamaearth

When Mamaearth was founded in 2016-17, “direct to consumer” was a relatively new business model constantly assessed against the operational style of FMCG companies.

Despite being an early-stage venture, Mamaearth did not play it safe. It enlisted actor Shilpa Shetty as a brand ambassador (and an investor), trialled multiple products instead of focusing on a few and became the fastest player to clock up sales of Rs 1,000 crore in the D2C space.?

In the process, it demonstrated that digital-first brands can be built and grown. More than 80 startups selling various personal-care items have come up since then, and all of them have collected funding.

MyGlamm, Sugar Cosmetics, Wow Skin Science and Mcaffeine are among the most well-known in this crop. For numerous investors backing such companies, Mamaearth serves as a benchmark.

Mamaearth raised capital at a valuation of $1.2 billion in 2022. A profitable business, it was priced at over 10 times its topline.?

As the unicorn’s parent entity, Honasa, heads to the street, public-market analysts are placing its sales figures next to the metrics of FMCG majors, including conglomerates, with vast distribution networks.

Obviously, the seven-year-old startup doesn’t match up and is viewed as an overpriced bet. A fair or a harsh comparison? We will know what the markets think soon: the IPO opens on October 31 and closes on November 2.?

Honasa’s red herring prospectus suggests a valuation target at a 5X revenue multiple. Other new-age consumer brands will closely follow the market reaction.?

“Currently, Mamaearth is the best D2C story out there, with venture investors appreciating its business execution. If stock investors don’t appreciate its performance, there may be a trickle-down effect on other players in the sector,” said the founder of a consumer brand.

Aditi Shrivastava

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Arc Notes

• Honasa, which owns mamaearth , recorded a topline of about Rs 464 crore during the three months ending June 30, 2023. Mamaearth’s standalone revenues from operations stood at Rs 303 crore; it is expanding 17% year on year.?
• Mamaearth is roughly 100% larger than the combined income of Honasa’s five other brands — Derma Co, Aqualogica, Ayuga, BBlunt and Dr Sheth’s. Can these businesses pull their weight??
• Honasa has set a price band of Rs 308-324 for its IPO. At the top of the range, the unicorn would be valued at $1.25 billion. Several late-stage investors in the company don’t deem this target figure attractive and are deferring selling shares or parting with only a small portion.?

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