Mamaearth eyes a whopping $3 bn valuation in proposed IPO

If everything goes well, Shilpa Shetty could make a killing in the Mamaearth IPO. Shilpa Shetty is not just the brand ambassador of Mamaearth, but also an early investor and backer of the company. For now, the IPO plans are still at an early stage, but if indications are anything to go by, they could be looking at whopping valuations. The company is planning a $300 million IPO at a valuation of (hold your breath) a whopping $3 billion. Mamaearth is making a paltry profit and is locked up somewhere between an FMCG company and a new age digital company. But the valuations are at over 1,000 times earnings and at that kind of valuations it would make Nykaa look relatively under-priced.

But, what exactly does Mamaearth do? it is a Direct to consumer (D2C) skincare and beauty brand and has found a good following and demand in the Indian market. However, the way the valuations have been catapulted in the recent months is almost a case study. Early in January 2022, Mamaearth had raised fresh funds from Sequoia and Sofina of Belgium. The company was valued at $1.2 billion at that point of time. Now the valuation they are targeting in 2023 is about 2.5 times that valuation. Of course, as per the new SEBI regulations they would have a lot of explaining to do about how the new valuations were arrived at, but that is the next part of the story. For now, the IPO is still in planning stage.

As of now, the draft red herring prospectus (DRHP) is likely to be filed with SEBI only by around the end of 2022. The hope is that by then the negative sentiments surrounding digital stocks should also be much lower and the sentiments and valuations would also normalize. It is yet to appoint merchant bankers for the issue, but they are talking to JP Morgan Chase, JM Financial and Kotak Mahindra Capital to act as the book running lead managers to the issue. Incidentally, Mamaearth was founded in 2016 with a range of "toxin-free" products like face washes, shampoos and hair oils. It competes with India’s leading FMCG companies in the Indian market.

The company, Mamaearth, was founded by Varun Alagh, a former HUL executive, and his wife Ghazal. Mamaearth has cashed in on the growing e-commerce adoption in India as well as a preference for natural and toxin-free skincare products. The market potential is huge. Indian beauty and personal care industry is expected to grow to $27.5 billion by 2025 from $17.8 billion in 2020. At the same time, the number of online shoppers for beauty products are projected to rise to 13.5 crore from just 2.5 crore today. Clearly, the opportunity is huge, but whether Mamaearth would be able to justify such valuations remains a question.

Currently, nearly 70% of the sales of Mamaearth come from the online platforms, but it is also working on building its robust offline presence. It is targeting around 40,000 retail outlets across 100 cities in India over the next one year. While profits of the company are quite small at Rs24 crore, the total sales were at over Rs1,050 crore for FY22. How they justify their premium valuations remains the million dollar question.