Mamaearth plans $300 million toxin-free IPO

Mamaearth became a household name when one of its co-founders, Ghazal Alagh, became popular on the Shark Tank show. Mamaearth is an Indian skin care brand which is backed by PE Fund, Sequoia Capital.

Now, Mamaearth is in talks to raise at least $300 million or Rs.2,350 crore via an IPO in the year 2023. That would peg the valuation of Mamaearth at around $3 billion.

The company will be filing the draft red herring prospectus only in the coming year, but the spade work for the IPO has already started in right earnest.

Mamaearth is not a very old company. It was founded only in the year 2016. However, it has gained a lot of traction in India with its range of "toxin-free" products such as face washes, shampoos and hair oils.

At a time when users are increasingly becoming conscious about the quality and the side effects of the skin care brands they use, the toxin-free USP of Mamaearth has fond a lot of willing buyers. Of course, the challenge is that Mamaearth has to complete with global giants like Unilever, P&G and Beiersdorf in this field.

The valuation that Mamaearth is targeting is $3 billion. At the indicative IPO pricing, it would be pricing the company at around 10-12 times its forward earnings based on forward growth. The overall IPO size is pegged at anywhere between $300 million and $350 million depending on the market conditions.
 

The company is in talks with investment bankers like JP Morgan Chase, JM Financial and Kotak Mahindra Capital to for the role of book running lead managers to the proposed public issue. This is yet to be finalized.

Indian start-ups have not had a great time. Many of the start-ups like Paytm, Policybazaar, CarTrade and now even Delhivery are trading below their IPO prices. Others like Nykaa are still above their issue price but are way below the post listing peaks achieved by these companies in the aftermath of the IPOs.

In 2022, the start-up ecosystem saw fund raising to the tune of $35 billion, but that largely vanished in the current year. Most ecommerce, fintech and edtech start-ups are struggling with excess manpower, forcing layoffs.

In 2016, the idea of Mamaearth was conceived and executed by former Hindustan Unilever executive, Varun Alagh, and his wife Ghazal. Most of the top Hindi film personalities have consistently endorsed their brands.

Mamaearth has also gained from the growing trend of purchases through ecommerce channels like Amazon and Flipkart. In a sense, the company has capitalized on the willingness to spend on responsible skin care as well as the urge in people to order goods and services online. Both are working in favour of Mamaearth. Needless to say, the market for such beauty products in India is huge.

The personal care industry in India is expected to grow to $27.5 billion by 2025; as per Avendus estimates. At the same time, the number of online shoppers for beauty products is projected to increase to 135 million.

The success of the Mamaearth IPO would largely predicate on how it rolls out its expansion plan in the Indian market. Currently, their sales are predominantly online, although major offline expansion plans are also on the anvil. 

The mix of sales at Mamaearth is quite interesting. More than 70% of Mamaearth sales come from online platforms, but the IPO funds would actually be used to bankroll their offline expansion plans.

In fact, Mamaearth is aiming to reach 40,000 retail outlets in 100 cities this year and the IPO will help them leap to the next phase. For the fiscal year ended March 2022, the company had revenues of Rs.1,000 crore and net profits of Rs.24.60 crore. However, this is not a business that results in too much of cash burn.

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