What does Mamawarth Ipo have to say about India's skin care market?

Most investors would have probably never heard of the name of the company, Honasa Consumer. That is because the company is much better known by its flagship brand, Mamaearth, which is a popular personal skincare brand devoid of chemicals. Now Mamaearth is looking raise Rs. 400 crore through a fresh issue of shares, over and above the offer for sale (OFS) of around 4.70 crore shares. Since they filed for the IPO, the markets have been rife with speculation about the likely valuations. According to conservative estimates, the valuation of Mamaearth is pegged at close to Rs. 24,000 crore or around $3 billion. That makes Mamaearth one of the most expensive buys in that market.

You can say that the number are almost mindboggling. Based on net profit of Rs. 14 crore in FY22, its price-to-earnings (P/E) ratio works out to 1,714 times. Generally a higher PE ratio indicates a stock or company is overvalued and vice versa, although that may not always be true. Mamaearth was found by Ghazal Alagh and Varun Alagh, who was formerly a senior executive of Hindustan Unilever. Mamaearth was one of the first companies to become a unicorn in the year 2022. The company became profitable only in the latest year FY22. For such paltry profits, it is getting valuations that is many times that of Hindustan Unilever.

What does this say about India’s skincare market. One thing is that growth has been impressive due to its impressive personal care portfolio. However, it is open to criticism since the PE ratio of Hindustan Unilever and Procter and Gamble is under 100. The natural skincare market is likely to grow to $30 billion in the next few years so the potential to grow for these companies with a strong digital franchise like Mamaearth is humongous. That is what the IPO is betting on. It is not a bet on numbers or margins. It is a bet on the long trend of the skincare industry.

Mamaearth is the largest digital-first BPC company in India in terms of revenue from operations for FY22. It has a portfolio of 6 BPC brands with differentiated value propositions for each of them. The market for BPC products in India is expected to grow from approximately $17 billion in 2021 to $30 billion in 2026 at CAGR of 12%. BPC products market lends well to digital penetration, which is currently sized as $2.5 billion, is expected to grow at 27% CAGR annually to around $8.4 billion by 2026. That would be assuming a 28% online penetration rate.

Also Read: Mamaearth eyes a whopping $3 bn valuation in proposed IPO