Honasa Consumer IPO: Should You Invest In Mamaearth Parent's Issue?
The three-day issue, which opens on Tuesday, will be priced in the Rs 308-324 range and conclude on Nov. 2.
Honasa Consumer Ltd., the parent of FMCG brands like Mamaearth and The Derma Co., will launch its initial public offering on Tuesday.
The three-day issue, priced in the range of Rs 308-324 per share, will conclude on Nov. 2.
The public issue is expected to fetch over Rs 1,700 crore at the upper end of the price band. The IPO consists of a fresh issue of equity shares worth Rs 365 crore and an offer-for-sale component of 4.12 crore equity shares by promoters, investors, and other selling shareholders.
Valuation Snapshot
Based on the upper end of the share price band, the post-issue implied market capitalisation of Honasa Consumer would be Rs 10,425 crore. Since the earnings per share for the year ended March 31, 2023, is negative, the price-to-equity ratio of the company is not ascertainable.
The company has focused on capitalising on the beauty and personal care segment in the FMCG space. Redseer’s analysis of the financials of listed entities globally suggests that the valuation of pure play BPC companies is at a premium to FMCG-led BPC companies.
However, based on its annualised FY24 EPS, StoxBox considers the IPO to be aggressively priced at 97 times, discounting all immediate positive factors. It seems like the company is leveraging its proven track record to justify a premium valuation, it said.
"We, therefore, recommend an 'Avoid' rating for the issue and would revisit the company following consistent and sustainable improvement in profitability," it said in a note.
On the other hand, analysts at Emkay Research have assessed the stock’s valuation for three scenarios:
Scenario 1: Attractive, in a scenario where the company looks to double its turnover in the next three years.
Scenario 2: Fair, in a scenario when the company would register a 20% revenue CAGR with Ebitda margin at ~10%.
Scenario 3: Expensive, in a scenario where revenue CAGR would be ~10% with Ebitda margin at ~6%.
"Honasa’s production being fully outsourced, Ebitda flow to earnings is likely to be smooth. With gross margin of more than 70%, the company is looking to improve profitability in the business by scaling up operations... Offline expansion is likely to add wings, thus helping sustain healthy growth for its brand offerings," Emkay Research said in a note.
