Honasa Consumer IPO Review: The much awaited IPO is all set to hit the markets. Honasa Consumer, which owns the flagship brand- Mamaearth, is coming up with the IPO, which is listed on the NSE and BSE. The IPO will be open for subscription on 31 October 2023 and will close on 2 November 2023.
Honasa Ltd. is India’s leading digital-first beauty and personal care company, founded in 2016. It offers a range of natural safe and toxin-free products through its six Brands: Mamaearth, The Derma Co., Aqualogica, Ayuga, BBlunt. and Dr. Sheth’s. Each brand serves different customer segments with unique needs and preferences. Mamaearth is the leading brand that focuses on natural and safe products for mothers and babies. The other brands provide solutions for skin care, hair care, wellness and grooming.
Honasa Ltd. has a strong online presence, with 59.36% of its revenue coming from online channels. It also has a wide offline distribution network, with 36.14% of its revenue from offline channels and 4.50% from other services.
The company has 13 warehouses across India, covering 18,640 pin codes and 85 exclusive brand outlets for Mamaearth products.
Industry Overview
The beauty and personal care (BPC) industry in India encompasses the products and services that improve the appearance and well-being of a person’s hair, skin and nails. The industry is witnessing rapid transformation due to the convergence of technology, demographic changes and rising consumer aspirations. The Indian BPC market is expected to grow from around $20 billion in 2022 to around $33 billion in 2027, registering a CAGR of around 11%, which is among the highest in the retail sector.
The market is driven by the growing awareness and demand for natural, organic and diversified products, as well as the increasing penetration of electronic platforms.
The online BPC market, which accounted for 16% of the total market in 2022, is projected to grow at a CAGR of 29% to reach 34% by 2027. The offline BPC market, which includes unorganized and organized channels such as general business, modern business , and salons, still dominate the market with an 84% share in 2022.
The offline channel is preferred by consumers who are looking to touch and feel the products, especially for mid-premium and premium segments. The BPC industry in India caters to the evolving needs and preferences of the large and growing youth population that is influenced by global beauty trends and social media platforms.
Honasa Consumer IPO – Financial Highlights
Honasa Consumer saw a big increase in operating income, soaring from ₹ 459 crore in March 2021 to ₹ 1492 crore in March 2023. However, the company made losses, with Profit After Tax (PAT) falling from -₹ 1,332 crore to -₹ 150 crore . The company’s net worth also declined from ₹705 crore in 2022 to ₹605 crore in 2023.
In the last quarter, the company reported a revenue of ₹ 464 crore and a profit of ₹ 2.4 crore. The company’s borrowing has remained relatively stable, moving from approximately ₹ 3.5 Crore in 2022 to ₹ 3.6 Cr in 2023.
Financial Metrics
(Source: RHP of the company)
Competitors of the company
While there are no companies of comparable size in the same industry as Honasa Consumer, in India. But it faces competition from larger, established companies in the fast-moving consumer goods market.
These competitors, with their diverse business models and offerings, include Hindustan Unilever Limited, Colgate Palmolive (India) Limited, Procter & Gamble Hygiene and Health Care Limited, Dabur India Limited, Marico Limited, Emami Limited, Bajaj Consumer Care Limited, and Godrej Consumer. Products Limited.
Strengths of the company
- Consumer Centered Approach: Honasa Consumer prioritizes its customers in all aspects, from innovation to marketing. It strategically leverages online channels, including Direct-to-Consumer platforms and e-commerce marketplaces, to reach more than 5,000 stores.
- Diversified Portfolio: The company has a wide range of products that respond to various needs and preferences. Its portfolio includes baby care, face care, body care, hair care, cosmetics and fragrances.
- Influencer Marketing: In 2023, Honasa Consumer collaborated with 4025 influencers and 4 celebrities from various fields such as beauty, fashion and lifestyle. This strategy significantly increased brand awareness.
- Product Innovation: The company launched 5.7 times more new products/SKUs than the Beauty and Personal Care industry median in FY 2023. This ability to introduce new innovations is key to their success.
Weaknesses of the company
- High Advertising Expenses: The company spends 35% of its revenue on advertising due to its aggressive marketing strategy. There is no guarantee that reducing these expenses would sustain the current income.
- Dependence on Third Party Services: Honasa Consumers outsources the management of 10 of its 13 warehouses and relies entirely on third-party manufacturers for product production. Any changes in procurement costs could affect profit margins and product prices.
- Volatile Market: The beauty and personal care market is subject to frequent changes in consumer preferences and product varieties. Unpredictable changes in preferences or new competing products could put the company’s products at a disadvantage.
- Over reliance on Single Brand: A significant 81% of the company’s revenue comes from the sale of products under their flagship Mamaearth brand. Any decrease in demand for these products could adversely affect their business.
Honasa Consumer IPO Review – GMP
On October 30, 2023, Honasa’s Consumer IPO is set at a price band of ₹ 308-₹ 324 per share. The latest gray market price stands at ₹7. The IPO is projected to list at a premium of 2.16%, with an estimated listing price of ₹331.
Key IPO Information
Advertisers: Varun Alagh and Ghazal Alagh are the promoters of the company.
Senior Book Manager: Kotak Mahindra capital company limited, Citigroup global markets India private limited, JM Financials limited, JP Morgan India private limited.
Registrar to the Offer: Kfin Technologies Limited
The Purpose of the Subject
The company proposes to use the Net Income to finance the following objects:
- Advertising expenses to strengthen the awareness and visibility of the company’s brands;
- Capital expenditure to be incurred by the Company for setting up new EBOs;
- Investment in the subsidiary of the company, Bhabani Blunt Hairdressing Private Limited (“BBlunt”) for setting up new salons; and
- General corporate objectives and unidentified inorganic acquisition.