Honasa hopes for a valuation of Rs 10,500 crore in its Rs 1,700 crore IPO scheduled for October 31

Honasa Consumer Private Limited, the parent of brands such as Mamaearth, The Derma Co, and BBlunt, plans to launch one of the most eagerly anticipated IPOs in the Indian consumer segment on October 31, multiple industry sources in the know told Finrollnews.

The fast-growing D2C (direct-to-consumer) firm present in the beauty, babycare and skincare segments was the first unicorn of 2022 and received regulatory approval for the listing from Sebi in August after filling draft papers in December 2022.

“There is a strong demand for the Honasa Consumer IPO which is scheduled for October 31 to November 2. The anchor portion will open on October 30. There is no plan for a pre-IPO round as of now,” said one of the sources.

Honasa Consumer was co-founded in 2016 by the husband-wife duo of Varun and Ghazal Alagh (of ‘Shark Tank’ fame). The firm attained unicorn status when it raised $52 million at a valuation of $1.2 billion in a fundraising round in January 2022 led by top VC firm Sequoia Capital.

The other source told Finrollnews that the firm was looking to raise around Rs 1,700 crore from a combination of a fresh issue and an offer-for-sale and was targeting an estimated valuation of around Rs 10,500 crore.

A third source confirmed the proposed timeline for the deal and the valuation and size of the issue.

All three people Finrollnews spoke to refused to go on record. Finrollnews could not elicit immediate comments from Honasa Consumer and will update this article as soon as the company reverts.

The valuation controversy

In June 2022, a Reuters report, which said Honasa Consumer was targeting a valuation of $3 billion ( in excess of Rs 22,000 crore) for its IPO, led to a furore on social media with analysts and market experts questioning the lofty figure.

This led to Ghazal Alagh issuing a detailed clarification. “In our DRHP, as is the standard practice, there is no mention of valuation. Valuation discovery is a process which will take place over time as we get into deeper conversations with the investor community. We have not quoted or subscribed to the valuation numbers which are getting mentioned in various posts on social media. We have built this company and our brands with a lot of love, the same way we have raised our children,” she tweeted.

Kotak Mahindra Capital, JM Financial, Citi and JP Morgan are the investment banks working on the IPO and Cyril Amarchand Mangaldas, IndusLaw and Khaitan & Co are the legal advisors.

According to the DRHP (draft red herring prospectus), the shareholders who will dilute their holdings include the Alaghs, Sofina Ventures SA, Evolvence, Fireside Ventures, Stellaris Venture Partners, Snapdeal founder Kunal Bahl, Bollywood actress Shilpa Shetty Kundra, Rishabh Harsh Mariwala and Rohit Kumar Bansal. Sequoia Capital is not participating in the OFS.

The net proceeds of the IPO will be used for advertisement expenses to improve brand visibility and awareness, setting up new exclusive brand outlets, investment in BBlunt for setting up new salons, general corporate purposes and inorganic growth.

In January 2022, a peer in the bustling D2C space – Warburg Pincus backed boat also filed for an IPO. The audio focused electronics brand is looking to raise around Rs 2,000 crore.

The Honasa blueprint

Honasa Consumer, which is popular for its wide range of ‘toxin free’ products, has hit the inorganic route in the last 24-36 months with three buyouts. It first acquired female-oriented content platform Momspresso followed by BBlunt from Godrej Consumer Products Ltd and later it beefed up its product portfolio by acquiring skincare brand Dr Sheth’s. It entered the colour cosmetics category in October, 2021, offering products like liquid lipsticks, bullet lipsticks, kajal and lip balms. A month later, the firm launched a new hydration based skincare brand Aqualogica.

Other players in the beauty and skin care segment include the likes of listed rival Nykaa, Purplle, The Good Glam Group & Sugar Cosmetics.

On November 3, 2022 Finrollnews had reported that Honansa turned profitable in FY 22, posting a net profit of close to Rs 20 crore. The firm also saw its revenue surge by 102 percent to Rs 952 crore in the fiscal compared to the year-ago period. In FY22, the company spent Rs 391 crore on advertising, while its cost of materials and employee benefit expenses increased to Rs 281 crore and nearly Rs 79 crore, respectively, the report added.

Honasa began retailing through the D2C route, followed by online marketplaces and is now looking to scale up its offline presence. It is also partnering with local channels for the international foray of Mamaearth into markets like Bangladesh, Malaysia, Vietnam and Thailand.

In an interview dated September 10, 2022 with Business Today TV, Varun Alagh said: “Our gross profitability metrics are very healthy. And, if we were to compare it to the listed FMCG peers, we’ll probably be in the top five per cent quartile of the set from a gross profitability profile perspective.”

“We are there in almost 40,000 stores, across 100 plus cities now. From an availability perspective, we continue to double down on it,” he added.

The Indian BPC market

This is how Honasa Consumer positions itself in the DRHP: “We are the largest digital-first BPC ( beauty and personal care) company in India in terms of revenue from operations for the Financial Year 2022 (Source: RedSeer Report). We have a portfolio of six BPC brands with differentiated value propositions and as of September 30, 2022, our flagship brand, Mamaearth, has emerged as the fastest-growing BPC brand in India to reach an annual revenue of Rs 10 billion (in the preceding 12 months) within six years of launch (Source: RedSeer Report). “

The DRHP goes on to add that the market for BPC products in India is expected to grow from approximately $17 billion in 2021 to $30 billion in 2026 at a CAGR of approximately 12 percent, which is among the highest within the broader retail categories and faster than other retail categories in India during this period.

“The BPC products market lends itself well to digital penetration and the online BPC market, which is currently sized as $2.5 billion, is expected to grow at 27 percent annually to be around $8.4 billion by 2026, translating to an online penetration of 28 percent,” the DRHP says.

By bemaad

Leave a Reply

Your email address will not be published. Required fields are marked *