'Another Paytm in the making': Mamaearth IPO raises valuation concerns among netizens

Twitter users have been raising valuation concerns ever since Honasa Consumer Ltd, which owns new-age FMCG brands like Mamaearth, filed papers with capital markets regulator Sebi to raise funds through an initial public offering (IPO).

The IPO comprises a fresh issue of equity shares worth Rs 400 crore and an offer-for-sale (OFS) component of 4,68,19,635 equity shares by promoters, investors and other selling shareholders, according to the draft red herring prospectus (DRHP).

"Last valuation for Mamaearth was $1.2 billion in January 2022. The company is now seeking a $3 billion valuation for its upcoming IPO. Mamaearth reported profits of 22 cr last year. If the company goes public at its target valuation, it would be valued at a multiple of 1,000 times its profits. For comparison, HUL's last year's profits were Rs 9,000 Cr and the company's valuation on the public market is Rs 6 lakh crore, a multiple of 66," said a Twitter user in a thread. 

Those offering shares in the OFS include promoters -- Varun Alagh and Ghazal Alagh -- and investors like Fireside Ventures Fund, Sofina, Stellaris, Kunal Bansal and Rohit Bansal, Rishabh Harsh Mariwala of FMCG firm Marico and Bollywood actor Shilpa Shetty Kundra.

"Even if it is assumed that funding of Rs 400 crore will take the profits of the company to Rs 240 crore and assuming 100% profit to be given as dividend and Startup grows further at inflation rate, it will take a poor investor 100 years (valuation Rs 24,000 crore) to recover his money," tweeted another user on the micro-blogging platform.

"Just unable to connect the dots as to why this INSANITY for IPO valuations, must have given in to the PE Investors who had invested earlier," said another Twitter user. 

Watch: Ghazal Alagh's Mamaearth IPO: All You Need To Know

Mamaearth IPO has drawn comparisons with the Paytm IPO that turned out to be a dud on its listing date itself because of the massive asking price. 

"My first resolution for 2023 is not to apply for Mama earth's IPO. Another Paytm in making," said finfluencer Vibhor Varshney on Twitter. 

Many Twitter users said retail investors should stop SIPs in all the AMCs that subscribe to Mamaearth IPO. 

"If you come across any #mutualfund house subscribing/ Analysts or Investment gurus recommending/ media unscrupulously promoting the primary market issue of #mamaearth , just understand that they are #1 cheaters and boycott them totally in future," said a Twitter user. 

"Lots of mutual fund managers will definitely buy. Anchor book will be interesting to see. Retail should stop SIPs in all those AMCs which subscribe to this issue," said another Twitter user. 

The company became profitable in FY22 with net earnings of Rs 14 crore, compared to losses of Rs 1,332 crore in FY21 and Rs 428 crore in FY20. In the first half of FY23, the company registered a net profit of 4 crore.

The company claimed in its DRHP that it is deriving benefits from economies of scale, as its gross profit margin improved over 3 percentage points in FY22.

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