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Honasa Consumer Limited, the parent company of new-age FMCG brands Mamaearth and The Derma Co, launched its IPO on October 31, 2023. The IPO comprises a fresh issuance of equity worth Rs 365 crore and an offer for sale (OFS) worth Rs 1,336 crore. The subscription window will be open for three trading days, ending November 2, 2023.

Company Overview

Honasa Consumer was founded in 2016 by Varun and Ghazal Alagh, with the launch of its flagship brand Mamaearth. Mamaearth is a direct-to-consumer (D2C) brand that sells baby care and personal care products made with natural ingredients. The company has since expanded its portfolio to include other brands such as The Derma Co, Aqualogica, Ayuga, BBlunt, and Dr Sheth's.

Honasa Consumer's products are sold through various channels, including online marketplaces, its website, and exclusive brand outlets. The company has a strong presence on social media and relies heavily on digital marketing to reach its customers.

Financial Performance

Honasa Consumer has reported strong revenue growth in recent years. In FY23, the company's revenue grew 48% year-on-year to Rs 1,368 crore. However, the company has yet to turn profitable. In FY23, Honasa Consumer reported a net loss of Rs 156 crore.

Competitive Landscape

Honasa Consumer operates in the highly competitive Indian FMCG market. The company faces competition from established players such as Hindustan Unilever, Colgate-Palmolive, and Procter & Gamble. In addition, there are several other new-age FMCG brands that are emerging in India.

IPO Valuation

Honasa Consumer is offering its shares in a price band of Rs 308-324 per share. This values the company at Rs 10,454 crore. This valuation is expensive compared to its peers. For example, Hindustan Unilever is valued at around 10 times its sales, while Colgate-Palmolive is valued at around 12 times.

Fund Utilization

Honasa Consumer plans to use the proceeds from the IPO for the following purposes:

1. Advertising expenses to improve awareness and brand visibility

2. Setting up new exclusive brand outlets

3. Investment in its subsidiary BBlunt for setting up new salons

4. General corporate purposes

5. Inorganic acquisition

Investment Rationale

Some of the key reasons why investors may want to consider subscribing to the Honasa Consumer IPO include:

1. Strong growth track record: The company's revenue has grown at a CAGR of over 48% in the last three years.

2. Asset-light model: The company outsources most of its manufacturing and distribution, which gives it a competitive advantage in terms of costs.

3. A well-diversified portfolio of brands: The company has a portfolio of brands that cater to a variety of segments, including baby care, personal care, and hair care.

4. Experienced management team: The company is led by a team of experienced entrepreneurs with a track record of success.

Investment Risks

Some of the key risks that investors should consider before subscribing to the Honasa Consumer IPO include:

1. High competition: The company faces competition from established players as well as new-age FMCG brands.

2. Reliance on digital marketing: The company is heavily reliant on digital marketing to reach its customers. Any disruption to the digital marketing ecosystem could impact the company's business.

3. Unprofitable operations: The company is yet to turn profitable. This raises concerns about the company's ability to generate sustainable cash flows.

4. Expensive valuation: The company is offering its shares at a premium valuation compared to its peers.

Outlook for Honasa Consumer

The Indian FMCG market is expected to grow at a CAGR of around 10% in the next few years. This growth is being driven by factors such as rising disposable incomes, urbanization, and changing consumer preferences. Honasa Consumer is well-positioned to capitalize on this growth, given its strong brand equity, D2C model, and digital marketing expertise.

However, the company also faces some challenges, such as high competition from established players and new-age FMCG brands. Additionally, the company is yet to turn profitable. Investors should carefully consider these factors before subscribing to the IPO.

Overall, Honasa Consumer is a well-positioned FMCG company with a strong growth potential. However, investors should carefully consider the risks and rewards involved before subscribing to the IPO.