Mamaearth IPO opens today.
The discussion around it is very one sided. I have a slightly different opinion & a different lens to look at it.
Disclaimer: I am not applying for the IPO. I rarely do that. I also don't have any knowledge about how good/bad their products are.
1/11
The discussion around it is very one sided. I have a slightly different opinion & a different lens to look at it.
Disclaimer: I am not applying for the IPO. I rarely do that. I also don't have any knowledge about how good/bad their products are.
1/11
This is just an attempt to put a perspective on valuation of such businesses.
Mamaearth did a revenue of Rs 1400 crore in 2023. It is expected to do around Rs 2000 crore in FY24.
- India BPC (Beauty and Personal Care) market was around USD 20 bn in 2022.
2/11
Mamaearth did a revenue of Rs 1400 crore in 2023. It is expected to do around Rs 2000 crore in FY24.
- India BPC (Beauty and Personal Care) market was around USD 20 bn in 2022.
2/11
- Of this, nearly 16% is online. That is about Rs 25000 crore. Mamaearth has a market share of about 5.4% in this.
- BPC market is expected to be USD 33 bn in 2027. Online is expected to be 33% of this. This would be around USD 11 bn.
3/11
- BPC market is expected to be USD 33 bn in 2027. Online is expected to be 33% of this. This would be around USD 11 bn.
3/11
- Mamaearth's current market share will give it a sales of around Rs 6000 crore.
Most startups do not make profits for many years, as they build distribution networks. Most won't succeed as well. However, if they do succeed, the market rewards them well.
4/11
Most startups do not make profits for many years, as they build distribution networks. Most won't succeed as well. However, if they do succeed, the market rewards them well.
4/11
VCs value any company high, if they believe the company has a reasonable chance to succeed.
If it does succeed, this would mean higher sales. Marketing and Ad spend may not go up in the same proportion, so a degree of operating leverage would kick in.
5/11
If it does succeed, this would mean higher sales. Marketing and Ad spend may not go up in the same proportion, so a degree of operating leverage would kick in.
5/11
The QUESTION then is
- Can this business generate Rs 6k-8k crore sales at some point in the next 5 years.
- And can the market attribute a Price to Sales multiple of 3-4x on the sales?
6/11
- Can this business generate Rs 6k-8k crore sales at some point in the next 5 years.
- And can the market attribute a Price to Sales multiple of 3-4x on the sales?
6/11
Say the sales reached Rs 6000 crore in FY28, and market gives a 3x P/S to the company. For comparison, Nykaa trades at about 8x Price/Sales, and HUL around 9x. Strictly not the best comparisons I know, but still gives a benchmark.
7/11
7/11
P/S of 3x would mean a market cap of Rs 18000 crore. From the current market cap at IPO price - this would mean a CAGR of about 15% over 4 years. Not earth shattering, but not a small number either!
8/11
8/11
Ofcourse, this depends on sales reaching Rs 6k crore, and the company having a competitive advantage. Not sure they have that kind of competitive advantage, but I do not understand the business well enough to comment on that.
9/11
9/11
But am sure, given the depth in Indian markets, there would be a set of investors in the market who will bet on this thesis.
So, am not saying this is a great IPO, but it may not be as bad and one-sided as a lot of commentary would make it appear.
10/11
So, am not saying this is a great IPO, but it may not be as bad and one-sided as a lot of commentary would make it appear.
10/11
All data has been sourced from the IPO prospectus.
Disc: No reco. I am NOT applying for the IPO.
11/11
Disc: No reco. I am NOT applying for the IPO.
11/11
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