Honasa Consumer: Insight into Mamaearth's Parent Company

Do you know about Shark Tank India? If you do, awesome! And if you don’t, let me tell you. It’s like a desi version of the famous American “Shark Tank''. It is about business where people with new ideas try to get money from successful investors, referred to as "Sharks." These investors can give money to the ideas and then own part of the business.

Shark Tank India is all about Indian people who want to secure funding for their businesses. The show is famous because it gives tips about starting a business, chances to get money, and shows the stories of people who are trying hard to turn their ideas into successful businesses.

The company we’re talking about today is run by one of these “Sharks,” Ghazal Alagh.

Let’s know more…

About the company

Founded in 2016, Honasa Consumer Limited (HCL) is all about offering beauty and personal care stuff online. Their deal is simple: honesty, natural ingredients, and safe care. They're doing this beauty thing in over 500 cities in India. And guess what? Big names like Sequoia Capital India, Sofina SA, Fireside Ventures, and Stellaris Venture Partners are backing them. They're aiming to hit that $1 billion valuation mark.

Now, peek into their product lineup as of June 30, 2023 - they've got: 

• Mamaearth, 
• The Derma Co.
• Aqualogica
• Ayuga
• BBlunt (just bought shares of it recently)
• Dr. Sheth’s. 

That's quite the beauty buffet, from baby care to face, body, and hair care, cosmetics, and fragrances.

The company rocks at making super innovative products, plus they've got fingers in many distribution pies- both online and offline. 

Summary of the industry in which the company operates 

Beauty and personal care products in India was worth around $20 billion (₹1,66,000 crore) in 2022, but guess what? By 2027, it's predicted to jump to a whopping $33 billion (₹2,73,000 crore)! That's an impressive growth rate of about 11% every year.

And it gets even better. The online market for these products is currently at ₹24,900 crore, and it's projected to balloon to about ₹91,300 crore by 2027. That's a huge 29% growth every year! This means more people will be buying their favourite beauty stuff online, making up about 34% of the market. 

Looks like the digital beauty world is set to take off! 🛫

Key Financials

Reading the financial statements can get boring at times. Worry not! I have got you covered by mentioning a few of the important metrics that one must definitely look for:

1. Total Income Growth: Over the last four years (2020-2023), Honasa has shown a significant uptrend in total income. It went from ₹114.17 crore in 2020 to ₹1,515.27 crore in 2023, indicating strong revenue growth.

2. Profitability: While the company is loss-making, it reported a small profit of ₹14.55 crore in 2022. Its losses have narrowed to ₹11.53 crore for the period ended on 30 June 2023, suggesting that it is moving towards profitability, though slowly.

3. Total Borrowings: For the company, the total borrowings peaked at ₹1,954 crore in March 2021, which has now come to ₹3.61 crore.

Mamaearth's expense breakdown is pretty interesting! Their biggest spending chunk goes into marketing, and then it's the cost of the materials they use. Of course, there are a bunch of other expenses in the mix, too. For a more detailed look, check out the infographic below. 👇

These numbers give a good head start to understand how well the company's doing financially. But hold your horses before making any big investment decisions! It's crucial to compare these figures with industry standards and think about where the company is headed in the future. 

Peer Comparison

HCL claims they're one-of-a-kind in their business model worldwide. But when it comes to beauty and personal care, they look at other companies like Hindustan Unilever, Colgate Palmolive, P&G Hygiene, Dabur India, Marico Ltd., Godrej Consumers, Emami Ltd., Bajaj Consumer, and Gillette India. However, they say it's like comparing apples to oranges – these companies aren't exactly the same in what they do.

Honasa Consumer IPO Details

Take a look at the table below to get an idea of the shareholding % pre and post-issue, where Varun Alagh and Ghazal Alagh, the promoters of the company, are involved.

Moving on, let’s look at why the company opted for an IPO. 

Reasons for Issue

The company is putting money into marketing to boost brand recognition and get new customers for both its current and future brands. Its marketing strategy is all about focusing on customers and using data to make smart decisions. So, where's the money going?

1. Pumping cash into ads to make sure everyone knows about their brands.
2. Spending on setting up new exclusive stores (EBOs).
3. Investing in their subsidiary, Bhabani Blunt Hairdressing Private Limited (BBlunt), to open new salons.
4. Also, there’s some cash set aside for general company needs and, if there's a cool opportunity, maybe for snagging another company.

This is how they plan to use the money they make:

Allow me to take you through the positives and negatives of the company.

For a more in-depth understanding of the points mentioned, refer to the following details:

Pros and Strengths:

1. Mastering Brand Creation and Expansion Strategies: Leveraging the success of Mamaearth, the company has crafted a method to replicate triumph with new brands, using a specialised team to innovate and create distinct brands that cater to diverse customer preferences.

2. Innovative Product Development through Customer Insights: By actively listening to consumer needs and market trends, the company consistently develops unique products, such as unconventional elements like rice water or green tea, to meet customer demands before they become mainstream.

3. Digital-First Distribution: Reaching Customers Everywhere: The company distributes products widely, testing new brands online before introducing them to physical stores, ensuring a receptive audience and gaining valuable feedback before full-scale deployment.

4. Data-Driven Personalised Marketing Mastery: Their targeted advertising relies on extensive data analysis, allowing personalised and highly focused marketing, reaching specific audiences effectively based on their preferences and behaviours.

Coming to the...

Concerns and Risks:
1. Critical Risk Factors Affecting the Company: The company's sales heavily rely on various online platforms, and some of these platforms significantly impact its business. If they suddenly decide not to showcase their products or change their support, it could seriously affect their sales and visibility.

2. Vulnerabilities and Challenges Ahead: The company collaborates with well-known personalities and social media influencers to endorse its products. If their opinions change or trends shift, it might negatively impact their business. Additionally, occasional negative feedback about the company on social media poses challenges.

3. Key Concerns Impacting Business Stability: There's a swarm of companies doing what they do. Some are much larger and have larger budgets. New competitors keep entering the market, and if the company can't adapt to changing consumer needs, it might affect its business.

4. Potential Threats to Company Operations: Basically, they rely on different companies to help sell and deliver their products. If they face issues or cannot deliver due to problems like bad weather, it could cause trouble for them and their customers.

Now, let's turn our attention to…

My Vishesh Tippani

So, before I started writing, I actually had to Google to find out who owns Mamaearth. Bet many of you did the same! Anyway, let's talk business. Sure, their revenue is going up, but let's not forget they're not making profits just yet. And here's the thing: they don't have a ton of assets, but they've got big plans! They're looking into old-school marketing, planning new products, and even aiming to open their own stores. This means there's room for the business to grow. And as I always say…

The Bottom Line 

As we mull over Honasa Consumer's journey, it's like feeling the whole world moving towards natural, eco-friendly vibes. The potential for growth seems exciting, yet there's this reality check- keeping an eye on the financial stuff is vital.

Kahi Mamaearth sabko milke mama toh nahi bana rahi? Only time and the market's verdict will spill the beans! 

Read: Best Upcoming IPOs in 2023-24

*Disclaimer: The stock discussed above aren't recommendations from Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making an investment decision.