Incorporated in 2016,
Honasa Consumer provides beauty and personal care products through its digital
platform. Company owns new-age FMCG brands such as Mamaearth, The Derma Co.,
Aqualogica, Dr. Sheth‘s, BBlunt and Ayuga.
Honasa Consumer was the
largest digital-first beauty and personal care (BPC) company in India in terms
of revenue in FY2023. As of June 30, 2023, its portfolio of brands includes
products in the baby care, face care, body care, hair care, color cosmetics and
fragrances segments.
The company is focused
on building purpose driven brands. Its flagship brand, Mamaearth, is built to
service a core customer need for safe-to-use, natural products, and focuses on
developing toxin-free beauty products made with natural ingredients. As of FY2023,
Mamaearth 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.
The company’s products
are available to its customers through omni-channel distribution networks
across both online and offline touchpoints. For FYs 2021, 2022 and 2023, and
the three months ended June 30, 2022, and June 30, 2023, its revenue from
online channels constituted 81.37%, 69.91%, 59.36%, 62.86% and 64.01% of total
revenue (including sale of services), respectively. Revenue from offline
channels as a percentage were 18.63%, 28.87%, 36.14%, 31.90% and 33.47%,
respectively.
The company has adopted
a digital-first approach to distribution strategy of first incubating new
brands on its online channel and then selectively introducing them in the
offline channel.
The company leverages
the online channel to (i) test product market fit by capturing early feedback
from consumers on brand proposition, positioning, packaging and performance;
(ii) capture valuable consumer insights across purchase behavior, product
preferences, and need-spaces; and (iii) generate customer affinity by providing
a personalized and engaging brand experience for consumers. Once a brand
achieves a certain scale and customer acceptance online, the company
selectively introduces products from the brand into its offline channel with
the key objective of driving household penetration.
The company had a
market share (in terms of gross merchandise value) aggregating to approximately
5.4% of the online BPC market (DTC and e-commerce) in India in the calendar
year 2022. Similarly, the company had a market share (in terms of gross
merchandise value) of 1.5% of the total BPC market for calendar year 2022 and a
market share aggregating to approximately 28.9% in the DTC BPC market in the calendar
year 2022.
In Q1 FY2024, the company
derived 64.35% of its revenue from third party e-commerce marketplaces and the Direct-to-Consumer
channel contributed 35.65%.
The company intends to open
new Mamaearth EBOs (Exclusive Brand Outlets) across a mix of mall stores and
high-street outlets in India. The company has also identified expansion
opportunities in priority markets such as the United Arab Emirates, Nepal, and
Bangladesh, both organically and through strategic acquisitions.
The company intends to acquire
new users to drive growth. Moreover, to support its offline expansion plans, the
company aims to differentially focus on other modes of advertising, including
television advertising, to reach and target a larger consumer base.
The company is open to
acquiring new brands across value propositions and price points. It has plans
to expand its portfolio across the full spectrum of BPC categories by further
penetrating into adjacent categories such as color cosmetics and fragrances.
In Q1 FY2024, the company
introduced 109 new SKUs in the BPC market in India. The contribution of new
SKUs (across all its brands) to an absolute increase in revenue during the
period was 25.45%, as compared to the preceding corresponding period.
The company has a dedicated
in-house innovation team, consisting of 47 members, as on June 30, 2023.
Offer and its objects
The IPO comprises fresh
issue of equity shares worth up to Rs 365 crore and an offer for sale of 4,12,48,162
equity shares worth Rs 1336.44 crore by existing shareholders.
The price band for the IPO
is Rs 308 to Rs 324 per equity share of face value Rs 10 each.
The objectives for the
fresh issue include advertisement expenses worth Rs 182 crore towards enhancing
the awareness and visibility of brands, capital expenditure worth Rs 20.6 crore
for setting up new EBOs, investment of Rs 26 crore in BBlunt for setting up new
salons, and the remaining amount for general corporate purposes.
The promoters of the company
are Varun Alagh and Ghazal Alagh. The promoters and promoter group holds an
aggregate of 117,002,850 equity shares, aggregating to 37.41% of the pre-offer
issued and paid-up Equity Share capital. The post IPO shareholding for the same
is expected to be around 35.34%.
The issue, through the book-building process,
will open on 31 October 2023 and will close on 2 November 2023.
Strengths
The company has grown its revenue from Rs 459.99
crore in FY 2021 to Rs 1492.74 crore in FY2023, representing a CAGR growth of
80.14%. In the same period, the median revenue CAGR of all other BPC companies
for which data was available was 28%.
The BPC products market in India is undergoing a
fundamental re-industrialization owing to the convergence of technology,
demographic dividend, and growing consumer aspirations. The company is well
positioned to benefit from the expected growth in the market.
The company follows an asset-light contract manufacturing model that gives the benefit of
economies of scale at small batch sizes, while also providing flexibility to
scale up production as needed. During the three months period ended June 30,
2023, the company worked with 37 contract manufacturers to produce products.
Due to its success with Mamaearth brand, the company
has developed brand building playbook that will enable it to replicate its
success across newer brands.
Honasa Consumer is the largest company in the DTC
BPC market in India in terms of revenue generated from the DTC channel in FY2023.
During FYs2021, 2022, 2023 and the three months period ended June 30, 2022, and
June 30, 2023, 38.51%, 43.15%, 56.90%, 52.65% and 63.20% of its revenue from
this channel (for Mamaearth brand) was attributable to existing customers.
The company’s Digital-First omnichannel
distribution helps it to launch new products in an efficient manner by enabling
it to check product-market fit at an early stage before scaling them up in a much
larger offline environment.
The company is led by visionary founders and professional
leadership team with a combined experience of over 100 years across consumer-packaged
goods, e-commerce, and DTC companies in India.
Weaknesses
The company recorded losses in FYs 2021 and 2023,
and the three months ended June 30, 2022, wherein its restated loss was Rs
1332.21 crore, Rs 150.96 crore, and Rs 11.52 crore, respectively. Any losses in
the future may adversely impact its business.
The company’s auditor’s report on internal
financial controls issued on standalone financial statements for FY2020
contains a disclaimer of opinion relating to the auditors’ inability to obtain
appropriate audit evidence to provide a basis for opinion on adequate internal
financial controls. Further, the audit report on Special Purpose Ind AS
Standalone Financial Statements for FY 2021 contains an emphasis of matter
paragraph.
The company’s majority revenue comes from the
sale of products under its flagship Mamaearth brand. Any decrease in demand for
Mamaearth branded products could have an adverse effect on business. For FYs
2021, 2022 and 2023, and the three months period ended June 30, 2022, and June
30, 2023, its revenue from Mamaearth brand, represented 96.06%, 93.04%, 81.94%,
87.09% and 67.06% of its total revenue (excluding revenue from sale of
services), respectively.
The company incurs significant advertising
expenses, which has contributed to its growth in the past. If the company
reduces its advertising expenses in the future, there is no assurance that it
will be able to maintain similar growth. For FYs 2021, 2022 and 2023, and the
three months period ended June 30, 2022, and June 30, 2023, its advertising
expense as a percentage of revenue from operations was 38.68%, 41.49%, 35.52%,
41.33% and 34.99%, respectively.
The company had a net cash outflow of Rs 51.55
crore in FY2023. Any negative cash outflows from operating activities in future
could have an adverse impact on business.
The company faces intense competition from many competitors,
some of which are larger and can spend more on advertising and marketing and
offer substantial discounts. Failure to compete can result in loss of its
market share.
Subsidiaries which the company acquired in the
past, including Just4Kids, BBlunt, B:Blunt Spratt and Fusion, have incurred
losses for certain historical periods. There is no assurance that these
entities will be profitable in the future.
The success of its business depends substantially
on its management team and operational workforce. Its inability to retain them
could adversely affect business. During FYs 2021, 2022, and 2023, and the three
months period ended June 30, 2022, and June 30, 2023, the company had high
employee attrition rate (annualized) of 36.93%, 29.29%, 47.01%, 45.86% and
81.71%, respectively.
Valuation
In Q1 FY2024, consolidated
sales were up by 48.76% to Rs 464.49 crore as compared to Q1 FY23. OPM
increased by 1029 bps to 6.31%, which led to operating profit of Rs 29.31 crore
as compared to loss of Rs 12.44 crore. Other income increased 192.37% to Rs
12.61 crore, while interest cost increased 34.83% to Rs 1.48 crore and
depreciation increased 34.83% to Rs 6.49 crore. PBT was Rs 33.95 crore compared
to loss of Rs 14.03 crore. Tax expenses for Q1 FY24 was of Rs 9.24 crore as compared
to tax credit of Rs 2.51 crore in Q1 FY23. Net profit was Rs 25.96 crore as compared
to losses of Rs 9.30 crore.
In FY2023, consolidated
sales were up by 58.22% to Rs 1492.75 crore as compared to FY2022. OPM
increased by 32 bps to 1.53%, which led to 98.76% increase in operating profit
to Rs 22.77 crore. Other income increased 7.85% to Rs 22.52 crore, while
interest cost increased 121.73% to Rs 6.66 crore and depreciation increased
262.06% to Rs 24.96 crore. Extraordinary items were of Rs 154.7 crore compared
to nil. PBT (after extraordinary items) was negative Rs 141.04 crore compared
to profit of Rs 22.44 crore. Tax expenses for FY2023 were Rs 9.93 crore as compared
to tax expense of Rs 8 crore in FY2022. Net loss was Rs 142.81 crore as compared
to profit of Rs 15.71 crore.
The TTM EPS (excluding extraordinary items and
relevant tax) on post-issue equity works out to Rs 1.8. At the upper price band
of Rs 324, P/E works out to 180.
As of 26 October 2023, its listed peers such as
Godrej Consumer Products traded at TTM P/E of 56, Emami traded at TTM P/E of 31,
Hindustan Unilever traded at TTM P/E of 56, Bajaj Consumer Care traded at TTM
P/E of 23, Gillette India traded at TTM P/E of 53, and Colgate Palmolive traded
at TTM P/E of 49.
BPC is one of those categories that lends itself
well to digital penetration. The online BPC market, which is currently sized as
US$3 billion, is expected to grow at 29% annually to be around US$11 billion by
2027, translating to an online penetration of 34%. Among the most significant
trends driving the online BPC market forward is the disruption led by the
digital-first brands, as they are better at catering to the rapidly changing
consumer demands.
Honasa Consumer: Issue highlights
|
For Fresh Issue Offer size (in no of shares )
|
|
- On lower price band
|
1,18,50,649
|
- On upper price band
|
1,12,65,432
|
Offer size (in Rs crore)
|
365
|
For Offer for Sale Offer size (in Rs crore)
|
|
- On lower price band
|
1270.44
|
- On upper price band
|
1336.44
|
Offer size (in no of shares )
|
4,12,48,162
|
Price band (Rs)
|
308-324
|
Minimum Bid Lot (in no. of shares )
|
46
|
Post issue capital (Rs crore)
|
|
- On lower price band
|
322.33
|
- On upper price band
|
321.74
|
Post-issue promoter & Group shareholding (%)
|
35.34
|
Issue open date
|
31-10-2023
|
Issue closed date
|
02-11-2023
|
Listing
|
BSE, NSE
|
Rating
|
41/100
|
Honasa Consumer: Consolidated Financials
|
|
2103 (12) Standalone
|
2203 (12)
|
2303 (12)
|
2206 (3)
|
2306 (3)
|
Sales
|
459.99
|
943.47
|
1,492.75
|
312.25
|
464.49
|
OPM (%)
|
-290.01%
|
1.21%
|
1.53%
|
-3.98%
|
6.31%
|
OP
|
(1,334.03)
|
11.46
|
22.77
|
(12.44)
|
29.31
|
Other inc.
|
12.11
|
20.88
|
22.52
|
4.31
|
12.61
|
PBIDT
|
(1,321.92)
|
32.34
|
45.29
|
(8.12)
|
41.92
|
Interest
|
0.98
|
3.01
|
6.66
|
1.09
|
1.48
|
PBDT
|
(1,322.89)
|
29.33
|
38.63
|
(9.22)
|
40.44
|
Dep.
|
1.71
|
6.90
|
24.96
|
4.82
|
6.49
|
PBT
|
(1,324.61)
|
22.44
|
13.66
|
(14.03)
|
33.95
|
Share of Profit/(Loss) from Associates/JV
|
-
|
-
|
-
|
-
|
-
|
PBT before EO
|
(1,324.61)
|
22.44
|
13.66
|
(14.03)
|
33.95
|
Exceptional items
|
-
|
-
|
154.70
|
-
|
-
|
PBT after EO
|
(1,324.61)
|
22.44
|
(141.04)
|
(14.03)
|
33.95
|
Taxation
|
7.61
|
8.00
|
9.93
|
(2.51)
|
9.24
|
PAT
|
(1,332.21)
|
14.44
|
(150.96)
|
(11.53)
|
24.71
|
Minority Interest
|
-
|
(1.27)
|
(8.16)
|
(2.23)
|
(1.25)
|
Net Profit
|
(1,332.21)
|
15.71
|
(142.81)
|
(9.30)
|
25.96
|
EPS (Rs)*
|
-
|
0.49
|
0.71
|
#
|
#
|
* EPS is annualized on post issue equity capital of Rs 321.74 crore of
face value of Rs 10 each
|
|
|
# EPS is not annualised due to seasonality of business
|
|
|
|
|
EO: Extraordinary items. EPS is calculated after excluding EO and
relevant tax
|
|
|
|
Figures in Rs crore
|
|
|
|
|
|
Source: Capitaline Corporate Database
|
|
|
|
|
|
|