Mamaearth IPO: Seven Key Insights for Investors Amidst Subdued Initial Subscription

As Mamaearth, the Sequoia-backed Direct-to-Consumer (D2C) unicorn, takes its first steps into the public market with its IPO, investors are carefully assessing the company’s prospects. Despite being the first unicorn to hit the public market in over 18 months, its subscription numbers on Day 1 and Day 2 have been underwhelming, prompting questions about its attractiveness to investors.

Mamaearth IPO Review

Mamaearth IPO Apply or Not?

1 Nov 2023’s Subscription Status:

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  • QIB (Qualified Institutional Buyers): 1.02x
  • NII (Non-Institutional Investors): 0.09x
  • RII (Retail Individual Investors): 0.62x
  • Total: 0.70x

Click Here to know Today Subscription Status

The IPO opened on October 31, 2023, and the last day for IPO subscriptions is November 2, 2023.

Here are seven key aspects of Mamaearth’s IPO that investors need to consider:

1. Valuation Conundrum:
After a controversy regarding its valuation earlier in the year, Mamaearth has priced its IPO at around $1.25 billion (or Rs 10,423 crore), which is flat compared to its valuation in 2022. However, this valuation is over 105 times the company’s annualized FY24 earnings, raising concerns about its pricing.

2. Share of Direct-to-Consumer Sales Decreasing:
Mamaearth’s sales from its own websites and apps are declining as a proportion of total online sales. D2C sales constituted 46.73% of overall online sales in the June quarter of FY23 but dropped to 35.65% in the corresponding period of FY24.

3. Elevated Advertising Expenses:
The company’s advertising expenses as a percentage of revenue from operations have been increasing, necessitated by its focus on offline sales and its reliance on third-party e-commerce platforms. Mamaearth plans to spend a significant portion of its IPO proceeds on television campaigns.

4. Increasing Reliance on New Product Launches:
The company’s revenue growth heavily relies on launching new products. In FY23, 57% of the increase in revenue was attributed to new product SKUs, highlighting the importance of continuous innovation.

5. Offline Expansion:
Mamaearth’s revenue from offline channels has been steadily growing, making it a more significant player in the offline retail space, where it competes with established brands like HUL, P&G, Dabur, and Reckitt. This expansion demands increased resources for operations and advertising.

6. Profitability Challenge:
Mamaearth mentions the importance of achieving economies of scale multiple times in its prospectus. While gross profit margins have improved slightly, the company has yet to turn a net profit, reporting a net loss of Rs 151 crore in FY23.

7. Trend of Employee Productivity and Expenses:
Employee benefit spending as a percentage of revenue has been on the rise, but the company has recently attempted to control this cost. Employee costs have increased significantly between FY21 and FY23, raising questions about the company’s ability to maintain a balance between growth and efficiency.

Mamaearth’s IPO has generated significant attention as the first digital-first D2C company to go public. Its success in the public market will not only influence the fate of other venture-funded peers but also shed light on the challenges and opportunities in the evolving D2C landscape. As the IPO subscription period continues, investors will be closely watching these key factors to make informed decisions regarding their participation in Mamaearth’s public offering.

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