🤓 Dear Startups: Please Learn from Mamaearth’s IPO
Mamaearth's IPO saga reveals a shift in India's IPO landscape. Retail investors are no more falling for high valuations - they crave something more powerful, more challenging. Read on.
If you’ve been keeping tabs on the start-up world of India, it would be impossible to miss Mamaearth, a D2C beauty and personal care brand, a unicorn, and now, a listed entity.
As the unicorn opened its innings with a nearly 1.8% premium, the market sentiment was a curious blend of anticipation and caution.
Founded by a dynamic husband-wife duo in 2016, the brand has been in the news since inception:
First, it crossed 5 million customers within 2 years of its operation.
Next, it clocked a turnover of Rs. 100 crore within 4 years, making it one of India’s fastest growing brands.
Then, the brand bagged a number of PR wins with Shilpa Shetty as the brand ambassador and founder Ghazal Alaghs’s appearance on Shark Tank as one of the sharks.
Next, it acquired the haircare brand BBlunt and skincare brands like DermaCo, Dr. Sheth’s, Aqualogica, and Ayuga to form a “House of Brands” under Mamaearth’s parent company Honasa Consumer Ltd.
Mamaearth became a Rs. 1,500+ Crore revenue company in just 7 years!
The next logical step?
Going public?
Um, let’s see.
💸 The Mamaearth IPO
When Mamaearth first announced its intention to file for an IPO in early 2023, it triggered an intense controversy. Why, you ask?
Well, the heart of the matter lay in the stark contrast between the company's valuation ambitions and its financial performance.
In January 2022, Mamaearth was valued at $1.2 billion. A year later, the company sought a valuation of a staggering $3 billion (~Rs. 24,985 crore) for its IPO. This raised eyebrows as it translated to a valuation over 1,000 times its profit (in FY22, the company made a profit of Rs. 19.86 crore).
Questions also arose around its high advertising spending with no increase in the ROAS (Return on Advertising Spends) over 3 years. The company spent 40% of its revenue on marketing with a 2.6 ROAS, compared to Nykaa’s 7.8 and HUL’s ROAS of 10.6.
Carefully rowing through the rough waters, Mamaearth officially stepped into the stock market in November 2023.
This much-talked-about 3-day IPO was subscribed 7.61 times, with retail investors subscribing only 1.35 times.
😲 Unicorn IPOs: What Does the Market Say?
Mamaearth's journey into the stock market speaks a lot about the IPO sentiment of India.
2023 has seen 93 IPOs so far, and investors are now eyeing profitability over high valuations.
Why, you ask?
Well, let data do the talking.
Zomato went public in July 2021 with a 52.63% premium on the NSE and was 38 times oversubscribed. One year later, in July 2022, the share price crashed to Rs. 41.6 (from Rs. 126 on the opening day). A 66% decline!
Paytm entered the stock market in November 2021, and was listed on the NSE at a share price of Rs. 1,950. One year later, this came crashing down to Rs. 441! A 77% decline!
The stock market may be a rollercoaster ride with ups and downs, but in the long run, it favors stability. The massive correction in the share prices of these unicorn IPOs are only proof.
Between 2021 and 2023, we have watched big openers fall off their high horse in no time, making investors wary of IPOs.
After all, once bitten, twice shy.
🤑 The Tale of Profitability and Valuations
Seeing the trend so far, the verdict of retail investors is loud and clear. No matter how much an IPO buzzes around, no matter how many influencers glorify IPO led startups, investors will not be fooled. Flashy valuations will have to kneel in front of the sanctuary of profitability.
Yes dear startups, the way to retail investors’ hearts is via the route of profitability.
And well, startups are taking notes.
With profitability taking center stage, startups are now shifting gears from chasing growth at any cost to building more sustainable businesses.
Startups like OYO, Ola Electric, Swiggy, Navi, PayMate, Digit Insurance are all eyeing public listings in 2024. And they are all trying hard to become profitable now.
It’s a delicate dance between valuations and profitability, with each step strategically crafted to win the hearts of its audience, the investors.
The stage is set. It remains to see how this performance turns out.
What are your thoughts on this valuation-profitability balance? Will these unicorns dance to the tunes of profitability or will they fall flat on valuation?
Only time will tell. Till then, read on.
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