Honasa Consumer's market cap down Rs. 1,300cr in 3 days
Shares of Honasa Consumer Ltd, the company behind Mamaearth, dipped as much as 15% to touch Rs. 256.30 on November 10, hitting a new all-time low. Since its initial public offering (IPO) price of Rs. 324 per share, the stock has plummeted by 21%, resulting in a market capitalization loss exceeding Rs. 1,300 crore. The stock's downward trend has persisted since its debut on November 7, with numerous analysts cautioning against investing in the IPO due to its sky-high valuations.
Market cap slide
At the time of writing, the shares traded at Rs. 285.90 apiece on the National Stock Exchange (NSE), recovering 11.54% from the day's lows. Honasa's market capitalization, at the current price, has fallen from Rs. 10,559 crore at listing to Rs. 9,198 crore in the early trade on Friday, marking an overall 12.9% downfall.
Financial performance and growth concerns
The company disclosed a net loss of Rs. 150.9 crore for the fiscal year ending March 2023, primarily due to impairment losses on goodwill and other intangible assets, in contrast to a profit of Rs. 14.4 crore the previous year. Volume growth significantly decreased to 68.23% in FY23 from 143.3% in FY22 and 298.42% in FY21. Nevertheless, operational revenue expanded at a CAGR of 80.14% between FY21 and FY23.
Mamaearth's rapid rise and growth concerns
Honasa has successfully established consumer trust and brand recognition, as evidenced by Mamaearth's swift rise in India's Direct-to-Consumer Beauty and Personal Care (DTC BPC) space in merely six years. Boasting an impressive gross margin exceeding 70% and an asset-light model, the company has demonstrated remarkable growth over the past five years. However, while Mamaearth has become profitable, there are concerns about maintaining earnings growth and strengthening the bottom line over time.
Should you buy at this price?
BP Wealth observed that the IPO seems to be aggressively priced at 97x based on its annualized FY24 EPS (earnings per share), disregarding all immediate positive aspects. As per the investment advisory firm, it "seems like the company is leveraging its proven track record to justify a premium valuation." They advise an "AVOID" rating for the issue and plan to reevaluate the company after witnessing consistent and sustainable improvements in profitability.
