Analysts have expressed strong valuation concerns about the parent of Indian personal care products startup Mamaearth's upcoming IPO. 

What Happened: Honasa Consumer, in its Draft Red Herring Prospectus (DRHP) to the market regulator, said it plans to raise around ₹2,900 crore through an initial public offering (IPO).

However, the new IPO has the investors and analysts chock full as the company's last valuation was $1.2 billion; however, it is now aiming for a $3 billion valuation for its upcoming IPO. 

Lalit Rathi, founder of LKR Advisors, wrote on Twitter, “my head is spinning seeing Mamaearth DHRP!"

Rathi noted that the company's revenue in the financial year 2022 was ₹943 crore and profit-after-tax was ₹14 crore.

"At start of 2022, valued at $1.2 billion. At listing expected to be valued at $3bn. What changed in 12 months for 3x jump in valuation," he added.

"The reported valuation for the Mamaearth IPO is at ₹24,000 crore which is almost 25x FY22 revenues and 1600x FY22 profits (PE). These are incredibly premium valuations compared to established brands like Marico or Dabur that trade between 50x to 60x PE with legacy brands and deep offline distribution," Anirudh A Damani, founder – Artha Group, told Mint.

Meanwhile, here's everything that you need to know about Mamaearth and its business:

About Mamaearth: Honasa Consumer is the parent company of Mamaearth. Since the launch of Mamaearth in 2016, it has expanded its portfolio to include five other brands — The Derma Co, Aqualogica, Ayuga, BBlunt, and Dr. Sheth’s. Its brand portfolio includes baby care, face care, body care, hair care, color cosmetics and fragrances.

About Mamaearth's Upcoming IPO: The personal care products company plans to raise funds through the public offering of equity shares with a face value of ₹10 per share. The Mamaearth IPO consists of a new equity share offering worth up to ₹400 crore and an offer for sale (OFS) by selling shareholders of up to 46,819,635 equity shares.

About Mamaearth's Finances: The company suffered losses of ₹1,332 crore in FY21 and ₹428 crore in FY20 and turned profitable only last year with net earnings of ₹14 crore. In the first half of FY23, it reported ₹4 crore net profit. 

Mamaearth's High Employee Costs: The DRHP also put to light Mamaearth's high employee costs. The employee benefits expense jumped by 184.04% to ₹78.8 crore in FY2022, up from ₹27.8 crore in FY2021, primarily due to an increase in salaries and wages. The bonuses also spiked from ₹21.6 crore in FY21 to ₹56.1 crore in FY22. 

Mamaearth's High Advertising ​​Expenses: The company said it spent ₹45.85 crore, ₹177.9 crore, ₹391.5 crore, and ₹271.9 crore on advertising during the fiscal years 2020, 2021, and 2022 as well as six-month period that ended on Sept. 30.

"On a consolidated basis, these expenses made up 41.76%, 38.68%, 41.49%, and 37.63% of our total revenue from operations for those periods," it said.

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