Honasa Consumer IPO: ₹1701 Crore IPO Now Open – Unveiling Red Flags for Informed Investment

Honasa Consumer IPO

The Honasa Consumer IPO has garnered significant attention in the financial market due to the company’s notable brands like Mamaearth, The Darma, and BBlunt.

As the IPO opens for subscription, investors are eager to understand the company’s financial performance, assess the associated risks and opportunities, and make informed investment decisions.

This expansion provides a comprehensive analysis of Honasa Consumer’s financials, insights from different brokerages, and details of the IPO.

Financial Performance

Over the last few years, Honasa Consumer has demonstrated impressive revenue growth. The Compound Annual Growth Rate (CAGR) of its revenue has surged by a remarkable 80 percent during the period from FY21 to FY23.

This is a testament to the company’s ability to capture a growing market and establish a strong presence for its brands.

However, alongside this remarkable revenue growth, there has been a concerning trend in Honasa’s EBITDA. EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a crucial financial metric that reflects a company’s operational performance.

During the same FY21 to FY23 period, Honasa’s EBITDA has declined by 9 percent. This decline in EBITDA is accompanied by a reduction in EBITDA margins, which dropped from 6 percent in FY21 to 1.5 percent in FY23. This trend raises questions about the company’s ability to maintain profitability as it continues to grow its revenue.

Honasa Consumer IPO Overview

The Honasa Consumer IPO marks a significant moment in the company’s journey. The IPO involves the issuance of new shares and the partial divestment of existing shareholders, including the company’s founders and the well-known actress Shilpa Shetty.

Given the company’s diversified brand portfolio and presence in various segments of the consumer goods market, the IPO has attracted substantial attention.

Mamaearth, one of its prominent brands, has made a name for itself with a focus on natural and sustainable personal care products.

The Darma is known for its trendy and fashionable clothing, and BBlunt has a strong presence in the haircare industry.

Market Sentiment and Gray Market Premium

As the Honasa Consumer IPO opens for subscription, market sentiment is mixed. Brokerages have varying opinions about the IPO, with some analysts recommending it as a good long-term investment while others urge caution.

Additionally, the gray market, where shares are traded unofficially before the official listing, indicates a Grey Market Premium (GMP) of Rs 7. This means that the shares are trading at a 2.16 percent premium above the upper price band of the IPO.

However, it is essential for potential investors to recognize that gray market prices are not always indicative of the company’s actual financial health or future performance.

Investment decisions should primarily be based on a thorough assessment of the company’s fundamentals and financials.

Brokerage Opinions

Different brokerages have varying perspectives on the Honasa Consumer IPO, providing valuable insights for potential investors.

Canara Bank Securities: This brokerage has raised concerns about the company’s financial health, highlighting negative cash flow and past losses.

Canara Bank Securities also pointed out that Honasa Consumer’s acquired subsidiaries, such as Just4Kids, BeeBlunt, BeeBlunt Sprats, and Fusion, have a history of incurring losses.

The brokerage expresses uncertainty about whether the company will turn profitable in the future. However, Canara Bank Securities believes that the company’s valuation is reasonable, leading them to give it a “subscribe” rating for the long term.

Swastika Investmart: In contrast to Canara Bank Securities, Swastika Investmart emphasizes the company’s current financial losses, making it challenging to calculate its Price-to-Earnings (P/E) ratio. Recent investments indicate that the company’s valuation appears to be on the higher side.

The company’s financial performance has seen fluctuations, including periods of loss. Furthermore, Swastika Investmart highlights that Honasa Consumer relies on third-party manufacturers for its products and lacks patents on its product formulas.

Considering these factors, Shivani Nyati, Head of Wealth at Swastika Investmart, suggests avoiding this IPO.

IPO Details

For investors interested in the Honasa Consumer IPO, here are the essential details:

• Subscription for the IPO is open until November 2.
• The price band for the shares is set at Rs 308 to Rs 324, with a lot size of 46 shares.
• Employees are eligible for a discount of Rs 30 per share.
• The allocation breakdown is as follows: 75 percent for Qualified Institutional Buyers (QIB), 15 percent for Non-Institutional Investors (NII), and 10 percent for retail investors.
• The final allotment of shares will be determined on November 7, and trading is scheduled to commence on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on November 10.
• Kfin Tech is the registrar to the issue.

IPO Fund Utilization

The IPO encompasses the issuance of new shares worth Rs 365 crore. Additionally, an Offer for Sale (OFS) will involve the sale of 41,248,162 shares with a face value of Rs 10.

Notably, several notable individuals and entities will reduce their stake through this IPO, including Varun Alagh, Ghazal Alagh, Sofina Ventures SA, Evolvence, Fireside Ventures, Stellaris Venture Partners, Snapdeal Founder Kunal Bahl, Bollywood actress Shilpa Shetty Kundra, Rishabh Harsh Mariwala, and Rohit Kumar Bansal.

The funds raised through the sale of new shares will serve various purposes. The money from these shares will be used for advertising, the opening of new exclusive brand outlets, investment in BBlunt to open new salons, investment in general corporate objectives, and inorganic growth strategies.

About Honasa Consumer

Founded by Varun and Ghazal Alagh, Honasa Consumer came into existence in 2016. The company gained recognition by entering the Unicorn Club, with a valuation of $120 million, after raising $52 million in January 2022.

The company’s journey has been marked by financial ups and downs. In FY 2021, Honasa Consumer reported a net loss of Rs 1,324.61 crore, followed by a net profit of Rs 14.44 crore in the subsequent financial year.

However, in FY 2023, the company returned to a net loss, amounting to Rs 150.97 crore. In the current financial year, FY 2024, the company reported a net profit of Rs 24.72 crore for the June quarter.

Final Remarks

The Honasa Consumer IPO presents a unique investment opportunity, given the company’s diverse portfolio of popular brands and its presence in various consumer goods sectors.

The substantial revenue growth is an encouraging sign, but the decline in EBITDA and EBITDA margins raises concerns about profitability.

Investors should carefully consider the opinions of various brokerages and conduct thorough due diligence before making their investment decisions.

It’s crucial to recognize that while gray market premiums can offer insights into market sentiment, they do not replace a comprehensive assessment of the company’s fundamentals and financial health.

The Honasa Consumer IPO is expected to draw significant attention in the coming days, and investors should make informed choices based on a balanced evaluation of the risks and opportunities associated with this offering.