Thread by @mehulshahca

It is said that the VALUE is in the eyes of the beholder so in the next 15 min, let me derive the VALUATION range for #Mamaearthipo with facts and figures.

A thread 🧵

#mamaearth became the 1st unicorn in 2022 with signs of profitability and is likely to be the 1st new age D2C Startup to have an IPO after audiotech brand #Boat withdrew its IPO plans earlier this year citing uncertain market; it is imp to understand the positioning of #Mamaearth

Although D2C Startups command a higher Valuation, approx 60% of the Sales of #mamaearth comes from third party e-commerce marketplace including Amazon, Flipkart and Nykaa
Honasa Balance Sheet shows huge Trade receivables of 141 Cr which shows that it is dependent on offline sales

Hence #mamaearth cannot be construed as pure D2C play and hence it can is positioned somewhere between FMCG and D2C

Further Top 10 products contributes almost 30% of the revenue which even the Company has flagged as a risk in its DHRP which is not the case with FMCG giants

1. Net Asset Method
NAV of Honasa is 1150 Cr ; includes purchased Intangibles of 300 Cr on acquisition of other brands and time will tell its worth. NAV does not include its own internally generated intangibles and it is difficult to independently value its brand and add to NAV

2. Revenue Multiple
The valuation matrix of D2C brands is - 2X weightage on revenue from physical channels, 3X weightage on revenue from e-commerce marketplaces and 5X for pureplay D2C sales via website or app.

Applying the same, the Valuation range would be 5000-6000 Cr

#mamaearth Ads vs Sales figures
FY20 46 Cr | 110 Cr Sales
FY21 178 Cr | 460 Cr Sales
FY22 391 Cr | 932 Cr Sales

The most astonising fact is ROAS - Return on Ad spends for Mamaearth has always been in range of 2.4-2.6 while for Nykaa it is 7.8 and it is 10.6 for HUL

The more the repeat customers a brand has, the #ROAS increases and further the ROAS increases because of organic sales or due to network effect.

Since ROAS of #mamaearth has not improved at all in last 4 years, it shows the highest degree of risk

At IPO stage; a Startup is expected to be self-sustainable to incur ad spends from revenue itself but the Company have decided to spend burn cash of 186 Cr out of 400 Cr IPO in Advertising which is risky at ROAS of 2.4
In past, Honasa has raised 1000 Cr to get FY22 Sales 932 Cr!

3. PE multiple

The Skin and Personal Care Companies in Nifty have median PE as 59

HUL - 62
Godrej - 57
Marico - 53
Emami -23

If we even apply higher PE of 100 to FY22 profits of #mamaearth of 14 Cr, the valuation comes to 1400 Cr

4. Comparable method

Although the KPIs of #Nykaa are more encouraging, Nykaa seems to be the closest comparable considering the Personal care sector and recent IPO of new age Startup which has tasted the waters of retail investors.

The Market capitalisation after erosion of investors' money in #nykaa is 44000 Cr and its GMV in FY22 has been 6433 Cr with Revenue of 3773 Cr and Profit of 41 Cr in FY22.

With #mamaearth at one-fourth revenue as well as profits, the Valuation at higher end can be 11000 Cr max

5. PE multiple with targeted Profits
The best method shall be to ask Founders what profits they shall be able to achieve in 1 year of utilising the IPO raise, applying the PE of 100 to get Valuation at FY24 and discount the same by 10% which is expected IRR for retail investors

Assuming #mamaearth shall be able to achieve profits of 100 Cr in FY24 , the Future valuation shall be 10000 Cr and discounting at 10% shall give Valuation of 9000 Cr. This will also be in lines of Valuation at last round led by #Sequoia at 8300 Cr ($1.2 billion )