Shilpa Shetty could make a killing from Mamaearth IPO. Here’s how

Honasa Consumer, parent of Mamaearth, is looking to raise Rs 400 crore through a fresh issue of shares, apart from an offer for sale of around 4.7 crore shares.

"Valuation discovery is a process which will take place over time as we get into deeper conversations with investor community". That was Mamaearth co-founder Ghazal Alagh's response after the company faced #FinTwit's ire for demanding a 'sky-high, disastrous' valuation for its public offering.

Keeping Alagh's comment aside, it is certain that Bollywood actor Shilpa Shetty will be laughing all the way to the bank as her Rs 6.8 crore investment in the company will grow multi-fold. The question is by how much?

Let's assume that Mamaearth lists at Nykaa's current market capitalisation-to-sales (or price-to-sales) valuation, given both are direct-to-consumer (D2C) companies in the beauty and personal care (BPC) space. Nykaa trades at 7.4 times P/S based on FY23 annualised sales.

Honasa Consumer, parent of Mamaearth, filed its draft red herring prospectus on 29 December, 2022. It is looking to raise Rs 400 crore through a fresh issue of shares, apart from an offer for sale of around 4.7 crore shares.

Also Read: Mamaearth IPO: Five key highlights from its DRHP

Mamaearth's FY23 annualised sales will be Rs 1,444 crore, as its six-month sales till September 2022-end was Rs 722 crore. Extrapolating Nykaa's valuation to this, Mamaearth's market cap works out to about Rs 10,685 crore.

Back to Shetty's investment. In 2018, she had acquired 16 lakh shares at Rs 41.86 apiece, which amounts to 0.52 percent stake in the company. At a market capitalisation of Rs 10,685 crore, her investment will be worth Rs 55.5 crore.

That indicates a return of 715 percent! Basically, the worth of her initial stake will octuple.

What's crazier? Street speculation suggests Mamaearth is looking at a market cap of $3 billion (about Rs 24,000 crore) with its IPO. If that turns out to be the case, Shetty's investment will be worth Rs 124 crore, up over 1,700 percent or 18.2x.

Also Read: P/E of 1,000? Investors cautious over huge valuation of Mamaearth IPO

Like Shetty, actors Alia Bhatt and Katrina Kaif had also turned their pennies into million dollars with Nykaa's listing in 2021. Reportedly, Bhatt's investment of Rs 4.95 crore grew to Rs 54 crore and Kaif's investment grew from Rs 2 crore to Rs 22 crore on Nykaa's D-Street debut day. Since then, the stock has bled over 60 percent, wiping out some of those sweet notional gains.

However, it is unlikely that Mamaearth will command a valuation similar to that of Nykaa, given the recent wealth erosion in new-age tech stocks. If we assume a 20 percent discount, Shetty's investment will be worth Rs 44.4 crore, and at a 35 percent discount, it will be worth Rs 36 crore.

The bottom line is that Shetty will be grinning her way to the bank while retail investors sit scratching their heads about the valuation of a newly profitable company.

Meanwhile, here is the co-founders’ response to all speculation “God has been kind, luck favored us, consumers loved us… Even in the eye of the storm we will keep working hard, innovating and building a business that our next generations can be proud of.”

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