Honasa Consumer, the owner of the skincare brand Mamaearth, which seeks to raise around Rs 2,900 crore through an initial public offering (IPO) faces public scrutiny following the submission of its Draft Red Herring Prospectus (DRHP) to the Securities and Exchange Board of India on December 29.  

It has emerged that Honasa spent Rs. 390 crore in marketing and promotional activities in 2022, a whopping 42 percent of its sales (Rs 932 crore), as per the DRHP.  

This was not the first time that the company spent huge money on marketing activities. In the year 2021 as well, when Honsa incurred losses to the tune of Rs 1,330 crore, its advertising and promotional spends were around Rs 180 crore which also corresponds to more than 42 percent of its sales (Rs 426 crore).  

This poses serious questions over the functioning and marketing strategy of the startup also owns brands like Just4Kids and BBlunt as well.

(Source: Draft Red Herring Prospectus filed at SEBI) 

"Mamaearth reminds us of the edutech startup BYJU’s whose promotional expenses touched Rs 2,200 Cr in FY21 even as the company incurred losses to the tune of Rs 4,500 Cr,” an industry expert says. 

In 2022, the company spent Rs 50 lakh in CSR activities, in 2021, it spent none.  

Its balance sheet also reflects that the directors (promoters Varun and Ghazal Alagh) drew zero salary from the company though they hold a significant percentage of equity share capital.  

Valuation being questioned 

Amid volatile markets, when brands like boAt Lifestyle, and Snapdeal have withdrawn plans to go public, people are questioning Honasa's bold move for IPO, apart from its valuations.  

Mamaearth is reportedly seeking a valuation of Rs. 24,000 crore ($3 billion) against revenue of Rs. 943 crore which have raised many eyebrows.  

Netizens and marketing experts are comparing its IPO to that of Paytm's. Twitter and LinkedIn users had a field day with many speculating that the company would meet the same fate at Paytm.  

“People are making assumptions based on publicly available information. However, the company’s value is determined by merchant bankers closer to the IPO date,” an expert insisted.  

It expects to raise about Rs 400 crore through a fresh issue of shares and the rest through an Offer For Sale (OFS) of about 4.7 crore shares.