Honasa Consumer plans to raise Rs 400 crore from IPO, to invest in offline expansion

IPO-bound Honasa Consumer Ltd, which owns new age FMCG brands such as Mamaearth and The Derma Co, expects to raise Rs 400 crore from listing and would spend the proceeds mainly on offline expansion, bring more brands to the market and on acquisitions, its Co-founder and CEO Varun Alagh said.

Honasa will focus on expanding the scale of the brand with more distribution expansion and awareness of its flagship brand Mamaearth, besides scaling its other brands as The Derma Co, Aqualogica and Ayuga, which are also performing well and growing monthly revenue.

Its salon business BBlunt, acquired from Godrej Consumer Products, exclusive brand outlets and overseas expansion to geographies such as the Middle East and newer categories would be the newer engine of growth, he said.

Earlier this month markets regulator SEBI approved the proposal of Honasa Consumer's to raise funds through initial public offering (IPO).

"We are looking to raise around Rs 400 crore in terms of primary capital and then there is an OFS (Offer for Sale) component through which some of our early investors are sort of participating in selling their shareholding," Alagh said PTI.

Over the usage of funds raised from IPO, he said the proceeds would be used for expansion and general corporate purposes.

"One objective is capex in terms of opening more stores and opening more salons and the second objective was marketing to bring more brands. The third objective is general corporate expenses, which would include things like acquisition etc. So I think that is the main area where we are looking to deploy," he added.

According to Honasa Consumer's DHRP, its revenue from operations was Rs 943.46 crore for the financial year that ended on March 31, 2022, and had a restated profit of Rs 14.44 crore.

Its brand Mamaearth was the fastest to become a Rs 1,000 crore brand in the D2C landscape in India, he added.

When asked about the timing of the IPO, when several companies withdrew from the process over unfavourable market conditions, Alagh said: "We believe that for a good company, there are no bad times." "Last three months with the FPI coming back to India and geopolitically as well as from a consumer demographic and economy growth perspective, I think there is there is going to be a lot of growth that Indian economy as well as Indian markets are going to see. "In our minds, we are excited and confident about being able to generate very strong interest in the company as we take it for IPO," he said.

Honasa Consumer started offline expansion about three years back, which according to Alagh is a "phenomenal" journey for a company, that started with D2C offerings.

"Now offline contributes to 35 per cent of our revenues and that's a sizable component. We have more than 400 distributors across over 100 cities. Our products are available in over 100,000 outlets, according to AC Nielsen," he said adding expansion has been rapid.

Besides, it has also seen strong share gains in categories like face wash and shampoo in the offline space.

"The objective is we will continue to double down on offline as a channel," said Alagh.

Currently, skincare and haircare are the largest categories and colour cosmetics is the fastest-growing category for Honasa Consumer, which had turned profitable in FY22.

"We are also in baby care, from where we started from and where there is a little bit of presence in body as well," he said.

In terms of contribution, Alagh said its online D2C gets more than 50 per cent of sales actually coming from smaller and aspirational markets of tier II and beyond.

"This is giving us confidence that given the consumers in tier two and beyond are already buying online from us when we take the products offline, we will also get good traction and hence the expansion strategy is now to get into tier two and beyond strategy cities offline," Alagh added.

The company delivers its products to over 18,000 pincodes in the country. According to Alagh online will continue to grow much faster than offline for the overall industry in FMCG for products such as beauty and personal care.

"Online penetration in India is only 7-8 per cent and if you see markets as US, it is close to 45 per cent, for China it is close to 40 per cent and hence, we do see that channel continuing to gain penetration but on the other hand 90 per cent of the transactions and category buying is still happening offline," he said.

According to Alagh this hints for any player who is interested in gaining share from currently established players, it is important to build and gain in that channel.

Currently, Alagh along with his wife Ghazal Alagh together owns about 37 per cent of Honasa Consumer.

When asked about the debt, Alagh said "We have zero debt and a profitable cash-generating company. We are sitting on more than Rs 400 crore of cash." Terming his journey from a startup to IPO filing, Alagh said it was a "personal journey" as it was started to provide "safe and toxin-free products for babies in India because we as parents could not find the right products for our son." "We have very closely seen how the consumer is evolving and how a lot of brands and companies have not evolved at the same pace as the consumers have evolved. And the brands like us who are listening to these consumers and providing the right kind of propositions to them got a lot more love from consumers".