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Honasa Consumer Limited’s IPO sees tepid investor interest amid valuation concerns

Honasa Consumer Limited's IPO sees tepid investor interest amid valuation concerns
© Reuters.

Honasa Consumer Limited, known for its Mamaearth brand in the online beauty and personal care product marketing sector, has seen a subdued investor response to its initial public offering (IPO). The total subscriptions reached only 30% by the second day of the offering. The Qualified Institutional Buyers’ (QIBs) portion secured a subscription rate of 0.35 times, Non-Institutional Investors (NIIs) showed less interest with a 0.06 times subscription, retail investors managed a 0.48 times subscription, while the employees’ portion was oversubscribed at 2.68 times.

Brokerage firms like Choice Broking have raised concerns about Honasa’s high valuation and profitability issues despite significant revenue growth over the years. At the higher price band, Honasa’s trailing twelve-month Price-to-Sales (TTM P/S) multiple of 6.3x is slightly discounted to its adjusted peer average. However, it has been viewed as problematic due to sustained losses and volatile profitability, leading to a “subscribe with caution” rating.

Emkay Global suggests subscribing based on potential scenarios and valuations if Honasa doubles its revenue within three years and enhances operating profit margins to around 12 percent. This recommendation is contingent on Honasa’s ability to significantly boost its revenue and improve its operating margins in the coming years.

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