It’s often believed that an IPO is a sign of a company having “made it”, but there are serious challenges that companies can face even after going public.
Trading has been halted in Mamaearth’s parent company Honasa Consumer after its shares fell 20 percent in trade today and hit the lower circuit. Mamaearth’s shares currently trade at Rs. 297, which is below the company’s IPO price of Rs. 324 in October last year, and 40 percent lower than the high of Rs. 531 it had made in September this year. Mamaearth’s shares fell after its earnings report on Thursday, which showed the company had reported negative growth and slipped into losses.
Mamaearth had reported revenue of Rs. 417 crore in the September quarter, which was 17 percent below its revenue of Rs. 498 crore in the previous quarter. Mamaearth’s revenue was also 10 percent lower than the revenue of Rs. 460 crore that it had reported in the same quarter last year. This slowdown causes Mamaearth to slip into losses — it reported a loss of Rs. 15 crore in the quarter, compared to a profit of Rs. 35 crore in the previous quarter, and a profit of Rs. 38 crore in the same quarter last year.
“Mamaearth is growing slower than our expectations,” Mamaearth admitted in its quarterly deck. The company said that there was a “wave” of consumer products in the online channel, and said its investment allocation models hadn’t evolved for its offline initiatives. “We were trying to deploy the same (online) playbook (to retail). Over the last few quarters, all our data seems to be pointing to the fact that we need to evolve those playbooks,” he said.
There had been some indication of stress in the business before the results were declared — in July, distributors had raised concerns over excessive, unsold and expired Mamaearth inventory. Mamaearth CEO Varun Alagh also said that Mamaearth’s expansion into 24 product categories had strained its resources and diluting its focus and investments across too many segments.
It would appear that Mamaearth’s travails are party caused by the changing dynamics of the D2C space over the last few years. Mamaearth’s success — and co-founder Ghazal Alagh’s appearances on Shark Tank — inspired many startups to be built in the beauty space, which has intensified competition for the company. Also, the emergence of quick commerce has made it easier than ever for new brands to reach consumers, which has eroded away some of the brand advantages Mamaearth had built for itself over the years. It remains to be seen how Mamaearth copes with these challenges, but for now its stock is sharply correcting at the markets.