Why Mamaearth Share Price is Rising

As I write this, the share price of Honasa Consumer, the parent entity of Mamaearth, is up over 12%. This rally comes on top of the 20% gains recorded yesterday, 23 November 2023.

Mamaearth's stock is a hot topic among both investors and traders these days.

Think about how significant this milestone is for a company which was criticised just recently when it launched its initial public offering (IPO).

The recent rally comes after Mamaearth announced its Q2 earnings after market hours on Wednesday this week.

The surprising thing is that liquidity in the stock is also acting as a major reason supporting the momentum.

Liquidity of Mamaearth Shares

It seems like not long ago we were in the middle of tech stocks crash. Zomato and Paytm's share prices were nosediving.

Critics were claiming this trend to go on for a long time. The mainstream media was celebrating what they thought was a "told you so!" moment.

Of course, the trend did not last.

Tech stocks have staged a turnaround in recent months. Improving earnings trajectory and a significant correction in valuation are two key factors currently working in their favour, which are also turning around big institutional heads.

For Mamaearth, several Indian mutual funds have been early investors in the IPO. Foreign institutional investors (FIIs) have followed suit.

According to a note released by an investment banking firm, Honasa Consumer now has 321.7 million shares outstanding as per exchange data.

Out of these, 11.8 million shares each are locked for sale until December 2023 and January 2024. Another 210 million shares are locked for sale until as late as May 2025.

Now based on this data, only 75.6 million shares or 23.5% of the company's outstanding equity is currently available to trade.

Once the company posted good results, shares rose to 20% upper circuit and sure enough, the greed of quick short-term profits forced retail investors to sideline all their investing experience and wisdom and turn to Mamaearth shares.

Just as you learned in Economics 101 about supply and demand, the demand for Mamaearth shares has led to increase the exchange price in order to accommodate everyone.

Strong Numbers Provide Hopes of Quick Turnaround

For the September 2023 quarter, Mamaearth reported a 21% growth in revenues to Rs 5 billion (bn). While operating profit grew by over 50% to Rs 403 million.

Operating margin grew by 170 basis points to 8.1%.

The company's net profit improved to Rs 294.4 m during the quarter as against Rs 247.1 m in June 2023. When compared year-on-year, the company's profits soared nearly 94% from Rs 152 m.

On a unit level, the company spent around Rs 0.93 to earn one rupee of operating income during the second quarter.

The company was criticized as it was looking at a valuation of around US$ 1.2 bn through its IPO even though it had posted a net loss of Rs 1.5 bn in FY23.

And in the quarter just ahead of the IPO (a typical trend for all loss-making companies when they plan to get public listing), it managed to show a net profit of Rs 247 m.

What Next?

Investors are expecting the company to post industry-leading growth over the next three years. This could be the result of the aggressive marketing spends.

Honasa is uniquely positioned as it's the largest digital-first beauty and personal care (BPC) company in India in terms of revenue in FY23. It has a strong distribution network and operates in a high-growth industry.

While all these forward-looking statements might get investors excited, you also need to take note of the multiple risks involved.

The company's subsidiaries including Just4Kids, BBlunt, B:Blunt Spratt, and Fusion are still in losses and may continue to remain so in near future.

The company continuously strives for expansion of distribution channels by creating brand awareness. So, it is not surprising that a third of the company's revenues (35% in FY23) are spent on advertising.

One of the objectives of the IPO was to set aside more funds for advertising. Not only does such a business offer little visibility of sustainable profits, but also raises question about the pricing of the issue.

How Mamaearth Share Price has Performed Recently

Mamaearth made its stock market debut in the first week of November at Rs 330 per share, a 2% premium against its issue price of Rs 324 per share.

Soon after listing, the share price fell before regaining momentum.

In the past five days, the stock is up around 40%.

The company touched its 52-week high of Rs 487 on 24 November 2023 and its 52-week low of Rs 256 on 10 November 2023.

Mamaearth shares settled 12% higher on the BSE today.

About Mamaearth

Incorporated in 2016, Honasa Consumer provides beauty and personal care products through its digital platform.

Mamaearth is the company's flagship brand that focuses on developing toxin-free beauty products made with natural ingredients. It's India's largest digital-first BPC brand in India in terms of revenue from operations in FY23.

To know more, check out Mamaearth's financial factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...