“The numbers should showcase in the next few days. We feel like it’s going in the right direction,” Varun Alagh told ET in an interview. “The retail portion has been subscribed 35% on day 1. For whatever reason, some people would have tasted bad blood but there have been multiple IPOs where there were 70-80% listing gains,” he added.
Honasa Consumer’s Rs 1,700 crore IPO opened for public subscription on Tuesday. It is offering the shares at a price band of Rs 308-324 each.
Alagh advised against making a call on a company based on its short-term performance on the stock market. “If you’re trying to measure performance over 3-6 months, you should not … If you genuinely like a company, stay invested for a few years and measure our performance over the index and that’s what one should hold the company accountable to,” he added.
ETtechOn the first day, the IPO received bids for 12% of the shares on offer, mostly from retail individual investors and the company’s employees. The retail portion got 35% subscribed, while the shares reserved for employees received bids for 1.97 times.
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The omnichannel retailer’s public offering is the first IPO by a major venture-backed new-age company in over a year since Delhivery’s offer in May 2022. Prior to Delhivery, companies such as Zomato, Paytm, Nykaa and PB Fintech went public. Of these, the offering of financial services giant Paytm became the most controversial with the shares closing over 27% lower than its issue price on the day of listing. Following this, market participants and retail investors questioned the valuation of the company sought during the IPO.
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IPO decision
Honasa Consumer’s IPO valuation of over Rs 10,000 crore has also been questioned, despite it being much lower than the initial valuation numbers floating in the market following the filing of its draft red herring prospectus in December 2022.
Alagh said the valuation of the company has been arrived at through a consensus with bankers and investors, and was reflective of its growth potential and future cash flow projections.
Alagh highlighted that going public was the only way to take the company to the next level of maturity.
“We’re sitting on around Rs 450 crore in cash, and last quarter we generated around Rs 50 crore. From an investor’s perspective – our largest investor is not selling in the IPO…that said, we do have certain early-stage investors…one way is to keep doing small secondaries and keep providing them exits but when you’ve reached a certain scale, going public as a company (becomes an option). Over time, the right kind of public investors who know how to guide and shape public companies in the longer term come on the cap table and early investors move out,” he said.
“For us, it wasn’t an if but a when conversation. We weren’t looking for a strategic investment so in our case this was the only option for the company to go to the next level,” he added.
On Monday, the company raised Rs 765.19 crore from anchor investors including foreign portfolio investors such as the Abu Dhabi Investment Authority (ADIA), Capital Group, Goldman Sachs, Fidelity and Norges Bank.
Founders selling
Cofounders Varun and Ghazal Alagh are also selling shares through the IPO. Together, they are offering for sale (OFS) Rs 106 crore worth of shares at the upper end of the price band. The founders hold over 37% stake in the company.
ETtechExplaining the rationale behind participating in the OFS, Alagh said, “Around 97% of our ownership continues to be in the company … so it’s not like we’re parting away with something considerable. This was an event we also chose to generate some liquidity for ourselves.”
“Moving forward it would get even more difficult…if a promoter tries to sell later, it comes across as a negative signal. It is also to build confidence with our other selling shareholders. At one point in time, the OFS book wasn’t getting built because people wanted to hold on for longer and to build that too we had to put skin in the game,” he added.
Other shareholders to participate in the OFS component include Fireside Ventures, Sofina and Stellaris Venture Partners, in addition to angel investors such as Snapdeal founders Kunal Bahl and Rohit Bansal, actor Shilpa Shetty Kundra, and Marico’s Rishabh Mariwala.
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Changing priorities
Alagh said that so far the company was focussed on prioritising growth but going ahead Honasa Consumer would take an approach to balance growth and profitability. “We are cognisant that we need to build sustainably and profitably. As we grow, we want to get better at improving our bottom line. We have one large brand that is generating profits but we want to make sure that it continues to get better and reaches the kind of levels that we expect a brand of this scale to reach,” he said.
For the June quarter, Honasa Consumer reported revenue from operations of Rs 464.49 crore, a 49% rise from a year earlier. Net profit stood at Rs 24.7 crore, against a loss of Rs 11.5 crore a year ago.
ETtechIn FY23, the company posted a net loss of Rs 150.97 crore, compared with a net profit of Rs 14.44 crore in FY22. Operating revenue, however, grew 58% to Rs 1,492.75 crore. The FY23 loss was on account of an exceptional item, and that the company was operationally in profit during the period, it said.
“It is important from our perspective that the company reaches an Ebitda (earnings before interest, taxes, depreciation and amortisation) level that is comparable to Ebitdas of fast-moving consumer goods companies. While that is being done, we want to ensure that there is growth in that brand as well as the younger brands…as long as they’re capturing the opportunity they’re supposed to and continue to get better each year in terms of their need for investments, is how we’d like to balance things,” Alagh said.