Goodwill Impairment Hits IPO-Bound Mamaearth, Posts INR 151 Cr Loss In FY23

IPO-bound D2C unicorn Mamaearth slipped into the red in the financial year ended March 31,2023, hit by a one-time loss. Honasa Consumer Limited, the parent entity of Mamaearth, reported a net loss of INR 151 Cr in FY23 as against a net profit of INR 14.4 Cr in the previous fiscal year.

Founded in 2016 by the husband-wife duo of Varun and Ghazal Alagh, Mamaearth initially started with selling baby care products. However, it gradually turned into a complete personal care brand. The startup currently delivers products to over 500 cities in India. 

It runs brands like The Derma Co., Aqualogica, and Ayuga and has acquired stakes in BBlunt and Dr. Sheths to expand its product portfolio to shore up its revenue. This was also reflected in its growing operating revenue. 

The startup reported an operating revenue of INR 1,492.7 Cr in FY23, a jump of 58% from INR 943.4 Cr in the previous fiscal year. Mamaearth earns revenue primarily from selling its products both online and offline. 

Including other income, total revenue stood at INR 1,515.3 Cr in FY23, an increase of 57% from INR 964.3 Cr in the previous fiscal year. 

Exceptional Loss Due To Momspresso

Mamaearth reported an exceptional loss of INR 155 Cr in FY23 due to impairment of goodwill and other intangible assets. Without it, the startup would have reported a net profit of about INR 3.7 Cr during the year under review.

The D2C brand wrote-off goodwill of INR 136 Cr for Just4Kids Services Private Limited, the parent entity of Momspresso. 

As per Mamaearth’s draft red herring prospectus (DRHP), the net value (assets minus liabilities) of Momspresso was INR 16.2 Cr at the time of its acquisition in December 2021. However, Mamaearth acquired a majority stake in it for INR 152.3 Cr and paid INR 136 Cr for “goodwill arising on acquisition”. 

Inc42 reported exclusively in June this year that Mamaearth was pulling the plug on a couple of verticals of Momspresso. At the time of filing this story, Momspresso’s website was not functional. 

Zooming Into The Expenses 

Mamaearth’s total expenditure, too, surged 59% to INR 1,501.6 Cr in FY23 from INR 942 Cr in the previous year, in line with the increase in its operating revenue.

• Advertising Expense: At INR 530 Cr, the D2C brand spent the highest amount on advertising. This was an increase of 35% from INR 391.4 Cr in FY22. Advertising expenses accounted for 35% of the overall expenses. 
• Purchase of Stock in-Trade: The startup spent INR 502 Cr on purchasing raw materials in FY23, a rise of 65% from INR 304.7 Cr in the previous fiscal year.
• Employee Benefit Expense Rise: Mamaearth spent INR 164.8 Cr on employee benefit expenses during the year under review, an increase of 109% from INR 78.8 Cr in FY22. As per LinkedIn, Mamaearth has around 500 employees

Mamaearth has raised $111 Mn across funding rounds till date and counts Peak XV Partners, Sofina, Fireside Ventures, and Stellaris Venture Partners among its backers. The startup, last valued at $1.2 Bn, is now gearing up for its IPO, which is expected to open on October 31, 2023.

It is aiming to raise approximately INR 1,700 Cr  through a combination of a fresh issue and an offer-for-sale, targeting an estimated valuation of around INR 10,500 Cr.

In the skincare D2C space, Mamaearth competes against the likes of Wow Skin, Juicy Chemistry, Good Glamm, and Nykaa.