Varun Alagh on IPO Strategy

Varun led Honasa through its initial public offering in November 2023, with the IPO oversubscribed 7.61 times. The offer opened on 31 October 2023 and closed on 2 November 2023, with shares listing on BSE and NSE on 7 November 2023 at a market capitalisation of roughly ₹10,425 crore, making Honasa at the time the youngest Indian unicorn to list publicly.

Mamaearth's parent, Honasa Consumer Limited, filed its Draft Red Herring Prospectus with SEBI late in 2022 for an IPO comprising a fresh issue of ₹400 crore and an Offer For Sale of 46.82 million equity shares. The DRHP immediately drew criticism from finance professionals and entrepreneurs on LinkedIn, who seized on the reportedly sought $3 billion valuation as out of line with fundamentals.

Critics compared the proposed valuation to the post-listing collapses of Zomato, Nykaa and Paytm — all of which had seen their share prices fall sharply after richly-priced debuts. The broader argument was that Mamaearth's DRHP was repeating the 2021 unicorn-IPO pattern that had already burned retail investors, despite a fundamentally different market mood in late 2022 and early 2023.

The valuation gap sat at the centre of the controversy. In January 2022 Mamaearth was valued at $1.2 billion. A year later, the DRHP-anchored IPO ambition was reportedly around $3 billion (roughly ₹24,985 crore). Critics pointed out that this translated to a multiple of more than 1,000 times FY22 profit of ₹19.86 crore — a ratio that invited direct comparisons with the post-listing collapses of Zomato and Paytm.

Techno-marketing professional Nikhil Kuruganti's analysis went viral on LinkedIn. He estimated the asking valuation at roughly 16x FY23 revenues (extrapolating H1-FY23 revenue of ₹722 crore) and 25x FY22 revenues of ₹943 crore, with a P/E ratio of around 3,000x on H1-FY23 PAT and 1,500x on FY22 PAT — implying Mamaearth would need to grow profits roughly 50-fold to justify the implied valuation.

The IPO itself was ultimately subscribed 7.61 times over a three-day window, but retail investors subscribed only 1.35 times — a notably muted retail response relative to institutional interest. The stock listed at a small premium of roughly 1.8%, signalling that the market had repriced the IPO narrative away from the original $3 billion ambition.

Kuruganti further questioned the marketing math: Mamaearth's FY22 marketing expenditure was roughly ₹391 crore against sales of ₹932 crore — implying Honasa was spending around 40% of revenue on advertising. He flagged that Honasa itself disclosed plans to deploy roughly ₹186 crore of IPO proceeds for marketing, raising concerns that public-market money would fund ongoing ad-spend rather than capacity-building.

A second critique was structural: Kuruganti argued Mamaearth was 'no longer a D2C brand,' pointing to a sharp shift in offline channel contribution from 9% in 2020 to roughly 35% in the prior six months. His objection: you cannot ask for a D2C valuation multiple while explicitly planning to derive 70% of business from offline channels in the near term.

The Substack analysis frames Mamaearth's listing as a market-wide signal: 2023 had seen 93 IPOs in India by November, and investor appetite had visibly shifted toward profitability over richly-priced growth. The author argues that retail investors would no longer accept valuation anchored on narrative alone — a meaningful change from the 2021 cycle that had embraced Zomato and Paytm at any price.

The piece highlights the dramatic post-IPO collapses that framed the Mamaearth moment: Zomato, listed in July 2021 at a 52.63% premium and 38x oversubscription, fell 66% to ₹41.6 within a year; Paytm, listed in November 2021 at ₹1,950, dropped to ₹441 — a 77% decline. These collapses shaped the cautionary lens through which Mamaearth's DRHP was read by the market.

A broader portfolio context fed the IPO story: by listing time Mamaearth was the flagship inside a 'House of Brands' that included BBlunt, The Derma Co., Dr Sheth's, Aqualogica and Ayuga, all under parent Honasa Consumer Ltd, with the combined entity crossing ₹1,500 crore in revenue in roughly seven years — material scale, but not enough to silence the profitability-valuation debate.

Chartered Accountant Anamika Rana of Arika Consultancy noted that the asking valuation implied roughly 1,000x FY22 net profit of ₹14 crore, and that IPO proceeds were earmarked for advertising expenses, opening new BBlunt salons and setting up exclusive brand outlets. The implied capital allocation was, in her view, weighted toward marketing and physical retail rather than toward R&D or capacity — fuelling the overvaluation verdict.

The article argues the verdict from retail investors is unambiguous: flashy valuations must yield to profitability, and influencers glorifying IPO-led startups can no longer move the market on their own. Startups eyeing 2024 listings — including OYO, Ola Electric, Swiggy, Navi, PayMate and Digit Insurance — were reportedly reorienting toward sustainable businesses in response to this shift.

Anamika also clarified that the cited revenue numbers represented six Honasa units combined, not Mamaearth alone — revenue across Honasa's units had grown 2.5x between 2020 and 2023. The point mattered because it complicated the headline valuation claim: a parent-level multiple applied to consolidated revenue was, in her reading, an overstatement of the standalone Mamaearth story being marketed to retail investors.

The author's framing — that Mamaearth's IPO 'saga reveals a shift in India's IPO landscape' — is the analytical takeaway: a single listing functioned as a market-wide correction mechanism, forcing Indian startup founders to internalise that the public market's tolerance for growth-without-profit had narrowed materially since 2021.

The article frames the LinkedIn backlash itself as a market signal — finance professionals and operators publicly dissecting the DRHP and translating its arithmetic for retail investors. The intensity of the critique foreshadowed the muted retail subscription (1.35x) at IPO time and the small listing premium, both of which validated the critics' central thesis on valuation.

Beyond the numbers, the IPO became a cultural event — Ghazal Alagh's prior appearance on Shark Tank India as a 'shark' and Shilpa Shetty's brand ambassadorship had woven Mamaearth into the public imagination well before the DRHP. That celebrity association had cut both ways: it drove brand awareness but also sharpened public scrutiny of the valuation math when the IPO documents landed.