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Honasa Consumer—the parent company of new-age beauty and personal care brands like Mamaearth, BBlunt, and Dr Sheth’s, among others—seems to have all the ingredients to make the best of the opportunity, according to reports by brokerage firms.

Honasa Consumer aims to raise Rs 1,701 crore through the IPO, which consists of fresh issuance of shares worth Rs 365 crore and an offer for sale of 4.13 crore shares. The three-day book building of the IPO, which ended on November 2, received bids 7.61 times.

Founded in 2016 by Varun and Ghazal Alagh, Honasa is looking at the $20 billion-worth beauty and personal care (BPC) market in India, expected to grow 11% annually to be around $33 billion by 2027.

As per HDFC Securities, with a current size of $20 billion, the BPC market in India is the sixth largest in the world but significantly underpenetrated.

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“For instance, in 2022, BPC spends per capita in China were around 3 times that of India. Even compared to a relatively smaller economy like Indonesia, India’s per capita BPC spends are lower, indicating massive growth headroom,” the brokerage house noted in a report.

Other elements are also boosting the BPC segment in India and globally. Emkay Research said there is a new emerging class of consumers who are more aware of such products and also willing to pay a premium. Additionally, the growing middle class is helping expand the market.

Emkay Research believes that pure-play brands will register 2X growth in the segment. “Advantages like agility, specificity, innovation, new-age focus, and online orientation are helping the Indian new-age pure-play BPC brands scale fast,” it said.

Honasa Consumer’s operating structure as a digital-first brand, foray into offline space and outsourcing manufacturing to third parties give it numerous advantages. The benefit of being directly connected to consumers, resonating with their ever-evolving needs, puts it in a stronger position.

Axis Capital in its note said Honasa has grown its revenue from operations at a CAGR of 80.14% between financial years 2021 and 2023 (from Rs 459.99 crore in FY21 to Rs 1,492.75 crore in FY23). The median revenue CAGR of all other BPC companies for which data was available for the relevant period was 28%.

According to HDFC Securities, the online BPC market in India is still underpenetrated. In markets like the US and China, the online penetration of BPC is 20-25% and 35-40%, respectively. The same for India is around 16%, which further underscores the growth headroom for online BPC.

Emkay Research noted that the company’s gross margins are at 70-75%, and it is looking to build profitability with scale. At present, it is a loss-making entity. For FY23, the company reported a revenue of Rs 1,493 crore and a loss of Rs 151 crore.

It further noted that given its expanding retention rates, the need for customer acquisition costs will gradually taper. Also, there are additional benefits in terms of lower marketing spending and freight costs.

“We see Honasa’s fast scale-up and prospect of healthy sustained growth with its house of brands to keep its growth ahead compared with other listed peers in the listed FMCG space. We believe the company’s profitability will improve with scale,” the brokerage house noted.