MamaEarth’s Heavy Marketing Spend and Low ROAS Raises Questions About Its Business Strategy

-

MamaEarth, the Indian consumer goods brand, is making headlines with its plans to raise $3 billion in its initial public offering (IPO). While the IPO has generated buzz, it has also raised some eyebrows due to the company’s high valuation and marketing spend.

According to media reports, the IPO values MamaEarth at a price-to-earnings (PE) ratio of 3400x based on H1-FY23 figures and 1700x based on FY22 profit after tax (PAT). This is significantly higher than the PE ratios of other consumer direct-to-consumer (D2C) brands such as Hindustan Unilever (62x), Dabur (58x), and ITC (23x).

Mama Earth Products
Mama Earth Products

Some have questioned MamaEarth’s business model, as the company has consistently spent around 40% of its revenue on marketing over the past three years. This is unusual in the fast-moving consumer goods (FMCG) market, where companies typically see a decrease in marketing spend as they establish brand loyalty and secure repeat buyers.

In addition, MamaEarth’s draft red herring prospectus reveals that the company worked with almost 4,000 influencers as of September 30, 2022. And, the company’s return on ad spend (ROAS) is relatively low at 2.5. This means that for every rupee spent on a campaign, the company generates only 2.5 rupees in revenue. In comparison, other companies such as HUL, Flipkart, Nykaa, and Bewakoof have ROAS values of 10+, 6, 8, and 5, respectively.

These factors have led some to wonder if MamaEarth is primarily a marketing company that relies heavily on advertising and influencer partnerships, rather than building brand loyalty through the quality of its products. It will be interesting to see if the IPO is successful and if investors have confidence in the company’s long-term growth prospects.

Certainly, MamaEarth is a highly valued company, with a reported valuation of $3 billion. This is a significant achievement, and it is no surprise that the company has attracted the attention of major investors such as Sequoia and Sofina. However, it’s worth noting that the company’s price-to-earnings (PE) ratio is quite high, at 1,714.28 times based on its net profit of Rs. 14 crore in FY22.

This suggests that the stock or business may be considered overpriced by some analysts. Ultimately, the true value of a company is subjective and can depend on a variety of factors, including its financial performance, growth prospects, and the state of the overall market.

Support Indian Spectator, follow us on Google News. Submit your opinion and guest articles on Info.indianspectator@gmail.com

Latest News

Damodar Savarkar: A Journey of Controversy and Conviction

You know, Vinayak Damodar Savarkar, a prominent figure in Indian politics, had quite the journey. Born on 28th May...

Congress and AAP arrive at a Lok Sabha seat sharing formula in Delhi.

The Congress and Aam Aadmi Party (AAP) have worked out a deal for who gets to run for Lok...

Yami Gautam’s Role in ‘Best Film of Her Career’ Garners Acclaim: Article 370 movie

Excitement is building among movie fans nationwide for "Article 370," directed by the renowned Aditya Dhar of "Uri –...

Understanding Maratha Reservation: Key Points You Need to Know

On Tuesday, The Maharashtra Assembly approved the Maharashtra State Reservation for Socially and Educationally Backward Classes Bill 2024, which...

Former CM & Shiv Sena Leader Manohar Joshi Passes Away

Political leaders from across party lines, including Prime Minister Narendra Modi, paid heartfelt tributes to former Lok Sabha speaker...

Understanding the World of Fintech in India

In a recent report shared with Parliament, the Standing Committee on Communications and Information Technology raised worries about how...

CBI Raids Premises of Former J&K Governor Satya Pal Malik in Kiru Hydropower Corruption Probe

In a significant development, the Central Bureau of Investigation (CBI) conducted raids on the properties of former Jammu and...

Understanding the Thanthai Periyar Sanctuary Issue: What’s Happening and Why It Matters

Lately, there's been a lot of talk about the Thanthai Periyar Sanctuary in Tamil Nadu. But why all the...