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.

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