Fireside Ventures booked 4,500% profit on Mamaearth investment. More selling to come?

Category I AIFs (alternate investment funds) holding less than 20 percent of the pre-offer share capital are exempt from the six-month lock in period

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With the likely block sale in Honasa Consumer, Fireside Ventures has booked a massive 4,500 percent profit on its investment in Mamaearth parent. The firm had bought shares at mere Rs 7.33 apiece, as per the IPO prospectus.

During Honasa’s public offering, Fireside Ventures had sold 79.7 lakh shares at issue price of Rs 324. This was followed by a likely block deal of 62.9 lakh shares at an average of Rs 352 on December 5.

The venture capital firm still holds over 1.81 crore shares or 5.5 percent stake in the company.

Also Read: Mamaearth block deal: 2% Honasa stake changes hands

More block deals in store?

Due to lock-in periods set by market regulator SEBI, it is unlikely to see such a huge block deal just few days after listing.

However, Category I AIFs (alternate investment funds) holding less than 20 percent of the pre-offer share capital are exempt from the six-month lock in period as per Regulation 17 of the SEBI ICDR Regulations.

“Fireside Ventures Fund as well as Stellaris Venture Partners both fall under this category. Not counting today’s sale, they together hold 13.3 percent in Honasa Consumer. So there is a big PE overhang in this stock as some of the key holders don’t have a lock-in,” said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.

Furthermore, equity shares held by the employees, whether they are current employees or not, or the ones that will be allotted under ESOP schemes are also not subject to any lock-in.

Also Read: Marico Vs Mamaearth: Jefferies replaces the tried and tested on D-Street with newbie. What gives?

Meanwhile, promoters’ stake is subject to 18 month lock-in period and rest of the pre-offer equity capital which includes Sequoia Capital, Sofina Ventures and SCI Investments or Peak XV Partners are subject to a six month lock-in.

Q2 results

The company reported robust Q2 financial results with the net profit doubling to Rs 30 crore. Post Q2 results, Jefferies set a share price target of Rs 530 on the stock.

The company’s revenue grew 21 percent year-on-year, volume growth was higher at 27 percent, and operating margin rose 53 percent to Rs 40 crore.

According to Jefferies, Honasa should report industry leading growth at 27 percent over the next three years. However, the key risks investors should keep in mind are: excessive competition, including from leading FMCG companies, aggressive M&A (merger and acquisition) and lack of scale-up in the newer brands.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.