In partnership with

Good morning. In today's edition — examining direct-to-consumer (D2C) brand Mamaearth’s inventory conundrum; global automakers struggle amidst economic headwinds; India’s import of Russian crude oil on the decline; and startups driving employee wealth via ESOPs.

DECODE THE NEWS

Mamaearth's Rs 63 crore Inventory Gap: The Truth Behind the Numbers

Despite promising "market-beating growth" after its November 2023 IPO, personal care brand Mamaearth reported a net loss of Rs 19 crore in Q2 FY25, a stark contrast to its Q1 FY25 profit of Rs 40.2 crore. The company’s CEO Varun Alagh attributed the decline to a Rs 63 crore inventory correction, a figure which he claimed was "higher than what we had imagined," as distributors returned unsold products. This revelation sparked scepticism among analysts, as Alagh had previously downplayed the impact of the brand’s distribution changes.

The Q2 FY25 results, therefore, came as a shock to analysts and investors. Of particular concern was the decline in Honasa's overall EBITDA margin to -6.6% in Q2 from 8.3% in Q1, primarily due to the Rs 63 crore inventory returned as part of the retail model transition.  This transition involved Mamaearth shifting away from selling to wholesale "super stockists" in favour of smaller, direct distributors in major cities. During its Q1 analyst call, Alagh had claimed this transition would provide closer control over inventory and better sales data.

However, a closer examination of the company's profit and loss statement, specifically its inventory figures, reveals a concerning anomaly. The Rs 63 crore in returned inventory, compared to the substantial stock pushed to distributors before the IPO, raises serious questions about the firm’s revenue recognition and accounting practices. Mamaearth which was once a symbol of India's fast-growing D2C revolution, now finds itself grappling with inventory woes, disgruntled distributors, and mounting questions about its financial transparency. The company's aggressive push into offline retail before its IPO, coupled with allegations of artificially inflating revenues, has cast a shadow on its once-celebrated growth story.

A Lucky Friday The 13th Changes Market Sentiment

On Episode 459 of The Core Report, financial journalist Govindraj Ethiraj talks to Mandeep Manocha, Co-founder and CEO at Cashify as well as Jehangir Gai, well-known consumer affairs lawyer.

• A lucky Friday the 13th changes market sentiment,

• India’s rice inventories have hit 5 times the Government’s target.

• What happens if India increase taxes on the rich?

• India’s refurbished phone market is growing,

• Lessons for India’s insurance industry from a US shooting,

MESSAGE FROM OUR PARTNER

Holiday gifts your team can choose themselves

Goody makes sending curated holiday gifts to employees worldwide simple. No need to track shipping details, addresses, or t-shirt sizes!

No more guesswork. Simply set a price and let your employees choose. Goody offers trendy, high-quality products from popular brands, like JBL, Mejuri, Oura, MALIN+GOETZ, Therabody, and more. Or design premium merch with your company logo for a personalized touch.

Try Goody for free. Get a $20 signup credit to send your first gift.

Sign up for free

CORE NUMBER

Rs 1.13 lakh crore

This is the total market capitalization gained by five of the ten most valued publicly traded companies on the stock market in last week's trading. This surge coincided with a broader market rally, with the BSE benchmark index rising by 0.76% and the Nifty gaining 0.36%. Telecom major Bharti Airtel led the gainers, with its market capitalization increasing by Rs 47,836.6 crore to reach Rs 9,57,842.40 crore. IT services provider Infosys followed, adding Rs 31,826.97 crore to its valuation, reaching Rs 8,30,387.10 crore. Other firms including HDFC Bank, ICICI Bank, and Tata Consultancy Services (TCS) also saw substantial gains.  However, Reliance Industries, State Bank of India (SBI), Life Insurance Corporation (LIC), ITC, and Hindustan Unilever experienced declines in their valuations.

FROM THE PERIPHERY

—🚗 Global automakers, including Nissan, Volkswagen, Stellantis (owner of Jeep and Peugeot), and luxury brands like BMW and Mercedes-Benz, are facing challenges due to various macroeconomic factors. These challenges have forced these carmakers to resort to layoffs and production cuts. A recent New York Times report highlighted the industry's struggles, citing complex technological changes in manufacturing, political unrest, rising economic protectionism, and the emergence of cheaper Chinese competitors as contributing factors. This downturn contrasts with the record profits seen a few years ago when pandemic-induced shortages allowed for price increases. The industry, which employs millions globally, is now experiencing a period of uncertainty and workforce reductions.

—📉 India's imports of Russian crude oil experienced a significant 55% decline in November, marking the lowest point since June 2022, according to data from the Centre for Research on Energy and Clean Air (CREA). While India had been the second-largest buyer of Russian crude oil since the Ukraine conflict began, its share of Russian crude exports has now dropped to 37%, with China leading at 47%. This shift has also impacted Russia's export earnings, with a 22% decline in revenue from crude oil exports to India in November. Despite this decrease, India remains a significant importer of Russian fossil fuels, contributing 17% to Russia's monthly export earnings from its top five importers.

—💰 The cash pile of mutual funds reached Rs 1.80 lakh crore in November 2024, marking a significant increase of Rs 70,081 crore since the beginning of the year, said an Economic Times report quoting figures from mutual fund research firm ACE MF. This cash pile, representing the percentage of total assets held in cash or cash equivalents, has grown from Rs 1.10 lakh crore at the start of 2024. As of November, the cash allocation as a percentage of total Assets Under Management (AUM) stood at 4.98%, up from 4.36% at the end of 2023. The total equity AUM also expanded to Rs 36.28 lakh crore in November, compared to Rs 26.35 lakh crore at the start of the year. Notably, SBI Mutual Fund held the largest cash pile among the 43 mutual fund houses, with Rs 32,652 crore, representing 4.67% of its total AUM. In contrast, Zerodha Mutual Fund had the smallest cash pile at Rs 0.54 crore.

—🤑 Around 23 startups in India conducted employee stock ownership plan (ESOP) buyback schemes this year, resulting in over 3,000 employees receiving a total of Rs 1,448 crore (around $170.7 million) in cash. While the total value of ESOP buybacks in 2024 declined by 73% from the previous year, the number of participating startups nearly doubled, according to data compiled by startup news platform Inc42. In 2023, ESOP buybacks by 12 startups generated $850 million for employees, with $700 million coming from a single Flipkart liquidity event. Notable companies that undertook significant ESOP liquidation programs in 2024 include Meesho, Urban Company, Capillary Technologies, and OfBusiness. ESOP buybacks are a valuable tool for startups to retain talent and reward employees for their contributions to the company's growth..

MESSAGE FROM OUR SPONSOR

Lung cancer is the deadliest cancer worldwide.

Cizzle Biotech’s 95% accurate early detection blood test identifies lung cancer at the most treatable stage. Support our patented solution to improve survival rates.

Join the Raise

^{Read the Offering information carefully before investing. It contains details of the issuer’s business, risks, charges, expenses, and other information, which should be considered before investing. Obtain a Form C and Offering Memorandum at invest.cizzlebio.com}

SUPPORT THE CORE

Dear Readers,

Some of you have written to us expressing your intent to contribute to The Core’s journalism. While we currently do not have a subscription or membership plan, you can still support us by clicking the link below.

Another way to support The Core is by sharing this newsletter with like-minded people in your communities, colleagues, friend and family.

Was this email forwarded to you? Subscribe