Malabar Investments eyes Sugar Cosmetics stake via Rs 80-100 crore secondary round

Sugar Cosmetics, a leading Indian omnichannel beauty brand, is stirring up a potential investment deal with Malabar Investments, a prominent India-focused fund. This article dives deep into the details of this news, exploring the current valuation, market scope, and factors affecting Sugar Cosmetics' future, aiming to rank high in search results.

Current Valuation and Potential Increase

The proposed secondary transaction, where existing investors sell their stake to Malabar Investments, could value Sugar Cosmetics at approximately Rs 2,900 crore ($350 million). This signifies a potential increase from the company's previous valuation of Rs 3,000 crore during the May 2022 funding round led by L Catterton.

Market Scope and Growth Trajectory

India's beauty and personal care market is booming, expected to reach a staggering $22 billion by 2025. Sugar Cosmetics has capitalized on this growth, particularly in the youth-focused color cosmetics segment. However, the market is becoming increasingly competitive with new players entering the scene.

Sugar Cosmetics' Financial Performance

Sugar Cosmetics achieved impressive growth in FY23, reporting an 89% year-on-year increase in operating revenue to Rs 420 crore. However, growth is expected to moderate to 35-40% in FY24. The company is prioritizing profitability over explosive revenue growth, aiming for an IPO in the next 2-3 years. They are projected to cross Rs 500 crore in revenue for FY24 with a negative EBITA margin below 12%.

Investment Strategy and Potential Benefits

Malabar Investments' interest in Sugar Cosmetics suggests their belief in the company's potential for an IPO in the near future. This investment could pave the way for other pre-IPO investors to join, solidifying Sugar Cosmetics' financial standing. The deal might also provide an exit opportunity for early investors like RB Investments and India Quotient.

Sugar Cosmetics' Diversification Efforts

Beyond color cosmetics, Sugar Cosmetics has undertaken strategic diversification initiatives. They launched the Sugar Pop sub-brand for low-cost cosmetics, expanded into accessories and merchandise with Sugar Merch Station, and most recently, ventured into skincare with Quench Botanics in partnership with Kareena Kapoor Khan.

Unanswered Questions and Future Outlook

While a term sheet is reportedly prepared, the exact stake distribution among exiting investors and Malabar Investments remains undecided. Sugar Cosmetics has denied the need for primary investment at present due to their December 2023 profitability milestone. However, they haven't ruled out a future secondary sale at a price exceeding their previous primary fundraising valuation. Discussions regarding fresh capital are also on hold for now.