Malabar Investments, an India-focused investment fund, is in talks with early-stage backers of Mumbai-based Sugar Cosmetics, as reported by ET. They are discussing acquiring a stake in the company for INR 80-100 crore in a secondary transaction, according to sources familiar with the matter.
Should the deal be formalized, it is anticipated to value Sugar Cosmetics at around INR 2,900 crore (approximately $350 million). This transaction might involve partial exits from Sugar Cosmetics’ early investors, such as RB Investments and India Quotient, as well as some angel investors and family offices, according to the individuals mentioned previously.
“It is a part of a larger secondary sale exercise… Malabar Investments has held detailed discussions with the company and the investors to enter Sugar’s cap table,” one of the persons said.
In a secondary deal, the transaction occurs between existing and incoming investors, and the cash does not flow into the company itself.
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Another source mentioned earlier expressed that the omnichannel beauty retailer is interested in attracting an investor like Malabar Investments, known for acquiring stakes in companies that would pursue an initial public offering (IPO) in the near future.
“Malabar Investments coming in could pave the way for other pre-IPO investors to also come in… the broader contours are being finalised,” the person said. “A term sheet has been prepared but the proportion of which investor gets what exit is still being decided.”
RB Investments, an early supporter of the company since 2017, currently holds over 10% stake in Sugar Cosmetics, as per Tracxn data. Meanwhile, India Quotient holds approximately 11% stake.
Founded by former McKinsey executive Sumeet Nagar, Malabar Investments sees this potential deal as an opportunity to expand its portfolio with another consumer company. The firm has a history of supporting consumer-focused startups like Boat, Bombay Shaving Company, and Ixigo. Malabar Investments primarily focuses on investing in small and mid-sized public companies.
Sugar Cosmetics, established by the wife-husband duo Vineeta Singh and Kaushik Mukherjee, commenced its journey as an online-first direct-to-consumer (D2C) beauty brand before branching out into offline channels.
According to Tracxn data, the couple retains a 25% stake in Sugar Cosmetics, with investment fund A91 Partners holding 20.8%. Early-stage venture firm Elevation Capital maintains an 11% stake in the company.
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Among the company’s other investors are L Catterton, which spearheaded a $50 million funding round for Sugar in May 2022. Additionally, Anicut Capital and the family offices of Pawan Munjal from Hero Group and Ajay Shriram from DCM Shriram are also investors in the company.
Queries to Malabar Investments, RB Investments, and India Quotient remained unanswered.
A spokesperson for Sugar Cosmetics said, “In the recent past, we have received strong interest from domestic and global private equity funds for equity investments in the organisation.”
The person added, “However, given that the company turned profitable in December of last year, there is no requirement for primary investment at present. In light of this, a few funds have engaged in conversation to actively explore the possibility of joining our cap table as shareholders via a secondary stake purchase.”
The spokesperson also mentioned that although a secondary purchase offer has not been finalized yet, it is expected to be “at a price higher than the company’s previous primary raise price.”
In May 2022, Sugar Cosmetics secured primary funds from L Catterton at a valuation of INR 3,000 crore.
“We also look at this opportunity to provide a significantly meaningful exit to some of our earliest investors…,” the spokesperson said.
Sources mentioned that the company has also engaged in discussions regarding raising fresh capital; however, these plans have been postponed for the time being.
“Sugar has been one of the first movers in the youth-focused colour cosmetics category, and has created a hold in that segment but with newer players entering the market it is becoming very competitive,” a person aware of the deal talks said.
In FY23, the company recorded an 89% year-on-year growth in operating revenue, reaching INR 420 crore. However, it is anticipated that the growth rate will moderate to 35-40% in the current fiscal year.
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“Sugar is also prioritising profits over revenue growth as it aims for an IPO in the next two to three years,” the person cited earlier said, requesting not to be named.
As per the same source, the company is projected to surpass INR 500 crore in revenue for FY24, while maintaining a negative EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of under 12%.
In recent years, Sugar has expanded its offerings by venturing into the low-cost cosmetics segment with its sub-brand, Sugar Pop, as well as introducing accessories and merchandise under the Sugar Merch Station brand. Additionally, in 2023, the company forged a joint venture with Bollywood actor Kareena Kapoor to introduce a skincare brand named Quench Botanics.
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