Malabar Investments eyes Sugar Cosmetics stake

Malabar Investments, an India-focused investment fund, is in talks with early-stage backers of Mumbai-based Sugar Cosmetics to acquire a stake in the company for Rs 80-100 crore in a secondary transaction, people aware of the development said.

If a deal is finalised, it is likely to value the company at about Rs 2,900 crore (approximately $350 million), and could see partial exits from Sugar Cosmetics’ early investors, including RB Investments and India Quotient, in addition to some angel investors and family offices, the people cited earlier said.


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“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.

A secondary deal is between existing and incoming investors, the cash doesn’t go into the company.

Another person cited earlier said the omnichannel beauty retailer is keen to bring in an investor like Malabar Investments, which typically acquires stake in companies that would go for an initial public offering (IPO) in the near term.

“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.”

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Shareholders in Sugar CosmeticsETtech

RB Investments, which had first backed the company in 2017, holds more than 10% stake in Sugar Cosmetics, according to Tracxn data. India Quotient holds about 11% stake.

For Malabar Investments, founded by former McKinsey executive Sumeet Nagar, the deal would add another consumer company to its portfolio. The firm has previously backed consumer-focused startups such as Boat, Bombay Shaving Company and Ixigo. It primarily invests in small and mid-sized public companies.

Sugar Cosmetics, founded by wife-husband duo Vineeta Singh and Kaushik Mukherjee, began life as an online-first direct-to-consumer (D2C) online beauty brand before expanding into offline channels.

As per Tracxn, the couple holds 25% stake in Sugar, while investment fund A91 Partners holds 20.8%. Early-stage venture firm Elevation Capital owns an 11% stake.

The company’s other investors include L Catterton, which led a $50 million round in Sugar in May 2022, in addition to Anicut Capital, and family offices of Hero Group’s Pawan Munjal and DCM Shriram’s Ajay Shriram.

Malabar Investments, RB Investments and India Quotient did not respond to ETs queries.

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 said that while an offer for a secondary purchase is yet to be finalised, it will be “at a price north of the company’s previous primary raise price”.

Sugar last raised primary funds from L Catterton at a valuation of Rs 3,000 crore in May 2022.

“We also look at this opportunity to provide a significantly meaningful exit to some of our earliest investors…,” the spokesperson said.

The company has also held discussions to raise fresh capital, but these plans have been put on the backburner, sources said.

“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.

The company reported 89% year-on-year growth in operating revenue in FY23 to Rs 420 crore, but the growth is expected to temper down to 35-40% this fiscal.

“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.

The company is expected to cross Rs 500 crore in revenue for FY24 with a negative Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of under 12%, the same person said.

Over the last few years, Sugar has diversified to enter the low-cost cosmetics space under a sub-brand, Sugar Pop, accessories and merchandise under Sugar Merch Station brand. In 2023, it entered into a joint venture with Bollywood actor Kareena Kapoor to launch a skincare brand Quench Botanics.

William Murphy

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