See FY26 growth at 30-35%;dreamy-eyed founders keen on listing in 3-4 yrs:PEP Brands' Sharma

New Delhi, Sep 5 (PTI) PEP Brands is targeting a 30-35 per cent growth in FY26, as digital appetite and online discovery fuel consumption of beauty and personal care labels in India, its co-founder and CEO Tarun Sharma said, adding, he is hopeful that the company will go public in the next 3-4 years.

"We are dreamy-eyed founders, we would want to ring the bell," Sharma told PTI in an interview as he spoke about his vision for mCaffeine and Hyphen, the two brands of PEP.

PEP Brands' flagship mCaffeine focuses mainly on bodycare products leveraging coffee-based ingredients, while its skincare label, in collaboration with actor Kriti Sanon, is Hyphen. Sanon is also co-founder of Hyphen.

PEP aims to build businesses in a manner that it is a good listable story, Sharma said, adding that "an IPO is 3-4 years out".

"India is a large market. There can be 5-6 good companies (pure-play DTCs or Direct-to-Consumer brands) getting listed. A good company means good to consumers, having some market share, financials should speak, so at least double-digit net profit and growth rate," Sharma said.

A growth of 15 per cent on revenue, and 10 per cent in profit, if sustained for the next 10 years, can mean a "fantastically listable story", he said.

Sharma said at this point both the businesses are growing at different rates, noting that mCaffeine growth is just under 40-50 per cent year-on-year while Hyphen is growing "exponentially".

"Hyphen is at a close to about Rs 400 crore of gross revenue ARR (annualised run rate). mCaffeine would be…at about Rs 700 crore. Overall, we exited FY25 at Rs 1,000 crore gross and are now at about Rs 1,100 crore gross," he said, adding that the company expects to close full year FY26 with about Rs 1,300 crore topline.

That said, the company would not "turbocharge the growth on the back of capital", Sharma said, adding that revenue growth with profitability and cash flow positivity would be prioritised.

"We are well capitalised, but I think in a category, if consumer splurge is happening, you would want to gain more market share, but very sustainably," he said.

According to Sharma, the financial metrics of PEP Brands have improved notably after the company tweaked its strategy to move from high cash burn to sustainable market share growth.

Since these changes in FY24, profitability has improved, he said, emphasising that burning capital at scale is not an option as it hinders the company's aspirations of going public.

"Definitely, one should not burn money (capital) because the aspirations of going public become farther and farther. So more than growth rate, what excites us is growth with profitability and cash flow positivity," Sharma said.

The company is not in the market to raise funds for now, Sharma said, adding that it considers consumers to be the strongest source of capital in the form of revenue generated.

"mCaffeine is decently profitable, Hyphen is still investing. As a house (of brands), we are profitable. Since mCaffeine is a larger brand, when it starts making money, it offsets a smaller brand's loss. We have become cash flow positive and profitable...We believe that consumers are the best (form of) fundraising, we love to do in the form of revenue, and we will continue to do that before we hit the IPO," he said.

A growth of 35 per cent year-on-year would be enough for PEP Brands, which will keep an eye on the market dynamics as it expands.

"If you just calculate the compounding effect of 30-35 per cent over a period of five years, it means growing four times. So it's going to be a large outcome, but we will definitely calibrate growth if the market is becoming more ‘headwindy’. If not, we will continue to invest," he said.

Expansion would entail a new overseas market backed by distribution and supply chain enablement for Hyphen.

"In terms of distribution, Hyphen will go international in 10 countries. We have taken the requisite approvals. There is a lot of inbound demand from those countries. From an infrastructure standpoint, we will invest...there will be supply chain, operations, logistics, and so we're going to invest in the distribution part. Within India, we will invest in category building, where we are currently present," he said.

mCaffeine, the caffeine-infused personal care brand, was launched in 2016 by Tarun Sharma, Vikas Lachhwani, Vaishali Gupta, Mohit Jain, and Saurabh Singhal. Today, it has a portfolio of over 100 products from body to face and eye to hair care.

According to PEP, in over nine years, mCaffeine has sold over 25 million products, serving 19,000-plus PIN codes in India, expanding to more than 30,000 offline stores, and reaching consumers in 21 countries. Its products are available on its site, as well as major e-commerce platforms.

Hyphen, on the other hand, is an operator-led, celebrity-anchored skincare brand, co-founded by PEP Brands and Sanon.

In the initial years of PEP brands, the market had close to 9,800 beauty and personal care brands, a number that has since swelled to 70,000 with global brands, regional players, local brands, as well as DTCs vying to take a slice of the booming Indian market and thriving digital consumerism.

Sharma noted that the momentum of digital brands is driven by the proliferation of smartphones and affordable internet, a heady mix that has pushed discovery and distribution from the physical to digital realm, opening up a vast market for companies.

Add to that the millennial audience valuing self-expression and the ‘live-now' economy, and a new wave of consumption has been sweeping the market over the last decade.

In 2015, hardly 5-7 brands were entering the market, Sharma said, now, 5-7 brands emerge almost every day.

"So when we started, BPC was hardly 9,800 brands. Now it is more than 70,000 brands. Global brands are coming, so are regional brands, local brands, DTC brands...obviously, if the entry barrier is lower, you would see a lot of companies coming in. And hence, the job of brand creation and product creation became harder as compared to what it was," Sharma said. PTI MBI MBI SHW