Honasa Consumer shares crash 20% post Q2; here’s why
Shares of Honasa Consumer plunged 20% in opening trade on Monday after Mamaearth's parent company reported its first loss in five quarters. The sentiment was further dented after brokerages cut target price of the beauty and personal care products manufacturer post Q2 numbers.
Early today, Honasa Consumer shares opened lower at ₹319.95, down 13.5% against the previous closing price of ₹369.75 on the BSE. Extending opening losses, the stock nosedived 20% to hit its 52-week low of ₹295.80, while the market capitalisation slipped to ₹9,608 crore.
The share price of Honasa Consumer has slipped below its initial public offering (IPO) price of ₹324 per share, while it is down 46% from its 52-week high of ₹546.50 touched on September 10, 2024. The stock has fallen 15% in a year; 30% in six months; and over 30% in the calendar year 2024. In the last one month, the counter has seen a sharp correction of 31%.
For the second quarter ended September 30, 2024, Honasa Consumer posted a loss of ₹18.5 crore, a sharp fall from the ₹29.4 crore profit recorded in the year ago quarter. In Q1 FY25, Mamaearth parent Honasa Consumer registered 63% year-on-year (YoY) growth in its profit at ₹40.2 crore. The drop in bottomline was attributed to the company’s ongoing transition to a D2C model under “Project Neev”, which necessitated an inventory correction of ₹63 crore, as per the earnings report released on November 14.
The consolidated revenue from operations slipped 7% to ₹461.8 crore in Q2 FY25, from ₹496.1 crore a year ago period. The topline stood at ₹554.1 crore in Q1 FY25.
During the quarter under review, the total expenses climbed 9% YoY but were down sequentially at ₹506 crore.
"Over the past few months, we've been implementing Project Neev to optimise our distribution model. In this quarter, we have taken strategic steps towards transitioning from super-stockists to direct distributors in top 50 cities. This transition has impacted our revenue and profits, leading to a slowdown for Mamaearth,” says Varun Alagh, Chairman and CEO, Honasa Consumer Limited.
“This realignment will also strengthen offline go-to-market (GTM) strategy in the quarters ahead, setting the stage for our next phase of growth. For us, strengthening our offline GTM capabilities and bringing Mamaearth back on the strong growth trajectory are our top priorities,” he adds.
Alagh says that younger brands like The Derma Co., Aqualogica, BBlunt, and Dr. Sheth’s continue to drive growth, achieving more than 30% YTD growth in both quarters of the year. “In core categories like sunscreens, face washes, and serums, our growth in H1 is more than 28%. We are constantly learning and evolving to meet the changing needs of Indian consumers. Our long-term goals remain unwavering— to shape the future of the beauty and personal care category in India.”
Post Q2, domestic brokerage Emkay has downgraded Honasa Consumer to ‘Sell’ from ‘Buy’, cutting the target price by half to ₹300 from ₹600 earlier. “Mamaearth is likely to see decline in FY25E (where online growth slumped and general trade in 30% of Top-50 cities await distribution) and aims to recover base in FY26E. Limited offline presence and slower growth in core brands may pave the way for the competition, where recouping in the long term would be daunting.”
“We cut topline estimates 9% for FY25 and 16% each over FY26-27. With margin revisions given a slower topline, our EPS reduced 35% over FY25-27E. We cut EV/S valuation to 4x (50% discount to sector) from 6.5x. We await proof of execution as the management aims for a business turnaround, the brokerage house says in a note.
On the other hand, ICICI Securities has downgraded to ‘ADD’ from ‘Buy’ earlier, with a price target of ₹400. The agency opines that key risks for the company include excessive competition, execution miss, low success in scale-up of new brands and continued slowdown in Mamaearth.
“Honasa is now a 95% "show me" story and 5% "trust me" story. New brands [The Derma Co, Aqualogica, Dr. Sheth's] are performing well [35% of revenue, 30% growth] and consensus appears to be ignoring this good performance. The implicit revenue growth expectation is likely getting reset to low-to-mid teens (from 20%), in our opinion. We reckon the stock faces nearterm tussle of emotions vs. long-term (probabilistic) fundamentals,” it says in a report.
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