Shares of Honasa Consumer, the parent company of Mamaearth, fell as much as 20% during Monday’s trading session, dropping below their IPO price of Rs 324. This significant decline followed the company’s announcement of its first quarterly loss in five quarters.
Net Loss and Revenue Decline
The company reported a consolidated net loss of Rs 19 crore for the quarter, compared to a profit after tax (PAT) of Rs 29 crore in the same period last year. The loss was mainly due to a one-time inventory correction linked to a shift in its distribution model. This adjustment impacted the company’s profitability during the quarter.
Revenue from operations stood at Rs 462 crore, marking a 7% decline from the Rs 496 crore reported in the same quarter of the previous financial year. However, the company clarified that revenue adjusted for inventory correction was Rs 525 crore, reflecting a 5.7% year-on-year (YoY) growth.
EBITDA and Margin Performance
Honasa Consumer’s Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margin for Q2 FY25 was reported at 6.6%. When adjusted for the inventory correction, the EBITDA margin stood at 4.1%, signaling the impact of the one-time adjustments on the company’s operational efficiency.
H1 FY25 Performance
Looking at the first half of the financial year, the company reported an adjusted revenue growth of 12.3% YoY in H1 FY25. This growth rate is notably faster than the competition, enabling Honasa Consumer to gain market share, as highlighted in its filing to the exchanges.
Despite the quarterly loss, the company’s strong revenue growth in the first half and market share gains point to its potential for long-term success, albeit with challenges in the near term due to the distribution shift.
Brokerages on Honasa Consumer
Jefferies on Honasa Consumer
Jefferies has maintained its “Buy” call on Honasa Consumer, the parent company of Mamaearth, but revised its target price down to Rs 425 per share following disappointing Q2 results. The brokerage cited higher-than-expected inventory correction and the company’s reported loss as key disappointments in the quarter.
Jefferies expressed concerns over the founders’ comments regarding the need to “rework the playbook,” which it believes introduces further uncertainty into the company’s near-term outlook.
The brokerage noted that investor sentiment has been divided, with naysayers predicting such challenges and supporters feeling disappointed by the results.
The stock is expected to remain under pressure, and investors looking to exit may feel stuck due to the low liquidity in the market. Despite these setbacks, Jefferies expressed confidence in the founders’ ability to get the company back on track, stating that it’s not the only start-up to experience such growing pains.
Emkay Downgrades Honasa Consumer to ‘Sell’
Emkay Research has downgraded Honasa Consumer, the parent company of Mamaearth, to a ‘Sell’ rating from its earlier ‘Buy’ call, slashing its price target by 50% to Rs 300 per share from Rs 600 previously. The downgrade follows the company’s weak Q2 performance and a challenging outlook ahead.
The brokerage cited a bumpy road ahead for Honasa Consumer, noting that it has conservatively reduced its earnings expectations by 35% for FY25-27. Emkay also cut its topline projections by 9-16% and lowered margin expectations, citing reduced operating leverage benefits.
Emkay expressed concerns over the company’s growth prospects, particularly in the personal care segment. The brokerage noted that Honasa’s business model has been impacted by weak commentary in Q2 FY25, and Mamaearth is expected to see a decline in FY25, with a potential recovery only in FY26.
Furthermore, Emkay pointed out that Mamaearth’s limited offline presence and slower growth in core brands may allow competition to gain market share, making it difficult for the company to recoup its position in the long term.
Stock Performance in Last One Year
The shares of Honasa Consumer have demonstrated negative returns across various time intervals. In the last month, the stock delivered a negative return of 27.54%. Over the past six months, it exhibited a significant decline, with negative returns of 27.67%, indicating a strong downtrend.
Year-to-date figures further emphasize the stock’s bearish trend, recording negative returns of 32.57%. Looking at the broader horizon, the shares have shown consistent weakness, with negative returns of 10.52% over the last year.
