Festival demand didn't meet expectations: Honasa Consumer CEO Varun Alagh

He dwells on the company's Q3 performance, challenges, and plans

Honasa Consumer – the parent company of direct-to-consumer (D2C) brand Mamaearth – posted a 264 per cent year-on-year (Y-o-Y) increase in its net profit to Rs 25.9 crore in the December quarter. In a telephonic interview with Aryaman Gupta, Varun Alagh, chairman and chief executive officer (CEO) of Honasa Consumer, dwells on the company’s Q3 performance, challenges, and plans. Edited excerpts:

What has driven profits in this quarter?

We are seeing leverage on two fronts. As we are scaling overall, both our advertising expenses and operational expenditures are growing at a much slower pace, leading to improvements in Ebitda (earnings before interest, taxes, depreciation, and amortization).

On a quarter-on-quarter basis, both profits and revenues are down 12 per cent and 1.5 per cent respectively. What is the reason?

We have seasonality in our business. Hence, we are not a business that should be seen sequentially. Moreover, in the last quarter, we had seen disproportionate ESOP gains, which did not take place in this quarter. We also took on certain expenses in this quarter that we should have ideally been placed over the last three quarters.

What is the kind of demand that you witnessed during the festival season?  

Overall, there was an increase in demand, which is why we have delivered growth in this quarter. But we did not see the kind of demand that we had expected, especially on e-commerce platforms. There is a short-term consumption slowdown.

Do you expect any challenges in the near term?

The consumption slowdown is real, but I don’t expect it to last. At best, it will linger till the elections. In the long term, the beauty and personal care growth story is very much intact.

Are advertising and promotion still the biggest cost drivers?

Yes. We are in the business of brand building. We are a young brand, competing with legacy brands. So, we need to drive awareness among the consumers. Hence, it (ad spend) continues to be our largest cost.

What are your expansion plans?

We have a very simple three-lever philosophy. The first is innovation, where we ensure that we provide customers with what they are looking for. Second, we have expanded our distribution by 30 per cent in this quarter, which is another lever of growth. And third, brand love: a combination of our purpose-based marketing and innovation that continues to attract new consumers. We will continue to provide innovative products to our consumers and expand our distribution. We will also continue to invest in brand awareness.

What are you doing to ensure sustainable business expansion without hurting margins?

Good quality planning and focusing on fundamentals. As long as we continue to do that, we will make sure that over the next three years, we continue to improve our bottom lines every year.

How have the other business categories performed this quarter?

Mamaearth, our core business, is the most profitable. However, we also turned our second brand, The Derma Co, profitable not just for the quarter but at a nine-month level. Our Rosemary hair care category, which we launched six months ago, became a Rs 50 crore ARR business. Our colour-care category of cosmetic products, which is 18 months old, is now a Rs 150 crore ARR business.

This gives us more confidence that our brand playbooks are turning out to be as we had imagined.