Honasa Consumer hits new peak, zooms 20% post strong Q2 earnings

Shares of Honasa Consumer hit a new high at Rs 422.50, as they zoomed 20 per cent on the BSE in Friday’s intra-day trade after the company reported a strong 93 per cent year-on-year (YoY) increase in its net profit to Rs 29.4 crore for the quarter ended September (Q2FY24).

The parent firm of direct-to-consumer (D2C) brands like Mamaearth, The Derma Co, and BBlunt, had recorded a loss of Rs 15 crore in the year ago period. Profit in the previous quarter (Q1FY24) was Rs 24.7 crore.

The stock was trading at its highest level since its debut on November 7. Till 10:07 AM; a combined 10.1 million equity shares changed hands on the NSE and BSE. There were pending buy orders for a combined around 1.4 million shares on the exchanges, data shows.

According to the firm’s first-ever earnings update since its stock market debut earlier this month, consolidated revenue from operations grew 21 per cent YoY to Rs 496.1 crore, driven by volume growth of 27 per cent YoY. The company’s like-for-like growth for continuing business was 24 per cent, Honasa said.

The company’s earnings before interest, tax, depreciation, and amortisation (Ebitda) grew 53 per cent YoY to Rs 40 crore. Ebitda margin improved 170 bps to 8.1 per cent from 6.4 per cent in a year ago quarter.

Dr Sheth’s has become the 4th brand from Honasa portfolio to enter the Rs 150 crore club in terms of annual recurring revenue after Aqualogica and Derma Co.

Meanwhile, the stock price of Honasa has zoomed 65 per cent from Rs 256.10 touched on November 10, in intra-day trade on the BSE. The sharp rally in the stock is attributed to Jefferies coverage on the stock with a ‘Buy’ rating and price target of Rs 520 per share.

Honasa made a lacklustre stock market debut, with its shares listed at Rs 337.15, a 4 per cent premium over its issue price of Rs 324 per share on the BSE.

Honasa’s flagship brand, Mamaearth, is designed to cater to the essential customer desire for safe and natural products. Mamaearth focuses on developing beauty products free from harmful toxins and made with natural ingredients. By the end of FY23, Mamaearth had become the fastest-growing BPC brand in India, achieving annual revenue of Rs 1,000 crore within six years of its launch.

Product innovation and an ability to quickly identify emerging trends has been a key differentiator for Honasa, esp. vs FMCG incumbents. 25-50 per cent of incremental revenue each year has come from new products, as Honasa has gained an early mover advantage in several products. Honasa also uses a millennial-focused model, characterized by its focus on content & community, analysts at Jefferies said.

“Honasa should report industry leading growth at 27 per cent over the next 3Y. We value at 6x Sep-25 EV/Sales (at a discount to HPC peers; implies 67x FY26 P/E) to arrive at a price target of Rs 520. Key risks: excessive competition, incl. from leading FMCG companies, aggressive M&A and lack of scale-up in the newer brands,” the brokerage firm said in a report dated November 10.