This newly-listed stock has zoomed 50% in 8 days post Jefferies Buy call

Shares of Honasa Consumer, the parent company of Mamaearth, hit a new high at Rs 383.80 on the BSE in Wednesday's intra-day trade.

Shares of Honasa Consumer, the parent company of Mamaearth, hit a new high at Rs 383.80, as they rallied 5 per cent on the BSE in Wednesday's intra-day trade. The stock of the personal care products company was quoting higher for the third straight trade, surging 16 per cent during this period. It was trading at its highest level since its market debut on November 7.

In the past eight trading days, the stock price of Honasa has zoomed 50 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.

Meanwhile, the board of directors of the company are scheduled to meet today to consider and approve the unaudited financial results of the company for the quarter and half year ended September 30, 2023, first time after its listing.

Honasa is the leading digital-first beauty and personal care (BPC) company in India, based on its revenue from operations in the financial year 2023 (FY23). Their 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.

Prioritising growth over profitability, which analysts believe is the correct strategy; Honasa reported a 6 per cent Ebitda margin in Q1FY24. The brokerage firm expects D/D margin by FY26E, led by optimisation in marketing spends and scale benefits.

“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.