Honasa Distributor Row: Shares Slump Nearly 10%, Loses Unicorn Status

Caught in a row with distributors, shares of beauty and personal care (BPC) major Honasa Consumers Ltd continued to plunge as markets reopened today (November 21). Shares of the company hit an all-time low of INR 237.40, down 9.99% from previous close. Its market cap also shrunk to $0.91 Bn from $1.42 Bn at the end of last week.

With this, the company fell below the unicorn valuation mark.

Since the previous market close yesterday (November 20), the drama between the company and its distributors has escalated. The markets were closed yesterday on account of elections in Maharashtra. During the day, distributor body All India Consumer Products Distributors Federation (AICPDF) alleged that Honasa was undertaking unethical stock dumping practices. 

The body claimed that while they continue to deal with issues pertaining to  “unsold stocks nearing expiry” of Honasa, the company’s credit notes of about INR 50 Cr are unsettled.

AICPDF’s national president Dhairyashil Patil said that if the issues are not resolved, the body will be forced to explore a nationwide decision of non-cooperation. 

Meanwhile, Honasa strongly denied the allegations in its response to AICPDF shared with the bourses as the markets opened today. In its detailed response, Honasa countered a large chunk of the allegations made by the body. Here’s a snapshot of Honasa’s response “near-expiry” inventory

• The company sighted data from its data from the Distribution Management System implemented at Honasa distributors to show that the distributor network currently carried an inventory worth INR 40.69 Cr of its products. The AICPDF had quoted stock worth INR 300 Cr of “near-expiry inventory” with the distributors.
• Honasa countered AICPDF’s allegation of INR 50 Cr of unsettled credit notes by saying that the claims for its general trade channel partners stood at INR 4.73 Cr as on September 30, 2024. 
• The company countered allegations of high inventory in retail by sourcing Nielsen RMS data which says that its stock turnover ratio improved from 35 to 27 days in the past year while the category still stands at 35 days in General Trade.

“Given these efforts, the claims made are not reflective of the current reality, and are spreading misinformation about us,” the company said.

It is pertinent to mention that Honasa’s share prices have been on a freefall since it disclosed its financials for the second quarter of the fiscal year 2024-25 (Q2 FY25) on November 14.

The company slipped into the red and posted a consolidated net loss of INR 18.6 Cr during the quarter compared to a profit of INR 29.4 Cr in Q2 FY24. Moreover, its revenue from operations also declined nearly 7% to INR 461.8 Cr from INR 496.1 Cr in the same quarter last year.

The company attributed the loss and revenue decline to its ongoing transition from a super-stockist-led distribution model to a direct distributor model as part of its “Project Neev”.

The stock price have went down over 35% from INR 371.55 on Thursday, November 14. Shares of Honasa were trading 9.99% lower at INR 237.40  at 2:38 PM on November 21.