ICICI Securities Initiates Coverage On Honasa With ‘BUY’ Rating, Sees 28% Upside

Brokerage firm ICICI Securities has initiated coverage on D2C unicorn Mamaearth’s parent, Honasa Consumer Ltd, with a ‘BUY’ rating and a price target (PT) of INR 550.

The PT translates to an upside of nearly 28% from the stock’s last close at INR 430.95 on the BSE on Monday (April 29).

In its report dated April 28, the brokerage said that Honasa’s business model is relatively more agile and has lower-risk compared to traditional beauty and personal care (BPC) companies. 

The digital-first approach of the startup, founded by Varun and Ghazal Alagh, allows for faster product launches and efficient resource allocation for marketing and distribution, it added.

Founded in 2016, Honasa sells a range of BPC products across categories, including hair care, body care, and makeup. Besides Mamaearth, it has brands like The Derma Co, Aqualogica, and Ayuga in its portfolio. It also acquired brands like Dr. Sheth’s, BBlunt, and Momspresso over the years.

While Honasa shut down two verticals of content platform Momspresso earlier, the brokerage said that the newer brands are experiencing strong growth and contribute about 32% to Honasa’s revenue. ICICI Securities expects these brands to grow at a compound annual growth rate of 45% during FY24-FY26.

It is pertinent to note that Honasa last week said that its skin care brand The Derma Co clocked an annual run rate of INR 500 Cr.

ICICI Securities said that Honasa operates in the BPC market which is expected to grow in double digits over the coming years. Within this, the startup caters to the ‘masstige’ and premium price segments, which are witnessing faster growth (about 15% CAGR) compared to mass market (about 7% CAGR). As such, its product portfolio is expected to benefit from favourable industry tailwinds.

However, the report also said that scaling up its offline distribution can be relatively more challenging for Honasa compared to online channels, while its niche natural ingredient-oriented approach may limit the total addressable market.

Shares of Honasa listed on the stock exchanges in November last year and have surged nearly 33% from the listing price. The startup, which reported a net loss of INR 151 Cr in the financial year 2022-23 (FY23), saw its profit after tax almost double to INR 29.4 Cr in Q2 FY24.

Earlier this month, Honasa’s board approved amalgamation of two of its wholly owned subsidiaries – Just4Kids Services Private Limited and Fusion Cosmecutics Private Limited – with itself to prevent cost duplication.