Mamaearth Parent Honasa’s Shares Slump Over 6% Intraday

SUMMARY

Shares of Honasa touched an intraday low of INR 444.45 apiece on the BSE but pared some of the losses to end the session 4.6% lower at INR 451.65

Mamaearth’s profit zoomed 62.9% YoY to INR 40.2 Cr in Q1 FY25, while operating revenue rose 19.3% to INR 554 Cr

Brokerages believe that Honasa’s decision to clear excess inventory in trade will hurt its performance in Q2. However, they expect it to return to normal growth trajectory from Q3

Shares of Honasa Consumer Ltd, the parent company of D2C brand Mamaearth, slumped over 6% during the intraday trading on Monday (August 12), despite the company posting an over 60% increase in its net profit in the June quarter on Friday (August 9).

The startup’s shares touched an intraday low of INR 444.45 apiece on the BSE. However, the stock pared some of the losses to end the session 4.6% lower at INR 451.65.

On the back of a healthy growth in its product business, Mamaearth’s profit zoomed 62.9% to INR 40.2 Cr in Q1 FY25 from INR 24.7 Cr in the year-ago quarter. Operating revenue rose 19.3% year-on-year (YoY) and 17.3% sequentially to INR 554 Cr during the quarter.

However, Honasa also said that it has discontinued its ayurvedic beauty products brand Ayuga due to the failure to establish a product-market fit (PMF).

Ayuga was launched by Honasa in 2021 in collaboration with investor Shilpa Shetty Kundra as an ayurvedic skincare brand, targeted primarily at millennials. The brand was relaunched in December 2023, however, it failed to gain traction.

With the discontinuation of Ayuga, Honasa has six brands in its portfolio – Mamaearth, Auqalogica, The Derma Co, Dr Sheth’s, BBlunt, and the recently-launched colour cosmetics brand Staze.

Besides, the company is also pivoting its distribution model from super-stockists to direct distributors to streamline its supply chain and help bring down the holding period.

This change in approach follows the reports around the company’s distributors flagging concerns over excessive inventory dispatched by the company and complaints over delays in replacing damaged, unsold, and expired stock.

Brokerage Emkay said that the decision to clear excess inventory in trade will hurt Honasa’s near-term performance. “Our ground checks suggest that the business is sound under new distribution. The inventory clean-up is likely to impact growth, margin, and profitability in Q2. We expect business rebound from Q3,” it said.

Emkay, which has a ‘BUY’ rating on Honasa, kept its target price unchanged at INR 525 per share.

Similarly, brokerage JM Financial said that while the inventory changes will affect the company’s financial position in Q2, the performance will return to normal trajectory in the subsequent quarters.

“From LT (long term) perspective, the story remains intact (offline scale up of Mamaearth, faster ramp up in newer brands & margin expansion with scale efficiencies kicking in). However, in the near term, stock is likely to remain under pressure – impact of GT (goods traded) restructuring and normalisation of sales will be a key monitorable, in our view,” JM Financial added.

The brokerage continues to have a ‘BUY’ rating on Honasa and kept its price target unchanged at INR 505.

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