Mamearth Parent Honasa Ordered To Pay INR 57 Cr Fine To UAE Distributor

A day before the company’s earnings call for the fourth quarter of FY24, Mamaearth’s parent entity Honasa Consumer Ltd disclosed that a UAE court order directing it to pay compensation to the tune of INR 56.6 Cr to a former distributor. 

Honasa has been ordered by the United Arab Emirates’ Court of full Commercial Jurisdiction-(Court of First Instance) Dubai to pay the compensation to RSM General Trading, its former distributor in the Middle East and Africa markets for improper contract termination. 

RSM General Trading was Honasa’s distributor between July 30, 2020 till January 17, 2023. 

In an exchange filing, the company said the court passed an order on May 16 to pay its erstwhile distributor a fine of AED 25.07 Mn or roughly INR 56.6 Cr as compensation along with legal interest at a rate of 5% (from the date the judgement becomes final until full payment is made) and AED 1,000 (INR 22,665) as attorney fees. 

However, Honasa said that it finds the court’s decision to be baseless and, thus, immaterial to its business. 

“..The Company believes that the judgement was devoid of merit and erroneous as it did not accurately consider the facts of the matter and the submissions made by the Company. Accordingly, the Company is in process of filing an appeal before the Court of Appeal (Dubai), challenging the judgement passed by the Court of First instance,” the company said. 

Honasa severed ties with the distributor a few months prior to listing publicly in India. Before getting listed in November 2023, the company had plans of ramping up its international expansion efforts, prioritising Bangladesh, Malaysia, Vietnam, and Thailand. 

At that time, it was looking to expand its presence in the UAE via strategic acquisitions or organic growth. These plans were seemingly put on hold given that the company terminated its contract with RSM General Trading. 

As of now, it is unclear whether Honasa has expanded to international markets with other distributors. 

Besides the flagship brand Mamaearth, Honasa owns and operates The Derma Co, Aqualogica, Ayuga, Dr. Sheth’s, BBlunt, and Momspresso. Of these, Momspresso was shut down ahead of the IPO.

Since its public listing, Honasa has registered a healthy uptick in profits. In Q3 FY24, it posted a 264% increase in its consolidated net profit to INR 25.9 Cr from INR 7.1 Cr in the year-ago quarter.

However, this was a 11% sequential decline from the INR 29.4 Cr profit it posted in the preceding September quarter.