Honasa’s Dilemma: Prestige Or Profits?

The Honasa and Mamaearth story was looking a little shaky one year ago. The beauty and personal care house of brands was struggling with slowing growth, had to rejig its distribution strategy, recover products from the market, and had slipped into losses. 

Many asked whether the D2C brand was hitting a wall. One year later, as the company released its Q2 FY26 results this week, things seem to be back on track. Honasa pulled off a profitable quarter, a complete U-turn from Q2 FY25. 

Has Honasa found its footing again? 

During its Q2 disclosure, the company said that its bread-and-butter brand Mamaearth is back in “green”, after facing a major drop due to transition into the direct distribution model. After slipping into loss in the second quarter of previous fiscal year (Q2 FY25), Honasa has reported a consolidated net profit of INR 39.2 Cr in Q2 FY26. 

However, Honasa did not provide any specific disclosures for Mamaearth and any other brand it owns.  Honasa cofounder Varun Alagh said that Mamaearth has witnessed year-on-year growth, with its new rice facewash entering the INR 100 Cr ARR segment.

“We are very confident that now, moving forward, this growth in Mamaearth will only get better and towards the goal of double digit growth,” he added. 

Brokerages are similarly enthused. JM Financial said Honasa’s pace of margin expansion has been much ahead of expectations for the past few quarters, led by improved mix and operating leverage. 

JM Financial upgraded its rating to BUY for the stock with a revised 12-month target price of INR 330, just marginally higher than the previous target by the brokerage. 

The brokerage believes this needs to be sustained by improving growth in Mamaearth, scaling up premium brands and bringing in more marketing efficiencies as working capital remains negative. 

Therein lies the big challenge for Honasa. While the company has announced a foray into prestige and oral care categories, these will be capital-intensive plays. So naturally, questions are being asked about whether profitability can be sustained quarter after quarter, especially if the company focuses heavily on high-margin premium and prestige categories. 

The Category Platter At Honasa

Honasa was evidently firm on one thing during its earning’s call — core or focus categories. This includes face cleanser, face serum, sunscreen, moisturiser and shampoo, under half a dozen brands. Honasa claims to have received 75% of its revenue from these core categories.

The Derma Co, is said to be the second largest brand in Honasa’s portfolio after Mamaearth, and the management claimed it is on track to hit INR 750 Cr in annual revenue based on the Q2 FY26 base.

While the brand has a low single digital market share in the category of facewash, it continues to report deeper penetration in sunscreen and face serum. 

Without disclosing the exact revenue or sales figures for its other smaller brands including Aqualogica, Blunt, Dr.Sheth’s and Staze, Honasa said that these brands saw a 20% YoY growth. 

During the earnings call, Alagh was bullish on these core categories and mentioned that the non-core categories are declining in terms of their contribution in the revenue.

Talking specifically about Mamaearth here, Alagh said, “Next two to three years the focus will be completely on the core categories. And, the non-focus categories’ contribution is declining. Hence, this will continue to go down once the brand reaches even stronger scale.”

But that’s where the disclosures end. Beyond this, investors and shareholders have no insight into which particular brand is seeing the most traction. While most know and understand that Mamaearth is the flagship brand, not much is known about the others in the portfolio. 

Even when it comes to Mamaearth, the company has not disclosed the unit economics of this particular brand, and neither has it mentioned how much of the INR 180 Cr in advertisement expenses was spent on individual brands. 

At the moment, Honasa clumps all its brands under one header of sales and expenses and without individual disclosures, it’s significantly harder to evaluate the journey of the brands that the company has invested in and some that it has acquired. 

A Push For Premium & Prestige

And now, it is launching even more new brands and investing in oral care as a category. In fact, the company’s investor presentation begins with some data around the oral care and beauty category, which Honasa claims is beginning to see premiumisation green shoots.  

To back this thesis, Honasa invested INR 10 Cr to acquire 25% of Fang Oral Care, a D2C brand which competes with the likes of Perfora, Oracura, Salt Oral Care, Moon, Oral-B, Sensodyne, Colgate, and others. 

Incidentally, this investment is contradictory to Honasa’s vision of majorly keeping the focus on its core categories. Oral care and beauty has seen slower growth compared to beauty and personal care. And when it comes to premium oral care, this is an even more niche category.

Explaining the rationale behind the investment in Fang, Alagh mentioned that the emergence of quick commerce will also play a role in uplifting oral care as a market in the country as this mode of commerce supports categories offering  less average order value. 

Besides, Honasa also forayed into the sleep care segment with the launch of its new brand Lumineve, which is exclusively available on Nykaa. The company claims this is its foray into the prestige section, where it hopes to create a high-value base. 

“No projections for Lumineve. It is a young brand and right now in the build phase. Prestige brands need very strong foundations. They are not about explosive growth,” Alagh added. 

Honasa’s strategy is apparent: stabilise the core business and brands, accelerate new growth engines, and then pivot to the high margin, premium categories. 

But this is where the hard part begins. Entering the premium space means going up against established global giants with deep pockets and decades of brand loyalty. Scale won’t come easy. 

It will require flawless execution and convincing discerning customers that their products are worth the premium price. The move into oral beauty is also a long-term play that will need patience and sustained investment before it starts paying the bills.

Investors are taking notice, but they’re still cautious. The stock has seen a nice bump this year, but it hasn’t fully recovered from last year’s slump when Honasa entered losses. 

When it comes to retail brands and FMCG, the public markets demand that the company demonstrate growth and profits over a long period of time.

While Honasa is looking to temper expectations by cautioning that explosive growth cannot be expected from younger brands, the fact is that when it comes to value, premium brands will be key. 

“Premium or prestige categories bring in more sticky customers where the company does not have to spend too heavily on retaining users. Usually these customers are very brand loyal. But here product is paramount, and Honasa’s positioning is not in the premium category at the moment,” according to the founder of a Mumbai-based BPC brand, who did not wish to be named. 

Will Honasa Show Its Cards?

It’s not like the company has not tried experiments with new categories in the past, but it’s the lack of transparency around how successful these experiments have been that have raised some concerns. One case is Staze, the company’s entry into the lipsticks segment. 

More than 18 months after launch, Honasa’s commentary on Staze has been limited to product features and early traction.

Investors are told all of Honasa’s brands are growing, but have no way to assess the performance of each individual brick in this house of brands. This lack of clarity becomes more acute when examining Honasa’s ambitious new bets. 

Lumineve and Fang are bold moves into capital-intensive arenas dominated by global BPC and healthcare giants with deep pockets and decades of brand loyalty. Investors cannot be certain about how much of a runway Honasa can give to brands such as Lumineve, if its core categories come under threat. 

The beauty and personal care startup founder quoted above added that building prestige brands requires immense and sustained marketing expenditure to cultivate credibility and convince discerning customers to pay a premium. “This is the hard part, and thus far, Honasa has not demonstrated that it can scale up a prestige brand such as this.” 

Herein lies a contradiction. Even as Honasa ventures into these high-cost categories, its financial reports for FY26 thus far show a decline in advertising spending. 

How will Honasa afford to build new premium brands from scratch while simultaneously tightening its marketing belt? Along with efficiency, Honasa’s journey in the past year has been about rewiring its supply chain and distribution, the focus is once again turning to product and acquiring new customers. 

The stock is up roughly 20% this year, but still down when compared to its position last year. This reflects lingering concerns around category volatility, competition and execution. The markets will now look for consistency in Mamaearth’s growth story, clearer disclosures around individual brands, sustained high double-digit growth from non-flagship brands, early traction for Lumineve, and margin discipline. 

That’s a lot of boxes to check-off for Varun Alagh and Ghazal Alagh. 

Markets Watch: New Issues, Post-IPO Journey & More

• Groww’s Post IPO Blueprint– Following its highly successful IPO, Groww is now focusing on broadening its wealthtech offerings beyond its core broking services. The company aims to foster steady, customer-driven growth by expanding into advisory and managed investment products 
• EaseMyTrip Slips Into Red In Q2 FY26 – The listed travel tech giant slipped into loss of INR 36 Cr, from a profit of INR 26.8 Cr in the year-ago quarter on the back of an exceptional loss of  INR 51 Cr. Meanwhile, its operating revenue fell 18% to INR 118.3 Cr from INR 144.7 Cr in the same quarter last year.
• Capillary Technologies IPO Steady Day 1 – The SaaS company’s IPO saw steady demand on day one, with 28% subscription overall; retail investors subscribed to 26% of their quota, while non-institutional investors placed bids for 6.37 lakh shares
• Pine Labs Shares Rise 14% on Trading Debut- Shares of Pine Labs jumped on listing day, hitting an intraday high of INR 283.70 on the BSE. The stock later pared some gains to close at INR 251.30, up 13.7% over the issue price and 3.8% above the listing price.
• PhysicsWallah IPO Oversubscribes –The edtech company’s IPO closed with a 1.81X oversubscription, with the public issue receiving bids for 33 Cr shares against 18 Cr shares on offer. 

[Edited By Nikhil Subramaniam]