Honasa Consumer Ltd., the parent company of the popular skincare brand Mamaearth, has reported a decline in revenue and a net loss for the second quarter of FY25, signaling challenges in its business operations. Despite the setback, the company remains optimistic about its long-term prospects, as it continues to implement strategic changes aimed at revitalizing its growth trajectory.
Weak Q2 Results Lead to a 20% Drop in Stock Price
Shares of Honasa Consumer plummeted 20% on Monday, hitting a 52-week low of Rs 295.80 on the BSE, following the announcement of disappointing financial results for Q2 FY25. The company reported a net loss of Rs 19 crore for the quarter ending September 2024, compared to a net profit of Rs 29 crore in the same period last year. This marked a sharp downturn, causing investor concerns as the stock fell below its IPO price of Rs 324 per share. The share price has now declined by 46% from its 52-week high of Rs 546.50, which was reached just two months ago in September 2024.
At 9:36 AM on Monday, approximately 580,000 shares had been traded on the NSE and BSE, with sell orders for over 4.3 million shares pending. The broader market, as represented by the BSE Sensex, was down by 0.25% at 77,388 points.
Revenue and EBITDA Decline
Honasa’s revenue from operations for Q2 FY25 stood at Rs 462 crore, marking a 6.9% year-on-year (YoY) decline compared to Rs 496 crore in Q2 FY24. Additionally, the company posted an operational loss of Rs 31 crore, a sharp contrast to the Rs 40 crore profit achieved in the same quarter last year. The company attributed these declines to a one-time inventory correction linked to its ongoing shift in distribution strategy.
In a statement, the company explained that the revenue and EBITDA drop was primarily due to the implementation of its Project Neev, a major restructuring initiative aimed at transitioning from super-stockists to direct distributors in India’s top 50 cities. This strategic change, although expected to benefit the company in the long term, temporarily impacted both sales and profitability during the quarter.
Strategic Shifts and Project Neev
Honasa’s CEO, Varun Alagh, acknowledged the disruption caused by the distribution model overhaul but emphasized that these changes were necessary for the company’s future growth. “Our focus remains on strengthening our offline distribution network and returning Mamaearth to its growth trajectory,” Alagh said, highlighting that the adjustments were crucial for the company’s long-term expansion plans.
Additionally, the company’s EBITDA margin fell to -6.6% for the quarter. However, after adjusting for inventory corrections, the margin improved to a more positive 4.1%. Honasa’s total expenses for the quarter increased by 9% YoY, reaching Rs 506 crore, though they were lower than the previous quarter.
Emerging Brands and Innovation Drive Growth
Despite the struggles of its flagship Mamaearth brand, Honasa has seen strong growth from its emerging brands portfolio. In the first half of FY25, the company reported a 30% YoY growth across brands like The Derma Co., Aqualogica, BBlunt, and Dr. Sheth’s. These brands, which span categories such as skincare, haircare, and personal care, have gained significant traction in their respective segments, indicating strong consumer demand and positioning for future growth.
Honasa’s commitment to innovation was also evident in its recent product expansions, such as new moisturizers across its brand portfolio. The company is optimistic that this continuous product diversification will drive future revenue growth, as Indian consumers increasingly seek customized skincare solutions.
Mamaearth’s Market Share Gains Despite Challenges
On a positive note, Mamaearth has continued to perform well in key product categories like face washes and shampoos. According to NielsenIQ data, Mamaearth has increased its value market share by 125 basis points over the year leading up to September 2024. This suggests that, despite revenue challenges, Mamaearth’s products remain popular with consumers, particularly in the competitive beauty and personal care market.
Long-Term Growth Strategy
Looking ahead, Honasa’s management remains confident about the company’s long-term growth prospects. The company’s strategy is focused on scaling its core categories, enhancing its offline distribution, and expanding its product portfolio. For the first half of FY25, Honasa posted an adjusted revenue growth of 12.3%, which outpaced many of its competitors in the beauty and personal care sector.
CEO Varun Alagh reaffirmed the company’s long-term vision: “We are constantly learning and evolving to meet the changing needs of Indian consumers. Our goal is to be one of the top three leaders in India’s beauty and personal care market within the next three to five years.”
Conclusion: Challenges and Optimism for the Future
While Honasa Consumer Ltd. faces short-term challenges, including declining revenue and a net loss for Q2 FY25, the company’s strategic initiatives, such as Project Neev and its focus on emerging brands, are expected to strengthen its position in the market in the long run. With its emphasis on innovation, product diversification, and a revamped distribution model, Honasa is poised for recovery and growth in the coming quarters.
As the company continues to refine its business model and adapt to market demands, it remains focused on becoming a dominant player in India’s competitive beauty and personal care market, aiming for sustainable growth in the years ahead.
