 "Honasa Consumer zooms 7% on record Q4 profit; should you buy, sell, hold?")
Honasa Consumer stock strategy: Stock price of Mamaearth parent, Honasa Consumer, surged 7 per cent to hit a three-month high of Rs 447.7 apiece on the BSE on Friday, May 24.
The spurt comes as the beauty and personal care company reported its highest-ever net profit of Rs 30.5 crore in the March quarter of the financial year 2023-24 (Q4FY24). With this, the company also turned profitable on a year-on-year basis. Honasa Consumer had posted a net loss of Rs 161.7 crore in the year-ago period.
That apart, Honasa Consumer's Ebitda margin bounced back from -1 per cent in Q4FY23 to +7 per cent in Q4FY24, driven by gross margin expansion (up 140bps Y-o-Y), lower employee spend (130bps lower Y-o-Y), and lower other expenses (down by 630bps Y-o-Y). Further, the management has guided to 150bps Ebitda margin expansion in FY25.
Going ahead, analysts see a steady scale-up in the company's business which would reflect in robust revenue growth and help deliver healthy margin-driven earnings as well as enhance its returns profile over the long-term.
Honasa Consumer stock outlook and strategy: Here's what key brokerages say:
Antique Stock Broking | Hold | Target: Rs 400
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Honasa Consumer's revenue grew 21.5 per cent Y-o-Y, amounting to Rs 470 crore. During the quarter, consolidated underlying volume growth (UVG) was at 27.5 per cent Y-o-Y.
Specifically, Mamaearth's UVG in mid-teens was impacted by an increase in competitive intensity.
Derma Co., on the other hand, was profitable throughout the year and has scaled to an annual recurring revenue (ARR) exceeding Rs 500 crore during the quarter. In FY25, Honasa Consumer intends to scale up The Derma Co. in offline and increase saliency from low single-digit to high single-digit.
Post the Q4FY24 performance, the brokerage has cut its FY25 EPS estimates by 3 per cent factoring revenue and margin impact due to revamping of the distribution channel while broadly maintaining FY26 estimates.
"We expect Honasa's sales/ Ebitda/ PAT to grow at 23 per cent/ 47per cent/ 39 per cent CAGR over FY24-26 driven by 38 per cent growth in emerging brands with contribution increasing from 32 per cent to 41 per cent over FY24-26. In our view, the Mamaearth brand will enter into a mature stage and its growth rate is likely to moderate to 14 per cent over FY24-26," it said.
Adding: At the current valuation, we believe the optimism is priced in and risk-reward is not favorable.
JM Financial | Buy | Target: Rs 505
The company expedited its transition process in offline distribution (from super stockist model to direct distributors in top 50 cities) which had a 200bps impact on primary sales (predominantly for Mamaearth) for the quarter.
While this process will have an impact of 50-100bps for the next three quarters, due to inventory reduction, it will have financial benefit (super stockists charge 5 per cent margin) and will improve overall quality of servicing and distribution.
ICICI Securities | Buy | Target: Rs 550
We believe, while scaling up the business in the general trade (GT) channel, low unit packs (LUPs) would be important. In this context, guidance to focus on Rs 99 price point stock keeping unit (SKU) in shampoo during FY25 is encouraging.
"We increase our earnings estimates by around 3 per cent / 2 per cent for FY25 / 26, largely driven by better margin expectations, modelling in revenue / Ebitda / PAT CAGR of 24 per cent / 49 per cent / 50 per cent over FY24-26," the brokerage said.
The brokerage maintained its rating and target price, valuing Honasa Consumer stock at 70x FY26E EPS and 5x EV/Sales FY26E.
Emkay Global | Buy | Target: Rs 500
The management has guided to over 20 per cent revenue CAGR ahead, with double-digit growth for Mamaearth. The brokerage, on its part, sees 22 per cent overall sales CAGR during FY24-26E.
That apart, over the next 3-5 years, the management expects The Derma Co to achieve Rs 1,000 crore in sales, and Acqualogica and Dr Sheth to clock revenue of Rs 500 crore each. It expects BBlunt to log sales worth Rs 2.50 crore in coming 3-5 years