Honasa Consumer stock tanks 20%, hits 52-week low on weak Q2 results

Shares of Honasa Consumer, the parent company of Mamaearth, were locked in the 20 per cent lower circuit at Rs 295.80, hitting a 52-week low on the BSE in Monday’s intra-day trade after the firm reported a net loss of Rs 19 crore for the second quarter ended September 2024 (Q2FY25) due to weak operational performance. The one of India's leading digital-first beauty and personal care (BPC) company had posted a net profit of Rs 29 crore in a year ago quarter.

 

The stock, today, fell below its previous low of Rs 310.60 touched on November 16, 2023. It has declined below its issue price of Rs 324 per share. The company made its stock market debut on November 7, 2023. The stock has corrected 46 per cent from its 52-week high of Rs 546.50 hit on September 10, 2024.

 

 

Till 09:36 am; around 580,000 shares changed hands on the NSE and BSE. There were pending sell orders for a combined 4.3 million shares on these exchanges. In comparison, the BSE Sensex was down 0.25 per cent at 77,388.

 

In Q2FY25, Honasa’s revenue from operations decreased 6.9 per cent year-on-year (YoY) at Rs 462 crore against Rs 496 crore in a year ago quarter. The company reported operational loss of Rs 31 crore against profit of Rs 40 crore in Q2FY24. 

 

The company said drop in revenue and EBITDA in Q2 due to one-time inventory correction amid distribution model shift. Mamaearth is growing slower than expectations and Honasa said the company is making identified structural changes to bring it back to its growth trajectory in a few quarters.

 

"Over the past few months, we've been implementing Project Neev to optimize our distribution model. In this quarter, we have taken strategic steps towards transitioning from super-stockists to direct distributors in top 50 cities. This transition has impacted our revenue and profits, leading to a slowdown for Mamaearth,” Honasa said.  The company also operates direct-to-consumer (D2C) brands such as The Derma Co and BBlunt.

 

Honasa is undertaking several initiatives in terms of identifying focus categories (E.g: facewash, sunscreen, shampoos, babycare) & whitespaces within the same, ensuring disproportionate investments in these categories starting Q3FY25 and leverage its house of brands to create wider portfolio offerings in focus categories & its sub-segments (eg: In facecleansers provide offerings in active ingredients naturals etc). This apart, Honasa is undertaking phase-wise restructuring of offline channel (enhancing direct reach & right size the inventory levels) which should improve the effectiveness of the channel and help fortify its position in core categories, analysts at JM Financial Institutional Securities said in a note.

 

The brokerage firm in Q1FY25 result update had said that believe, the initiatives around portfolio & distribution channel are step in right direction which should enable high single digit sales compound annual growth rate (CAGR) for Mamaearth over next 3 years. Moreover, execution on newer brands (led by The Derma Co (TDC)) has been better than expectation with enough headroom to scale up sales & profitability. Analysts believe near term challenges are more transient in nature, corrective initiatives undertaken will sharpen overall execution.