Honasa Consumer Rallies 10% Following Q3 Results; JM Financial Recommends BUY For Rs 515/Share TP

Honasa Consumer, the parent company of popular beauty and skincare brand Mamaearth, witnessed a surge in its shares, reaching Rs 474.90 per share, a 10% increase in today's early deals. The boost comes on the back of an impressive December quarter performance, with consolidated net profit soaring by 264% year-on-year (YoY) to Rs 26 crore.

The third quarter of the fiscal year 2024 has been a game-changer for Honasa Consumer, as its net profit for the first nine months skyrocketed seven times to Rs 80 crore. The consolidated revenue for the December quarter saw a robust 28% YoY increase, reaching Rs 488 crore. Additionally, the consolidated EBITDA experienced exceptional growth, surging by 192% YoY to Rs 34.5 crore, marking an increase of 397 basis points.

One of the driving factors behind this performance is the introduction of 122 new products (NPDs) in the calendar year 2023. These new product developments have played a pivotal role in contributing to the company's revenue growth.

Honasa Consumer attributes its success to key campaigns such as "Beautiful Ho Tum" and product-specific initiatives for Rosemary and Color Care. The company's strategic marketing efforts, featuring compelling visuals and high viewership numbers, have significantly bolstered its brand presence in the market.

The Color Care category, featuring natural, long-lasting, and Made Safe certified products, has become a promising segment for Honasa Consumer. The company reported reaching the Rs 150 crore ARR mark, with 10 lakh color care units sold in Q3 FY24. Effective consumer communication has played a crucial role in propelling the growth of this category.

The Derma Co, a brand under Honasa Consumer, achieved an EBITDA positive status year-to-date. This success can be attributed to products such as serums, sunscreens, and face wash. Other brands under the Honasa umbrella, including Aqualogica, Dr Sheth's, and BBlunt, have also witnessed significant successes in their respective categories.

Brokerage firm JM Financial released a report showering praise on Honasa Consumer, the parent company. According to the report, Honasa's third-quarter results exceeded expectations.

JM Financial noted that Honasa's revenue not only met but surpassed the strong expectations outlined in its forecasts. The growth was primarily volume-driven, with Mamaearth showcasing a resilient performance fueled by an effective offline channel scale-up. Additionally, newer brands within the Honasa portfolio exhibited robust growth online, albeit from a relatively low base.

While acknowledging the varying scales, JM Financial emphasized that Honasa's growth rates continue to outpace those of its peers. The management is strategically developing levers to sustain growth rates between 2 to 2.5 times the industry average. Despite the gross margin in Q3 falling below expectations due to cumulative inventory-provisioning for the past nine months and mix changes, JM Financial highlighted crucial positive developments.

Importantly, Honasa Consumer is now extracting efficiencies in advertising and promotion (A&P) and other overhead lines, thanks to the improving scale of operations. This efficiency is reflected in The Derma Co. (TDC) brand, which achieved a positive EBITDA during the quarter. The overall company-level EBITDA margin sustained in high single digits, a notable improvement from sub-2% in the last two years.

The report underscored the massive opportunity for Mamaearth in the offline channel, with JM Financial expressing confidence that Honasa can replicate Mamaearth's success with some of its other brands. The bullish sentiment is grounded in the belief that Honasa's strategic measures, including offline channel expansion, will further enhance its market presence and overall growth.

Honasa Consumer is not only focusing on online growth but is also expanding its offline presence. The company continues to strengthen and expand omnichannel distribution with over 1.7 lakh retail touchpoints, reflecting a 37% YoY increase in distribution. The offline market share increased by 80 basis points in face washes and 40 basis points in shampoos during the first nine months of the fiscal year.

Varun Alagh, Chairman and CEO of HCL, expressed his satisfaction with the Q3 FY24 results, stating, "The Q3 results are a testimony of our deep understanding of the beauty market in India." Alagh emphasized the company's innovative brand-building playbook and its unique ability to identify opportunities for sustained growth. Four out of six brands from the portfolio have already entered the Rs 150 crore ARR club, showcasing the company's capabilities in building successful brands.

As the shares of Honasa Consumer continue to trade with gains of more than 2% on the National Stock Exchange (NSE), reaching Rs 442.50 per share as of 11:35 am, the company remains bullish about its future prospects. With a focus on purpose-based brand building, innovation, and distribution expansion, Honasa Consumer aims to continue its upward trajectory in the Indian beauty and skincare market.