Shares of Honasa Consumer Ltd dropped up to 6.3 per cent during Monday's trading session to hit a low of Rs 444.45 after the company reported a mixed set of numbers in the June 2024 quarter. Although, Q1 results were impressive but brokerages indicated turbulence going ahead. The stock eventually settled around Rs 452 today.
The Mamaearth-parent managed to report a good quarter with channel inventory correction underway but general trade channel restructuring led one time hit to weigh on FY25 profitability, said the brokerage firms tracking the counter. However, they are mostly positive on the stock.
Honasa Consumer reported a 63 per cent year-on-year (YoY) jump in its consolidated net profit for the quarter ended June 30, 2024, to Rs 40 crore versus Rs 24 crore reported in the corresponding quarter of the last financial year. Its revenue from operations for the quarter stood at Rs 554 crore, up 19 per cent YoY over Rs 464 crore posted in the year-ago period.
Honasa registered product business growth of 20.3 per cent with an underlying volume growth (UVG) of 25.2 per cent. The Ebitda margin expanded by 201 bps YoY to 8.3 per cent, resulting in an Ebitda of Rs 46 crore for the Q1FY25. The operator of Mamaearth attributed its strong performance to the improvement in the gross profit margin and scale-led efficiencies.
Honasa continues to be a play on execution, with the shift in distribution and better visibility on the trade pipeline leading to the management taking a call on clearing excess inventory in trade; this is likely to hurt its near-term (Q2) performance. Our ground checks suggest that the business is sound, under new distribution, said Emkay Global Financial Services.
"The inventory clean-up is likely to impact growth, margin, and profitability in Q2. We expect business rebound from Q3, and maintain our topline estimate ahead. We lowered FY25E topline by 4 per cent and EBITDA by 17 per cent. Factoring in better ‘other income’ ahead, we upgrade earnings by 2 per cent for FY26-27E," it added with a 'buy' rating and a target price of Rs 525.
Honasa reported 19 per cent YoY revenue growth, led by 25 YoY UVG and a 200 bps YoY expansion in EBITDA margins to 8.3 per cent, said Kotak Institutional Equities. "Management indicated that the ongoing offline distribution restructuring is progressing well and it plans to right-size offline channel inventory, reducing to 30-45 inventory days from 75- 80 days," it said.
This channel inventory correction (including stock returns; largely Mamaearth brand) could potentially impact FY2025E revenues and Ebitda by about Rs 40 croreand 30 crore, respectively added Kotak. "We cut FY2025E EPS by 12 per cent to factor in the same and broadly maintain FY2026-27 estimates. We roll over and revise fair value to Rs 475," with an add rating.
Honasa delivered strong operating performance. Revenue growth was well on track, led by strong volume growth. Mamaearth continued to gain share in key categories while newer brands continue to scale up much faster, albeit on a low base. Profitability-wise, Ebitda margin at 8.3 per cent was ahead of forecast, aided by better GM and scale-led efficiencies on overhead lines, said JM Financial.
Management remains optimistic about the Skincare category and within this expects Sunscreen to see strong growth where it continues to invest & fortify its position. Post the correction, performance is expected to revert to normalised trajectory in subsequent quarters. From LT perspective, the story remains intact. However, in the near term, stock is likely to remain under pressure – impact of GT restructuring & normalisation of sales will be a key monitorable, it added with a 'buy' tag and a target of Rs 505.