Honasa Consumer shares: 100% upside! Mamaearth is Jefferies' high conviction 'Buy'; stock recovers

Honasa Consumer Ltd, which hit a low of Rs 256.10 on Friday morning, received a high conviction 'Buy' call from Jefferies with a target of Rs 520, which triggered a recovery on the newly-listed stock.

Calling it a compelling story, Jefferies is expecting Honasa Consumer to grow at 27 per cent compounded annually over FY23-26 with improved margins. It says Honasa Consumer has a significant moat as a scaled-up internet-first franchise and that even as the online remains at the core, Honasa derives a third of its revenues from offline now, it said.

At day’s low, the Jefferies target suggested a 103 per cent upside potential. The stock jumped to hit a high of Rs 317.95 on BSE, recouping most of its losses since listing. Jefferies said Honasa Consumer has been able to transform itself into a house of brands with 33 per cent of revenue from newer brands.

"Honasa should report industry leading growth at 27 per cent over the next three years. We value at 6 times September 2025 EV/Sales (at a discount to HPC peers; implies 67x FY26 P/E) to arrive at a target of Rs 520, over 70 per cent potential upside on CMP. Key risks: excessive competition, including from leading FMCG companies, aggressive M&A and lack of scale-up in the newer brands," Jefferies said.

Product innovation and an ability to quickly identify emerging trends has been a key differentiator for Honasa, especially veruss FMCG incumbents, the foreign brok4erage said adding that 25-50 per cent of Honasa's incremental revenue each year has come from new products, as the company has gained an early mover advantage in several products.

Honasa also uses a millennial-focused model, characterised by its focus on content & community, Jefferies noted.

The broking firm said BPC is likely to grow in double digits, with steady gains expected for online channel. Honasa, it aid, has a strong online presence in high-growth spaces within BPC, like skincare, hair care, cosmetics etc and at masstige/ premium price points.

Honasa has managed to create a house of brand architecture with six brands portfolio, with salience of Mamaearth down to 65 per cent and revenues of Rs 1,200 crore in FY23, which puts it in the league of top BPC brands in India, Jefferies said.

"Offline is a higher margin channel vs online, a key focus for Mamaearth brand. It is already present in 150k+ GT outlets & 31 MT chains and offline share has grown to over 35 per cent in FY23 and this should further rise ahead. Prioritising growth over profitability, which we believe is the correct strategy, Honasa reported a 6 per cent Ebitda margin in 1QFY24. We expect D/D margin by FY26E, led by optimisation in marketing spends and scale benefits," it said.

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