Honasa Consumer Ltd, the parent company of D2C brand Mamaearth, saw its shares fall by over 6% during intraday trading on Monday (August 12), despite reporting a more than 60% rise in net profit for the June quarter on Friday (August 9).
The startup’s shares hit an intraday low of INR 444.45 on the BSE but recovered slightly to close the session 4.6% down at INR 451.65.
Mamaearth’s Profit and Revenue Surge:
Driven by robust growth in its product business, Mamaearth’s profit surged 62.9% to INR 40.2 crore in Q1 FY25, up from INR 24.7 crore in the same quarter last year. Operating revenue increased 19.3% year-on-year and 17.3% sequentially, reaching INR 554 crore for the quarter.
Continue Exploring: Mamaearth Q1 PAT up 63% to INR 40 Cr; revenue soars 19% YoY
Ayuga Brand Discontinued:
However, Honasa also announced the discontinuation of its ayurvedic beauty products brand Ayuga, citing a failure to establish a product-market fit (PMF).
Launched by Honasa in 2021 with investor Shilpa Shetty Kundra, Ayuga was an ayurvedic skincare brand aimed at millennials. Despite a relaunch in December 2023, the brand struggled to gain traction.
Following the discontinuation of Ayuga, Honasa now has six brands in its portfolio: Mamaearth, Auqalogica, The Derma Co, Dr Sheth’s, BBlunt, and the newly launched colour cosmetics brand Staze.
Additionally, the company is shifting its distribution model from super-stockists to direct distributors to streamline its supply chain and reduce the holding period.
This shift in approach comes in response to reports of distributors raising concerns about excessive inventory shipments and complaints about delays in replacing damaged, unsold, and expired stock.
Emkay Sees Short-Term Challenges:
Brokerage Emkay noted that the decision to clear excess inventory will likely impact Honasa’s near-term performance. “Our ground checks indicate that the business remains solid under the new distribution model. However, the inventory clean-up is expected to affect growth, margins, and profitability in Q2. We anticipate a business rebound starting in Q3,” they said.
Emkay, which has a ‘BUY’ rating on Honasa, maintained its target price at INR 525 per share.
JM Financial Remains Optimistic Long-Term:
Brokerage JM Financial stated that although the inventory adjustments will impact the company’s financials in Q2, performance is expected to return to its normal trajectory in the following quarters.
“From a long-term perspective, the outlook remains positive with the offline expansion of Mamaearth, faster growth in new brands, and margin improvements from scale efficiencies. However, in the near term, the stock may face pressure due to the impact of goods traded restructuring and the normalisation of sales, which we believe will be crucial to monitor,” JM Financial added.
The brokerage maintains a ‘BUY’ rating on Honasa and has kept its price target steady at INR 505.
