ICICI Securities, a brokerage firm, has initiated coverage on Honasa Consumer Ltd, the parent company of D2C unicorn mamaearth, with a ‘BUY’ rating and a price target (PT) of INR 550.
The price target (PT) suggests an upside of around 28% from the stock’s last close at INR 430.95 on the BSE on Monday.
In its report dated April 28, the brokerage noted that Honasa’s business model exhibits greater agility and lower risk compared to traditional beauty and personal care (BPC) companies.
According to the report, Varun and Ghazal Alagh-led startup’s digital-first approach enables faster product launches and efficient resource allocation for marketing and distribution.
Continue Exploring: Honasa Consumer enters color cosmetics market with Staze brand launch, targets Gen Z consumers with affordable quality products
Established in 2016, Honasa offers a diverse array of BPC products spanning hair care, body care, and makeup categories. Alongside Mamaearth, its portfolio encompasses brands such as The Derma Co, Aqualogica, and Ayuga. Additionally, the company has acquired brands like Dr. Sheth’s, BBlunt, and Momspresso over the years.
Although Honasa recently closed down two verticals of the content platform Momspresso, the brokerage highlighted that the newer brands are showing robust growth and now contribute approximately 32% to Honasa’s revenue. ICICI Securities anticipates these brands to achieve a compound annual growth rate of 45% during FY24-FY26.
It’s worth noting that Honasa announced last week that its skin care brand, The Derma Co, achieved an annual run rate of INR 500 Cr.
Continue Exploring: Honasa Consumer’s skincare brand The Derma Co hits INR 500 Cr ARR milestone
ICICI Securities indicated that Honasa operates within the expanding BPC market, projected to witness double-digit growth in the coming years. The startup caters to both the ‘masstige’ and premium price segments, which are experiencing faster growth rates (around 15% CAGR) compared to the mass market (around 7% CAGR). Consequently, Honasa’s product portfolio is anticipated to benefit from favorable industry trends.
Nevertheless, the report highlighted that expanding its offline distribution presents a relatively greater challenge for Honasa compared to online channels. Additionally, its specialized focus on natural ingredients might restrict the overall addressable market.
Honasa’s shares debuted on the stock exchanges in November last year and have since soared by almost 33% from their initial listing price. Despite reporting a net loss of INR 151 Cr in the financial year 2022-23 (FY23), the startup witnessed a nearly twofold increase in profit after tax, reaching INR 29.4 Cr in Q2 FY24.
Earlier this month, the board of Honasa approved the amalgamation of two of its wholly owned subsidiaries, Just4Kids Services Private Limited and Fusion Cosmecutics Private Limited, with the company. This strategic move aims to prevent cost duplication.
Continue Exploring: Mamaearth parent Honasa Consumer plans merger of two subsidiaries to eliminate cost duplication and enhance efficiency