Honasa Consumer Limited, the parent company of Mamaearth, witnessed a sharp 20% drop in its share price on November 18, hitting the lower circuit at Rs 297.25 on the National Stock Exchange (NSE). This decline has pushed the stock below its IPO price of Rs 324 and marked a new 52-week low. The company’s weaker-than-expected Q2FY25 results triggered the sell-off, raising concerns among short-term investors. While the outlook remains bleak in the near term, analysts believe long-term investors may find value if the company stabilizes its operations and delivers improved performance in future quarters.

Weaker Q2FY25 Results Spark Sell-Off

Significant Losses Reported: Honasa Consumer posted a loss of Rs 19 crore for the July-September quarter, its first quarterly loss in five quarters. This marked a sharp reversal from a profit of Rs 29 crore in the same period last year.

Revenue and Expenses: Revenue declined 7% year-on-year (y-o-y) to Rs 462 crore, while total expenses surged 9% y-o-y to Rs 506 crore, signaling operational inefficiencies.

Declining EBITDA Margins: Adjusted EBITDA margin stood at 4.1%, reflecting a steep 6.6 percentage-point decline compared to the previous year. Inventory corrections under Project ‘Neev’ have exacerbated margin pressures.

Market Reaction and Investor Sentiment

Stock Below IPO Price: The sell-off dragged Honasa Consumer’s share price below its IPO price of Rs 324, eroding investor confidence. The stock debuted on November 7, 2023, at a marginal 2% premium over its issue price of Rs 330 per unit.

Market Capitalization: The company’s market capitalization now stands at Rs 9,655.39 crore, reflecting the significant value erosion since its listing.

Brokerages Respond with Mixed Views

Emkay Global Downgrades to ‘Sell’: Citing weak business commentary and disappointing Q2FY25 results, Emkay Global downgraded Honasa Consumer from a ‘buy’ to a ‘sell’ rating, slashing the target price to Rs 300 from Rs 600. The brokerage highlighted potential revenue declines in FY25 and a recovery timeline extending into FY26.

Jefferies Maintains ‘Buy’ with Caution: In contrast, Jefferies retained its ‘buy’ rating but lowered its target price to Rs 425 per share. The firm acknowledged the challenges posed by inventory corrections but expressed confidence in the management’s ability to stabilize operations, stating, “Honasa Consumer is not the only start-up to face such growing pains.”

Challenges Amid Transition to D2C Model

Project ‘Neev’ Disruptions: The company’s shift to a direct-to-consumer (D2C) model under Project ‘Neev’ has disrupted inventory management, impacting both revenue and margins.

Liquidity Concerns: With ongoing operational challenges and declining margins, liquidity pressures have further weighed on investor sentiment, leading to increased volatility in the stock.

Future Outlook: Challenges and Opportunities

Near-Term Strain: Analysts expect Honasa Consumer’s stock to remain under pressure in the near term, given the weak Q2FY25 performance and liquidity concerns.

Potential for Recovery: A turnaround depends on the company’s ability to stabilize its operations, optimize inventory management, and achieve consistent growth in revenue and margins. Long-term investors may find value if Honasa successfully navigates its transition and capitalizes on its strong brand equity.