Synopsis: Honasa Consumer's stock has dropped by 34.7% over two days following Q2FY25 results. The contributing factors for this drop include inventory correction, subdued demand, margin contraction, and operational losses. Also to be noted is the brokerages causing a reduction in the earnings estimates and target prices, thus, anticipating a gradual recovery.
Shares of 'Honasa Consumer Ltd' witnessed a sharp decline, dropping 18% on Tuesday to a low of Rs. 242.60.
This plunge follows a 20% fall in the previous session, marking a 34.7% loss over two days.
The steep downturn comes in response to weaker-than-expected September quarter earnings.
Key Factors Behind the Drop:
- Earnings Miss: Honasa's Q2FY25 revenue declined 6.9% YoY due to an inventory correction in general trade and subdued demand for its flagship brand, Mamaearth.
- Operational Challenges: Gross margin contracted by 70 basis points to 68.8%, with operating deleverage contributing to an EBITDA loss.
- Structural Shifts: Management indicated the need for strategic changes to address a shifting operating environment.
Brokerage Analysis:
- JM Financial: Revised its target price to ₹410, trimming FY25-27 earnings estimates by 17-34%, citing gradual recovery in offline channels.
- Emkay Global: Downgraded the stock to 'Sell' with a 50% cut in target price, anticipating a challenging road ahead.
- Kotak Institutional Equities: Noted robust growth in new brands (30% YoY), though flagged concerns over reduced operating leverage.
Outlook:
The stock is expected to face continued pressure in the short term, with sales recovery and execution of structural changes being critical.
In conclusion, the recent performance of Honasa Consumer highlights significant operational and market challenges.
While management's efforts to address execution gaps are commendable, recovery is expected to take several quarters.
Investors should closely monitor progress in structural adjustments and sales growth trends.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Please consult a qualified financial advisor before making any investment decisions.
