Honasa Consumer, which sells the mamaearth line of personal care products, saw its shares get locked in the 20% upper circuit today after unexpectedly strong second-quarter results. A stock is said to be in the ‘upper circuit’ when it is prevented from rising further by the stock exchange to prevent excessive speculation.
Honasa, which operates the Mamaearth brand and entered the share market through an IPO priced at Rs 324/share earlier this month, ended at Rs 423.75 per share today. Broker Jefferies upgraded the target price on the stock by 44% to Rs 530 and reiterated a Buy for the stock.
On Wednesday, the personal care products company reported a massive, 53% year-on-year increase in its profits from operations at Rs 40 crore for the September quarter. This is 25% higher than the growth expected by their analysts, said a report by the broker, Jefferies.
Revenue too rose sharply, jumping 21% year on year.
What is striking is that the company delivered these numbers at a time when the FMCG industry as a whole has struggled to maintain its momentum amid an overall slowdown in consumer spending.
Jefferies pointed out that the company’s new brands are also doing well.
“The new brands are scaling up well, with Dr Sheth now the fourth brand to cross Rs 1.5 bn [per year] annual run rate. Mamaearth first half growth was also in double digits. The management sounded confident on both growth and margins,” said the report.
The report also noted that the online channel of the company saw a 40% growth, mainly driven by the new brands, while offline grew 33%, driven by Mamaearth.
“While the exact split was not disclosed, growth was led by new brands, while Mamaearth
also grew double-digits…Within new brands, The Derma Co is now at an annual revenue run-rate (ARR) of Rs 3.8bn [380 crore] and Aqualogica is at Rs 1.8 bn. Dr. Sheth became the fourth brand to cross Rs 1.5 bn ARR, growing 30x since the acquisition,” said the report.
The broker also pointed out that the management of Honasa is optimistic about similar growth in the coming quarters as well.
“Mgmt remains confident of delivering a 30%+ revenue growth going forward, similar to that in the first half FY24. It also expects EBITDA margins to keep improving on a YoY basis over the coming years, led by operating leverage and further optimisation of ad-spends. Investing behind brands and distribution expansion, however, remain a key focus area and would see continued investments,” the report noted.