Honasa Consumer, the company behind Mamaearth, has been making headlines after global brokerage Goldman Sachs gave the stock a ‘buy’ rating. Goldman Sachs set a target price of ₹570, predicting a potential increase of over 26% from the stock’s recent closing price following its June quarter earnings. The brokerage highlighted the “India beauty transformation” as a long-term growth opportunity, boosting optimism about the company’s future.
On Tuesday, August 13, Mamaearth’s shares rose 4.5% to ₹472 during the day after two consecutive sessions of losses following its June quarter results. The stock had dropped 9% over the last two days.
Why Goldman Sachs is Bullish on Mamaearth
Goldman Sachs pointed out that India’s beauty industry is undergoing a major transformation, which could be a big growth opportunity for Honasa Consumer. They noted that the combined revenue of leading beauty companies, including Honasa and Minimalist, has grown 28 times between FY19 and FY23. They expect Honasa to see 2.5 times revenue growth and a doubling of EBITDA margins from FY24 to FY30. The company plans to expand its Derma skincare brand and increase its presence in 400,000 retail outlets by FY27.
Despite having the highest gross margins in the fast-moving consumer goods (FMCG) sector at 70%, Honasa’s current EBITDA margin is only 7%. However, Goldman Sachs expects these margins to improve to 10.2% by FY27 and 14% by FY30.
Other Analysts’ Views
Emkay Global has also given a ‘buy’ rating with a target price of ₹525. They noted that while the company’s shift in distribution and inventory clean-up might affect short-term performance, the core business remains strong. They expect a rebound starting in the third quarter of FY25 and have slightly lowered their revenue and EBITDA estimates for FY25 but increased earnings forecasts for FY26-27 due to expected better ‘other income’.
JM Financial also recommended a ‘buy’ with a target price of ₹505. They praised Honasa’s strong volume growth and better-than-expected EBITDA margin of 8.3%. JM Financial noted that Mamaearth continues to gain market share in key categories while newer brands are scaling up quickly, though from a smaller base. They expect profitability to return to a normal trajectory in the coming quarters.
However, Kotak Institutional Equities is more cautious, assigning an ‘add’ rating with a target price of ₹475. They have reduced their FY2025 earnings estimates by 12% but maintained their outlook for FY2026-27, acknowledging the near-term challenges Honasa faces.
Stock Performance and Future Outlook
Since its IPO debut at ₹324 last November, Mamaearth’s stock has risen by 45.7%. Despite this overall growth, the stock has been volatile in 2024, with only a 7% increase year-to-date. The stock was flat in August after a 7.5% rally in July, following a 2% drop in June and gains of 2.4% in May and 7% in April. Earlier in the year, it saw a 3% decline in March and an 11.5% drop in February, after rising 6% in January.
Honasa Consumer’s Q1 Results
For the quarter ending June 30, 2024, Honasa Consumer reported a strong 63% year-on-year increase in net profit to ₹40 crore, up from ₹24 crore in the same quarter the previous year. Revenue from operations reached ₹554 crore, marking a 19% year-on-year growth from ₹464 crore in the previous year’s quarter.
The company saw a 20.3% growth in its product business, with an underlying volume growth (UVG) of 25.2%. The EBITDA margin also improved by 201 basis points year-on-year to 8.3%, resulting in an EBITDA of ₹46 crore. The strong performance was attributed to better gross profit margins and efficiencies gained from scaling up.
Conclusion
Honasa Consumer’s stock has gained significant attention following Goldman Sachs’ positive outlook. While other analysts like Emkay, JM Financial, and Kotak have varying views, they generally see long-term growth potential despite some short-term challenges. With strong Q1 results and ambitious expansion plans, Honasa Consumer remains a key player in the evolving beauty market, and its future performance will be closely watched by investors.
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