Honasa Consumer Gets 'Sell' Downgrade As Citi Sees Growth Challenges For Mamaearth

Mamaearth owner Honasa Consumer Ltd. got a 'sell' downgrade from Citi Research, after it posted a surprise loss in the second quarter of fiscal 2025. The brokerage also cut its target price on the stock to Rs 300 per share.

Shares of Honasa Consumer plunged 20% on Monday to hit a lifetime low. The sharp decline comes over a year after the company's stock made its market debut on Nov. 7, 2023, at an issue price of Rs 330.

Citi's downgrade is based on growing concerns over Mamaearth's growth trajectory, which is facing significant challenges, it said. Despite strong performance from its newer brands like The Derma Co and Aqualogica, Mamaearth, which constitutes approximately two-thirds of Honasa’s business, is struggling to maintain its growth momentum, the brokerage said.

Citi’s latest report highlights several factors contributing to Honasa’s woes, with a 7% year-on-year decline in Q2 revenue being primary concern.

While the company cited a Rs 63-crore inventory correction as a one-off factor, Citi noted that even after adjusting for this, revenue growth of 6% was still below expectations.

A key issue is the transition from super-stockists to direct distributors for the Mamaearth brand, which is taking longer than anticipated, the brokerage said. The transition, which is part of Honasa's new offline strategy to optimise distribution, has led to disruptions, particularly in the company’s top 50 cities. Citi suggests that this change requires a complete strategic rethink, including a focus on fewer SKUs (stock-keeping units) in the offline channel, rather than spreading resources too thin across a wide range of products.

Citi has revised its revenue forecasts for Honasa, lowering FY25-27 revenue estimates by 9-16% and now projects a 14% revenue CAGR over FY24-27E. It has also significantly reduced its Ebitda margin estimates by 230-300 basis points, forecasting 9.6% Ebitda margin by FY27.

Shares of Honasa Consumer fell as much as 20% to Rs 297.25 apiece. It was trading at the same levels as of 10:19 a.m., compared to a 0.39% decline in the NSE Nifty 50.

The stock has fallen 15% in the last 12 months. Total traded volume so far in the day stood at 4.1 times its 30-day average. The relative strength index was at 17.

Out of 12 analysts tracking the company, seven maintain a 'buy' rating, two recommend a 'hold' and three suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 45.4%.