Jefferies initiates coverage on Honasa Consumer with Buy recommendation, sees 57% upside

Jefferies initiates coverage on Honasa Consumer with Buy recommendation, sees 57% upside

Honasa Consumer, the parent company of popular brand Mamaearth, witnessed a 3.5% increase in its stock amidst volatile trading. This surge followed Jefferies India’s initiation of coverage, giving the stock a high conviction buy rating and revising its target price to Rs 520 per share.

Jefferies predicts an impressive 57% growth for Honasa Consumer in the next three years. Despite acknowledging potential challenges such as tough competition, M&A, and slow brand expansion, the brokerage remains optimistic about the company’s prospects. It anticipates double-digit growth in the BPC (Beauty and Personal Care) segment, stable online sales, and foresees a positive trajectory for the company.

Highlighting Honasa Consumer’s unique strengths, Jefferies notes the company’s emphasis on emerging trends, with 25-50 percent of annual revenue generated from new products. The millennial-focused approach, centered on content and community, sets the company apart.

Jefferies also points out that offline channels offer higher margins compared to online, with Honasa Consumer’s brands available in 150,000 general trade outlets and 31 merchandise trade chains.

However, despite positive market sentiment, Honasa Consumer reported a net loss of Rs 150.9 crore for the year ending March 2023. This loss was attributed to impairment loss on goodwill and other intangible assets, in contrast to the Rs 14.4 crore profit in the previous fiscal year.

While the volume growth experienced a significant decline to 68.23 percent in FY23 from 143.3 percent in FY22 and 298.42 percent in FY21, the revenue from operations showcased robust growth at a Compound Annual Growth Rate (CAGR) of 80.14 percent during FY21-FY23. The market will keenly observe how Honasa Consumer navigates the evolving landscape in the coming quarters.