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Mamaearth-parent Honasa clocks lower revenue, loss in Q2 as inventory correction hits hard

The bottomline of Honasa Consumer, suffered from a double whammy of lower revenues in Q2 FY25 and expenses rising by 9% as it absorbs the impact of its inventory correction.

Mamaearth-parent Honasa clocks lower revenue, loss in Q2 as inventory correction hits hard

Thursday November 14, 2024 , 3 min Read

Honasa Consumer, the parent company behind Mamaearth clocked a de-growth of 7% in its operating revenue to Rs 461.82 crore in the quarter ended September 2024 versus Rs 496.1 crore earned a year ago, the company said in an exchange filing. 

The Varun Alagh- and Ghazal Alagh-led company has been clocking slower revenue growth across quarters. It posted a 19% rise in its operating revenue in Q1 FY25 and 21% YoY growth in Q4 FY24. 

Honasa, which is also the parent company of popular brands like The Derma Co, Aqualogica, Dr Sheth’s, and BBlunt, posted a loss of Rs 18.71 crore in the Q2 FY25, down from a profit of Rs 29.78 crore in the corresponding quarter in the previous year. 

Its bottomline was hurt by a double whammy of falling revenue and higher expenses, which rose 9% year-on-year due to higher employee benefits, purchase of traded goods, and finance costs.

Trouble at Mamaearth

The quarterly revenue and profitability took a bigger-than-expected impact from its inventory correction project. 

"The impact of the sales return and the inventory collection that has come through, which is higher than what we had imagined it to be. As we went into executing that, we clearly realised that there were pockets of sub-distributors or in-market creditors which we had not taken into account. Given these are now full and final parting exercises, the impact has turned out to be higher than what we had imagined it to be," explained Varun Alagh, Chairman and CEO, Honasa Consumer Limited in a post-earnings call with analysts.

Moreover, Honasa's flagship brand, Mamaearth, clocked slower growth on account of inventory correction and changes in consumer preference towards products with active ingredients. The company also flagged the need to evolve its investment models for the brand's offline strategy and as well as refresh the brand mix product, price, and category.

"We have recognised that there are a few strong tweaks that we need to make across the mix from a product mix perspective in terms of SKU sizing that needs to be promoted and on communication perspective where we need to become sharper," he said.

"Most importantly, on investment allocation, I think our learning is that we have gone too wide and we need to narrow our focus onto a few categories and go deep within them with our hero SKUs," Alagh noted on the call.

Bullish on offline channel

The omnichannel beauty and personal care player, in its previous earnings call, had highlighted the company’s plans for inventory pipeline correction to ramp up its offline distribution. Over the past few months, it implemented Project Neev to optimise its distribution model from super-stockists to direct distributors in the top 50 cities.

"We are clearly realising and recognising that online and offline are going to be very different ballgames and a one-size-fits-all strategy will not work," pondered Alagh.

While the online business has a higher competitive intensity in a category and calls for more innovation, the offline business is still a very hero product business, where most players have hero products and portfolios in specific partitions which continue to have large shares, noted Alagh.

Since the offline space is not seeing as much fragmentation as in the online space, Mamaearth plans to go deep with its hero SKUs in the right product sizes and with the right distribution as it expects its offline strategy to drive volumes.

Shares of the company closed 3.77% higher at Rs 378 apiece on the NSE at the end of trading on Thursday.

(The story has been updated with inputs from the conference call.)


Edited by Kanishk Singh and Megha Reddy