Indian skincare brand Mamaearth’s parent company, Honasa Consumer, saw its market valuation plummet by nearly ₹3,500 crore ($414.7 million) over two trading sessions. The steep drop came after the company reported a second-quarter loss, raising concerns over waning demand for its beauty and personal care products.
On Tuesday, Honasa’s stock hit an all-time low of ₹242.35, marking a decline of nearly 30% in just two days. This has reduced its market capitalisation to ₹8,600 crore, a significant fall since its listing in November 2023.
First Loss Since Listing
Honasa’s dismal Q2 earnings report, released late last Thursday, revealed its first quarterly loss since going public. The company’s results echo a trend seen among other Indian consumer firms like Hindustan Unilever and Nestlé India, which have also posted subdued performances this quarter. Analysts attribute the downturn to urban consumers tightening spending in response to persistently high inflation.
“The demand scenario has been challenging, and Honasa’s performance fell short of expectations,” noted analysts at JM Financial.
Stiff Competition in a Growing Market
The Indian beauty and personal care market, projected to grow from $17.8 billion in 2020 to $28 billion by 2025 according to Avendus, is witnessing intense competition. Honasa competes with larger players like Nykaa and private brands such as Health & Glow, which have posed significant challenges to its market position.
Arvind Singhal, chairman of consultancy firm Technopak Advisors, highlighted the company’s struggles, stating that competition has forced Honasa to rethink its business strategy.
Strategic Shift to Offline Channels
Honasa, known for brands like The Derma Co and Aqualogica, has historically relied heavily on online platforms for its sales. However, during its post-earnings call, the company announced plans to pivot towards offline retail channels in an effort to bolster its reach and revenue.
While this strategic shift aims to tap into India’s burgeoning offline retail market, analysts at Citi were sceptical, remarking that the move “needs a refresher.” The brokerage downgraded the stock by two notches from ‘buy’ to ‘sell’, citing concerns over the execution of this strategy.
Changing Consumer Preferences
Citi also pointed to a notable shift in consumer preferences, with buyers increasingly favouring active ingredient-based products over the natural and organic offerings that Honasa is known for. This change in demand has added pressure on the company to innovate and expand its product portfolio to cater to evolving trends.
Broad-Based Downgrades
At least five analysts downgraded Honasa’s stock following its earnings announcement, while nine others slashed their price targets, according to data compiled by LSEG.
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The widespread downgrades highlight concerns over Honasa’s ability to navigate the competitive landscape and revive growth amidst mounting challenges.
Industry-Wide Headwinds
Honasa’s struggles come as part of a broader slowdown in the consumer goods sector. High inflation has squeezed household budgets, leading to reduced discretionary spending on non-essential items like beauty products. Even well-established companies such as Hindustan Unilever and Nestlé India have reported weaker-than-expected earnings this quarter.
Outlook
For Honasa, the immediate road ahead involves addressing key issues such as enhancing offline presence, adapting to changing consumer demands, and strengthening its competitive edge. Analysts and investors alike will be closely monitoring how the company executes its revised strategy in the coming months.
However, with downgraded ratings and declining market confidence, Honasa faces significant challenges in regaining its footing in the fiercely competitive beauty and personal care market. Whether its offline pivot and product innovation efforts can reignite growth remains to be seen.
As Honasa charts its path forward, the company’s ability to adapt swiftly and strategically will be critical to recovering its market position and regaining investor trust.
