Honasa Consumer Limited — Q3 FY25 earnings call

Call held 12 Feb 2025

Management summary

Honasa Consumer reported solid growth from its younger brands, which now contribute over 40% of revenue, with quick commerce emerging as the fastest-growing channel at 7-8% of business. While the Mamaearth brand continues to face declines, the company is actively implementing new strategies and conducting pilots in Q4 FY25, expecting a return to growth trajectory from Q1 FY26. Gross margins saw expansion driven by a favorable brand mix, and the company aims for over INR 4,000 crores in revenue with double-digit margins by the end of the decade.

Highlights

  • Non-Mamaearth brands continued solid growth at 30%+ YTD level.

  • Younger brands now contribute over 40% of the company's revenue, up from 35% last year.

  • Quick commerce grew to 7-8% of business, becoming the fastest-growing channel.

  • Distributor days reduced to 30-40 days, indicating improved inventory management.

  • Gross margin expansion driven by favorable brand mix towards higher-margin younger brands.

Concerns

  • Mamaearth brand continues to be in decline for the 9 months YTD.

  • Q4 FY25 A&P spends are expected to be higher and more aggressive due to experimentation, potentially impacting short-term margins.

  • General trade channel for Mamaearth continues to decline.

Key financials

  1. EBITDA Margin 5%
  2. Younger Brands Revenue Contribution 40%
  3. Quick Commerce Revenue Contribution 7%
  4. Non-Mamaearth Brands Growth 30%

What they filed

Q1 FY27: revenue up 19.2%, net profit up 110.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue417 505 523 584 527 +26%587 +16%608 +16%696 +19%
EBITDA-30 22 24 42 44 +247%61 +177%68 +183%100 +138%
Net profit-15 25 25 40 38 +353%48 +92%64 +156%84 +110%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • M&A Fusion Cosmeceutics Merger · Pending regulatory

    Integration of subsidiary, resulting in a deferred tax credit of INR 5 crores.

    Deferred tax asset of INR 5 crores taken this quarter.

    Actually we have taken a deferred tax asset of about INR 5 crores, which is basically coming in from our subsidiary, Fusion Cosmeceutics, which is basically -- that subsidiary is actually merging with our business. We're expecting that to come through by April, May of next year.

Guidance & targets

Mamaearth Performance

  • Mamaearth growth Mamaearth Performance · After Q4 FY25 and Q1 FY26 · Medium confidence Return to growth levels
    we will be able to unlock the right investment allocation media and messaging combinations, which will help us sort of get the brand back to sort of growth levels, but will take a couple of quarters for us to sort of...

    — Varun Alagh

Revenue

  • Total Revenue Revenue · End of the decade · High confidence >INR 4,000 crores
    And our towards the end of the decade, we would like the company to be more than INR 4,000 crores in revenue.

    — Varun Alagh

Profitability

  • EBITDA Margin Profitability · FY26 (overall year) · Medium confidence FY24 levels
    So from a '26 perspective, we believe we should be back to the '24 levels if you look at the overall year.

    — Varun Alagh

  • EBITDA Margin Profitability · FY27 onwards · Medium confidence Improving on FY24 base
    And then from '27 onwards, we should start sort of improving on that base as we had sort of pointed out.

    — Varun Alagh

  • Operating Leverage (EBITDA margin) Profitability · FY26 H2 · Medium confidence 8% levels
    So the timing is something that I would not be able to comment, but fair to assume that within FY '26 itself probably towards H2, we will be able to hit those levels.

    — Varun Alagh

Market context

  • Overall Margins Profitability · End of the decade · High confidence Double-digit
    Yes, Kimberly, that will be the plan and ambition.

    — Varun Alagh

What to watch in Q4 FY25

Mamaearth brand growth trajectory

After Q4 FY25 and Q1 FY26
Current In decline for 9 months YTD
Target Return to growth levels

Why it matters

Mamaearth is the flagship brand; its turnaround is crucial for overall company performance.

we will be able to unlock the right investment allocation media and messaging combinations, which will help us sort of get the brand back to sort of growth levels, but will take a couple of quarters for us to sort of...

Risks & concerns

  • Mamaearth brand decline

    high

    Mamaearth has been in decline for 9 months YTD, impacting overall growth and requiring significant internal transitions.

    Management acknowledged

  • Increased A&P spends in Q4 FY25

    medium

    Q4 marketing spends are expected to be higher and more aggressive due to experimentation, potentially impacting short-term margins.

    Management acknowledged

  • Urban market slowdown

    medium

    Metros affected by wage inflation gaps and distribution changes, but the company attributes current performance more to internal transitions.

    Management acknowledged

Q&A highlights

6 direct
Inventory correction and normalized growth in GT channel. Direct
majority of the correction, almost 85% plus was already taken care of in the last quarter itself. Now the journey has been to gradually scale up the new distribution system, which is something that we have been actively doing. And our view is, this is the quarter where we have at least been able to, in top 50 cities, appoint the Tier 1 distributors, and we're also seeing direct distribution scale up starting to sort of happen. Over the next couple of quarters, we believe that the full effect of this transition will start coming into play, and the GT system should start coming back.

Provides a timeline for the general trade (GT) channel recovery, which has been a drag on performance.

Asked by Dhiraj Mistry

Mamaearth brand strategy changes and outcomes. Partial
All of that pre-work has been done over the last sort of 90 days. It's only in the last couple of weeks that we have now started mounting these pilots, so very early to comment on the outcomes of the same. I think, when we meet next time, we would have more structured learnings that we will be able to share with you.

Indicates that the turnaround for Mamaearth is still in early stages of execution and results are not yet visible.

Asked by Mehul Desai

Q4 A&P spends and EBITDA margin outlook. Direct
So Mehul, in Q4 specifically, because we are doing a lot of experimentation and these experimentation will involve some wastages because that's what you're trying to check what does not work and what works. So in Q4, we do expect the marketing spends to be higher and more aggressive. And then Q1 onwards, they will again start to normalize.

Signals potential short-term margin pressure in Q4 FY25 due to increased marketing investments for experimentation.

Asked by Mehul Desai

Mamaearth's YoY performance and channel trends. Direct
Yes, Percy, it's in the same ballpark because no different actions were taken in Q3. Q3 was a time when we understood and analyzed both from a consumer and our internal investment perspective what was happening and what was going wrong, based on which the pilots and the revised strategies have been built into Q4 where we are testing some of those to understand what to scale. And hence after Q4 and Q1 is when we will be able to sort of, we believe we'll be able to come back on a sustainable sort of trajectory based on the refined playbooks that we learn from this. So Q3 is very much similar to H1...

Confirms Mamaearth's continued underperformance in Q3, similar to previous quarters, reinforcing the need for ongoing strategic changes.

Asked by Percy Panthaki

Distributor days and inventory levels. Direct
It has gone down. It is now in the range of anywhere between 30 to 40 days.

Indicates improved inventory management and faster stock rotation in the distribution channel, a positive operational sign.

Asked by Percy Panthaki

Long-term revenue and margin aspirations. Direct
And our towards the end of the decade, we would like the company to be more than INR 4,000 crores in revenue.

Provides clear long-term financial targets for investors, outlining the company's strategic vision.

Asked by Mudit M.

Gross margin expansion levers. Direct
So it is actually largely the brand mix change, right? Because the younger brands is -- which are growing faster also have a better gross margin given we are focused in skin care category. So that's the largest lever of gross margin expansion.

Explains the driver behind the gross margin improvement, highlighting the success of higher-margin younger brands.

Asked by Pooja Kubadia

2 min read 5 chapters

Detailed narrative

Strategic Focus on Younger Brands and Quick Commerce

Honasa Consumer's non-Mamaearth brands demonstrated solid growth, expanding by over 30% year-to-date. These younger brands now contribute more than 40% of the company's total revenue, up from 35% last year. Quick commerce has emerged as the fastest-growing channel, increasing its contribution to the business from 4-5% to 7-8% this quarter, with the company aiming for its quick commerce market share to surpass its e-commerce market share.

Mamaearth Turnaround Efforts Underway

The flagship Mamaearth brand continued to experience a decline in Q3 FY25, similar to its performance in the first half of the fiscal year. Management has initiated significant internal transitions focused on product, messaging, and media mix, with pre-work completed over the last 90 days. Pilots for these new strategies have recently commenced in Q4 FY25, and the company expects to gain structured learnings and see the brand return to growth levels after Q4 FY25 and Q1 FY26.

Distribution System Overhaul and Inventory Management

The company is actively scaling up its new distribution system, having completed over 85% of the inventory correction in the distribution channel in the previous quarter. In the last 6-7 months, over 150 Tier 1 distributors have been appointed in the top 50 cities, with over 80% being new partners. Distributor days have reduced to a range of 30-40 days, indicating improved inventory rotation. The full effect of this distribution transition is expected to materialize over the next couple of quarters, leading to a recovery in the general trade system.

Margin Dynamics and Long-Term Profitability Targets

Gross margins expanded this quarter, primarily driven by a favorable brand mix as faster-growing younger brands, particularly in the skincare category, carry better gross margins. The company reported an EBITDA margin of 5% for the quarter. While Q4 FY25 is expected to see higher and more aggressive A&P spends due to experimentation, margins are projected to normalize from Q1 FY26. Management aims to return to FY24 EBITDA margin levels by FY26 and achieve double-digit margins with over INR 4,000 crores in revenue by the end of the decade.

Urban Market Focus and Rural Outlook

Honasa Consumer remains predominantly an urban-focused business, with over 80% of its sales originating from the top 100-200 cities. While acknowledging a general slowdown in urban markets, management emphasized that internal transitions and share gain are their primary focus, rather than attributing performance solely to external demand. The company does not have significant exposure to rural markets and therefore cannot comment on rural sales trends or demand from deep pin codes.

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