Honasa Consumer Ltd, the parent company of Mamaearth, rebounded from its record low and ended 5.7 percent higher in volatile trade, after Jefferies India initiated coverage with a high conviction buy rating on the stock and increased its target price.
The stock ended at Rs 319.50 a share, up 5.7 percent from its previous close. It hit a high of Rs 329 a share and gained as much as 8.88 percent in intraday. Earlier in the morning, the stock had plunged as much as 15 percent to hit a fresh record low of Rs 256.10 a share. The stock is still down 1.4 percent from its issue price of Rs 324 a share.
The target price is set at Rs 520 per share. Jefferies predicts 27% growth in the next three years. Key risks cited by the brokerage includes tough competition, M&A, and slow brand expansion. BPC segment to grow double digits, online sales stable, it added.
Honasa Consumer's brand portfolio reached Rs 1,200 crore in FY23, making it a top BPC brand in India. Other brands like The DermaCo and Aqualogica are doing well, while Ayuga BBlunt and Dr Sheth are just starting, said Jefferies.
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Jefferies said Honasa Consumer stands out with emerging trends, yielding 25-50 percent annual revenue from new products and a millennial-focused approach emphasizing content and community. Offline offers higher margins compared to online, with brands in 150k general trade outlets and 31 merchandise trade chains.
The stock has been on a continuous decline since its listing on November 7. Several analysts have advised avoiding the IPO, citing aggressive pricing. It raised around Rs 1,700 crore via IPO.
The company reported a net loss of Rs 150.9 crore during the year ended March 2023, impacted by the impairment loss on goodwill and other intangible assets, against a profit of Rs 14.4 crore in the previous year.
The volume growth fell significantly to 68.23 percent in FY23 from 143.3 percent in FY22 and 298.42 percent in FY21. However, revenue from operations grew at a CAGR of 80.14 percent during FY21-FY23.
Analysts noted that Honasa has built consumer trust and brand resonance, exemplified by Mamaearth's rapid rise in India's DTC BPC sector in just six years. With a solid gross margin of over 70 percent and an asset-light model, the company has shown remarkable growth in the past five years. However, while achieving profitability, concerns remain about sustaining earnings growth and strengthening the bottom line.
"Based on its annualized FY24 EPS, the IPO appears to be aggressively priced at 97x, discounting all immediate positive factors and seems like the company is leveraging its proven track record to justify a premium valuation. We, therefore, recommend an “AVOID” rating for the issue and would revisit the company following consistent and sustainable improvement in profitability", said BP Wealth in its note.
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