Shares of Honasa Consumer extended their gaining streak with an over 7% rally a day after hitting the 10% upper circuit, following a drop below the IPO price earlier this month as investors seem to be scouting for bargains in broader markets.
It remains to be seen if the share's rebound from the recent lows is sustainable, given the concerns around growth slowdown in the consumption space. The sharp rally in Honasa shares follows a period of 40% fall in a month and over 50% correction in last three months. The rise seen in trade on November 29 is backed by strong volumes that are higher than the one-month average.
Honasa's market capitalisation continues to reel under the $1 billion mark.
The company had posted its first quarterly loss since listing earlier this month, sending the shares below the IPO price of Rs 324 per share. The parent company of D2C brand Mamaearth had reported a loss of Rs 18.5 crore for the September quarter, a sharp decline from the Rs 40 crore profit recorded in the previous quarter. This was also 163 percent lower from a profit of Rs 29.4 crore in the year-ago period.
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Varun Alagh had acknowledged during the September quarter earnings call that the company needs a 'few strong tweaks' across the product mix, in terms of SKU sizing, need for sharper communication, and 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 had said.
"We do not need to get millions of stores right, we just need to get the 200,000 right. And which in my view, in a focused approach towards that 200,000 that we should be able to demonstrate and build..." Alagh had said during the earnings call.
The company also clarified that it was shifting from a super-stockist model to direct distributors in top 50 cities, which resulted in a hit on revenue and profit. "This realignment will strengthen offline go-to-market (GTM) strategy in the quarters ahead, setting the stage for our next phase of growth," Varun Alagh, chairman and CEO of Honasa Consumer had said during the latest earnings call.
In a separate development, the company elevated Vipul Maheshwari to lead the product and data analytics division, in an effort to focus more on data-driven innovation. On the appointment, Alagh said, "Vipul's expertise in turning complex data into actionable insights has been instrumental in our growth journey."
Mutual Funds had increased holdings in the company from 3.56% to 3.87% in the September quarter, with 19 MF schemes holding the company's shares. Foreign institutional investors had increased their holdings in the company from 13.95% to 19.31% in the September quarter.
The management had recently denied accusations by a distributors' association regarding unsold inventories and unsettled credit notes, and underscoring the shift to a single-layered distributor structure, and that concerns arising out of the transition have been addressed.
"We clearly realized that there were pockets of sub-distributors or in-market credits which we have not taken into account and given these are all full and final parting exercises and the impact has turned out to be higher than what we had imagined.." the company had said during the earnings call.
In a recent note, Emkay had downgraded the stock to 'Sell' after the earnings, adding that it sees the medium term outlook stressed. "We have conservatively cut our earnings expectations by 35% over FY25-27E, where we have cut topline expectations by 9-16% and reduced margin expectations given reduced operating leverage benefits," said Emkay.
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