Honasa Consumer Limited, the parent company of D2C brand Mamaearth, on November 14 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 down by 163 percent from a profit of Rs 29.4 crore in the year-ago period. The firm's EBITDA margin slipped to negative at 6.6 percent compared to 8.1 percent in Q1.
The downturn has been attributed to the company’s ongoing transition to a direct-to-consumer (D2C) distribution model as part of its Project 'Neev', which has necessitated inventory corrections.
The company’s revenue dipped to Rs 461.8 crore, down from Rs 554 crore in June and from Rs 496 crore in the same period last year. The total expenses surged 9 percent YoY but were down sequentially at Rs 506 crore.
"Over the past few months, we've been implementing Project Neev to optimise our distribution model. In this quarter, we have taken strategic steps towards transitioning from super-stockists to direct distributors in top 50 cities. This transition has impacted our revenue and profits, leading to a slowdown for Mamaearth," Honasa Consumer chairman and CEO Varun Alagh said.
"However, this realignment will also strengthen offline go-to-market (GTM) strategy in the quarters ahead, setting the stage for our next phase of growth. For us, strengthening our offline GTM capabilities and bringing Mamaearth back on the strong growth trajectory are our top priorities."
As part of the Project Neev, Honasa is shifting from a super-stockist model to higher-quality, Tier 1 distributors. This restructuring resulted in a provision for sales returns of Rs 63.5 crore, along with an inventory adjustment of Rs 11.4 crore, according to the latest financials.
The company also made a provision of Rs 2.08 crore for doubtful debts during the quarter.
Mamaearth said to have been increasing its distribution by 25 percent YoY and has reached over 2.07 lakh FMCG retail outlets as of September 2024.
"Our House of Brands strategy continues to drive growth, with each of our emerging brands - The Derma Co., Aqualogica, BBlunt, and Dr. Sheth’s - achieving over 30% year-on-year growth in H1. In core categories like sunscreens, face washes, and serums, our growth in H1 is more than 28%," the co-founder said.
In a recent interview, CFO Ramanpreet Sohi had noted the drop in Q2 numbers as a "one-time correction" impacting the margins. "But it will be an exceptional one-time clean-up. We are hopeful about completing this in the next quarter. By Q3 onwards, we expect to see more streamlined inventory and normal profitable growth,” he said.
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