Jefferies initiates Mamaearth coverage with a 'high-conviction' buy, target price at Rs 520

Mamaearth co-founders Ghazal and Varun Alagh

Jefferies initiated a coverage on Honasa Consumer, parent of the Mamaearth brand. The foreign brokerage firm has initated a high-conviction 'buy' on the stock. The target price is set at Rs 520 per share.

Jefferies sees a growth at 27 percent over the next three years. Key risks for the company include excessive competition including leading FMCG companies, aggressive mergers and acquisitions, and lack of scale-up in the newer brands.

Jefferies said that the company's beauty and personal care (BPC) segment  is likely to grow in double digits, with steady gains expected for online channel.

The brokerage firm said that Honasa Consumer has managed to create a house of brand architecture with six brands portfolios it had revenues of Rs 1200 crore in FY23, which puts it in the league of top BPC brands in India. Other Honasa Consumer brands like The DermaCo, Aqualogica have gained respectable scale, while Ayuga BBlunt, and Dr Sheth are at a nascent stage, said Jefferies.

Jefferies believes that emerging trends have been a key differentiator for Honasa Consumer as compared to FMCG players. “About 25-50 percent of incremental revenue each year has come from new products, as Honasa has gained an early mover advantage in several products,” said the brokerage firm.  Honasa also uses a millennial-focused model, characterized by its focus on content and  community, said Jefferies.

Jefferies says that offline is a higher margin channel versus online for Honasa Consumer. Brands of the company are already present in 150 thousand general trade outlets and  31 merchandise trade chains.

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