Mamaearth's Impressive Q2 Drives 20% Surge in Shares

Mamaearth's shares surged by 20% in early Thursday trade following the release of its Q2 financial results for September 2023. The parent company, Honasa Consumer, reported a net profit of ₹30 crore, doubling from the same period last year. Revenue from operations witnessed a robust 21% growth, reaching ₹496 crore. Honasa Consumer shares, which debuted on November 7, initially saw a flat listing at ₹330, a 2% premium over the issue price of ₹324. Despite a brief dip in shares ahead of the Q2 results announcement, the stock rebounded on Thursday, reaching a fresh high.

Financial Highlights:

•    The revenue of the D2C unicorn surged by 33% during the initial half of FY24, outpacing the median growth of the fast-moving consumer goods (FMCG) industry, which was recorded at 9%.
•    Offline distribution surged by 47% YoY to 1,65,937 outlets.
•    Q2 EBITDA witnessed a 53% YoY growth to ₹40 crore.
•    EBITDA margin expanded by 170 bps YoY to 8.1%, reaching its highest ever.

Advertising Strategy

Being a digital-first consumer brand, Mamaearth allocates a significant portion of its budget to advertising. In Q2, ad costs rose by 22% to ₹174 crore. With plans to spend ₹182 crore of IPO proceeds on ads over the next four years, the focus is primarily on television campaigns, constituting ₹150 crore.

Besides its online presence, the company has also expanded its products into physical stores. According to NielsenIQ, Honasa Consumer's brands were sold in 165,937 retail outlets as of September 2023, showing a  47% increase in offline distribution compared to the previous year.

IPO Performance

Mamaearth's IPO, oversubscribed by 7.6 times, garnered bids worth ₹7,130 crore. The company, valued at around $1.25 billion in the IPO, demonstrated resilience amid market fluctuations and controversies regarding its valuation earlier in the year.

Founded in 2016 by former Hindustan Unilever executive Varun Alagh and his wife Ghazal, Honasa Consumer positions itself as India's largest digital-first Beauty and Personal Care (BPC) company. The diversified portfolio of six brands caters to a wide range of consumer needs.

Analyst Perspective

Jefferies, a foreign brokerage, reported Honasa Consumer's strong Q2 performance, emphasizing both top-line and margin growth. Despite a growth deceleration from Q1, attributed to an ERP changeover, the H1FY24 growth of over 35% reflects the company's true potential. Jefferies reiterated a 'Buy' call, upgrading FY24-26 Ebitda and EPS estimates by 5-6% and raising the target price to ₹530 per share.

Final Words

Mamaearth's stellar Q2 performance, robust financials, and strategic expansion efforts position it as a key player in the competitive FMCG landscape. The positive market response and analyst endorsements highlight the company's potential for sustained growth in the coming quarters.