Honasa Consumer shares slip below IPO price after 20% fall on Q2 loss, downgrades

Shares of Honasa Consumer, parent of Mamaearth fell as much as 20% in Monday's trading session and have now slipped below their IPO price of ₹324, after the company reported its first quarterly loss in five quarters.

Out of the 12 analysts that have coverage on Honasa Consumer, eight of them have a 'Buy' rating, while two each have a 'Hold" and a 'Sell' recommendation.

Global brokerage firm JPMorgan has an 'Underweight' rating on Honasa Consumer and has reduced the price target to ₹330 per share.

Honasa delivered a weak Q2, with revenue dropping sharply by 7% year-on-year, resulting in an EBITDA loss of ₹30.7 crore and a PAT loss of ₹18.6 crore.

In addition to the impact of inventory correction, the management acknowledged a slowdown in the flagship Mamaearth brand's underlying growth, necessitating strategic actions to revive momentum in the coming quarters.

The foreign brokerage has sharply reduced FY25-26 earnings estimates due to lower revenue expectations and a weaker margin outlook.

Jefferies has maintained a 'Buy' rating on Honasa, but trimmed its price target to ₹425 per share.

While higher inventory correction and loss was disappointing, the founders' comment on reworking the playbook creates further uncertainty, the brokerage noted.

With polarised investor sentiment, skeptics anticipated this outcome, while supporters are now disappointed, Jefferies said.

The brokerage also expects the stock to remain under pressure, and holders looking to exit could face challenges next week due to low liquidity.

"We are disappointed too, but trust founders to get back on track," it said, adding that Honasa is not the only start-up to go through pain.

Emkay has downgraded Honasa Consumer to 'Sell' from its earlier rating of 'Buy', and also cut its price target by 50% to ₹300 from ₹600 earlier.

The brokerage cited that Honasa's Q2 print was weak and the ride ahead is bumpy. Emkay has 'conservatively' reduced its earnings expectations by 35% over FY25-27. It has cut its topline expectations by 9-16% and reduced margin expectations, given reduced operating leverage benefits.

Emkay said that it would await proof of execution, as the management aims for a business turnaround.

Shares of Honasa Consumer are locked in a 20% lower circuit at ₹297.25. The stock had declined 30% so far in 2024.