Shares of Honasa Consumer, the parent company of popular direct-to-consumer (D2C) brands, experienced a dramatic 20% intra-day drop on November 18, slipping below the company’s IPO price of ₹324 per share. This decline followed a disappointing earnings report for the July-September quarter, marking the first quarterly loss in five quarters.
For the second quarter of FY25, Honasa Consumer reported a net loss of ₹19 crore, a stark contrast to the ₹29 crore profit recorded in the same period last year. Revenue also fell by 7% year-on-year, declining from ₹496 crore to ₹462 crore. The company’s expenses surged by 9% compared to the previous year, though sequentially, total costs showed a slight decrease at ₹506 crore.
The underwhelming performance was attributed to the company’s transition to a more robust D2C distribution model under its Project ‘Neev.’ While the strategy aims to optimize operations in the long term, the immediate need for inventory corrections and restructuring has weighed heavily on short-term financials.
The weak results have led to divergent views among market analysts. Some brokerages have revised their ratings and price targets significantly downward.
Downgrades and Caution: Emkay Global downgraded the stock to a ‘sell’ rating, reducing its price target from ₹600 to ₹300. It cited disappointing growth commentary and predicted a challenging FY25, with the business expected to stabilize only by FY26.
Optimism Amid Challenges: Jefferies, while maintaining a ‘buy’ rating, also reduced its target price to ₹425 per share. The brokerage expressed concerns over the disappointing earnings but expressed confidence in the company’s leadership to navigate the downturn, emphasizing that setbacks like this are not uncommon for start-ups in transition.
Market Reaction and Liquidity Concerns
The sharp decline in Honasa Consumer’s stock price triggered its 20% lower circuit limit on the National Stock Exchange during the morning session. The stock closed at ₹297.25, with limited liquidity causing further concerns for investors looking to exit their positions.
Strategic Transition and Future Outlook
Honasa Consumer’s ongoing shift to a D2C model through Project ‘Neev’ is seen as a transformative initiative aimed at bolstering long-term growth. However, the immediate challenges associated with inventory management and restructuring have created headwinds for the company’s financial performance.
Despite the current downturn, the company’s leadership remains optimistic about regaining its footing. Investors and analysts alike will closely monitor upcoming quarters to assess the effectiveness of the new strategy and its impact on the company’s recovery.
The Road Ahead
The sharp fall in Honasa Consumer’s stock reflects growing investor concerns about the near-term challenges posed by strategic shifts and market dynamics. While the company’s innovative model has potential for long-term gains, its ability to navigate this period of turbulence will be critical in restoring investor confidence and stabilizing its market position.