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Honasa, in a journey to gain scale in the Indian Beauty market, has built ‘The Derma Co’ — their second profitable brand, with ARR of Rs5bn+. The Derma Co, launched in 2020, offers science-backed products powered by active ingredients. It leads the market, sized at Rs20bn, with ~20% share. As the trend of products with active ingredients spreads, we see large traditional category incumbents joining in, further increasing the TAM. We also expect innovations extending actives from face care currently to others, like hair and color cosmetics. With enhanced execution, the brand used Mamaearth’s playbook to not only scale fast, but profitably too. We expect the brand to see 50% revenue CAGR over FY23-26E, with steady improvement in profitability. Maintain BUY with Mar-25E TP of Rs500/share, based on 6x EV/sales.

The Derma Co is a Rs5bn ARR brand, developing the active ingredients space

After building a sizable ingredients-based, toxin-free Mamaearth brand, Honasa Consumer has been quick to build an active ingredient-backed skincare brand – The Derma Co, which has achieved the feat of Rs5bn annual revenue run rate (ARR), based on net sales realization. Active ingredients-based personal care products have gained relevance in the Western world, but Indian consumers lag in adoption. Unlike expectations of mainstream brands building a portfolio and driving active ingredient trends in India, players like Honasa and Beminimalist are leading the march.

Active ingredient-based market to see a steady expansion in India

We estimate at ~Rs20bn the size of the active ingredient-based skin care products segment (fastest growing BPC segment, though on a low base), where Honasa Consumer under the brand ‘The Derma Co’ has a leadership position with ~20% share. Minimalist is the second player in the category and continues to drive the active ingredient trends. Looking at the success of the first two brands, now global players like Unilever and Loreal are launching their active ingredient-based products, under base brand offerings (e.g. Lakme and Ponds seeing action from Unilever), which is likely to develop the market opportunity further. Additionally, we see opportunities in other personal care segments like hair care and color cosmetics. For The Derma Co, we expect an accelerated focus on offline channels, where the focus has been limited. For the brand, we assess hero products such as face serum, sunscreen, face wash, and moisturizers.

House of brands to address broader market prospects, BUY on execution

Honasa has created a playbook to help scale newer brands faster, which is likely to drive profitability in the business. The Derma Co is gaining scale fast with EBITDA margin in the low-single digits, unlike any other active brands. We do see some cannibalization, but active ingredient-based products are likely to enhance overall category consumption. We maintain a BUY recommendation and Mar-25E TP of Rs500/share at 6x EV/sales.

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