Buy Honasa Consumer Ltd for the Target Rs 550 by Emkay Global Financial Services Ltd
Honasa’s 1QFY27 results exceeded expectations, led by strong margins. Revenue growth remained strong at 27% yoy and was 3% above consensus’ expectations. EBITDA more than doubled yoy (~30% beat), with EBITDA margin expansion of >500bps (ex one-offs) on the back of a better mix and seasonality. Revenue growth was led by Honasa’s two main brands—Mamaearth (strong double-digit growth in both online and offline) and The Derma Co (reached NSV ARR of Rs10bn, a strong feat). Other younger brands also continued to grow strongly, at >40%, which is encouraging. Honasa logged total outlet-count of ~300k, as of Jun-26, and reported strong double-digit growth across all channels. It entered the fast-growing fragrance category with the launch of its FIKN brand. Going forward, we expect the growth rate to remain strong (>20% yoy in FY27E) led by low-double digit growth in Mamaearth and >20% growth in The Derma Co. We expect the margin expansion to continue (+330bps over next three years) mainly on the back of operating leverage. We raise our earnings estimates by 9-13% over the next three years, mainly led by higher margins. Overall, we expect sales/earnings CAGR of 17/25% during FY26-29E. We reiterate BUY, while revising up our TP by 10% to Rs550 from Rs500 (50x Jun-28E EPS), as we expect the strong growth momentum to continue, led by turnaround in the offline channel.
1QFY27 results summary
Revenue grew 27% yoy (32% LTL) led by ~31% volume growth and was 2-3% above our and consensus’ estimates. Gross margin declined by ~150bps yoy to 69.7% (-60bps qoq) due to higher packaging costs. EBITDA grew 141% yoy and was 25-30% above our and consensus’ estimates, with EBITDA margin at 14.6% expanding by ~690bps yoy on the back of operating leverage, further aided by mix improvement (including seasonal benefit). Adj EBITDA margin was 12.5%, which excludes the ~150bps impact of ESOP reversal in payroll cost. PAT grew 118% yoy, at 31% above our and consensus’ estimates
Key takeaways from the earnings call
Honasa targets high-teens 5-year growth (double-digit for Mamaearth), prioritizing topline expansion over margins. Management targets 15% EBITDA margin over five years, with 100–150bps annual expansion.
1) Focus categories drive ~85% of sales, funding younger brands and BBlunt/Dr Sheth’s 6–9 month refinement.
2) Mamaearth hero lines thrive (Rosemary shampoo ARR: >Rs1bn) as GT direct reach narrows to ~100 focus areas.
3) The Derma Co hit the Rs10bn ARR mark (80% online), BTM ARR reached Rs1.5bn, and Aqualogica gained Gen-Z traction (~45% cohorts).
4) Offline share grew (face wash up 350bps; shampoo up 160bps) with <30 days distributor inventory.
5) QC growth is brand-led via search velocity.
6) Flipkart impacts normalize in 2Q, with 1Q price hikes offsetting the 2Q inflation.
7) FIKN enters fine fragrances after 1.5 years of R&D (replacing Mamaearth's failed attempt).
8) Honasa Health targets a decadal nutrition opportunity via organic R&D and selective M&A.
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