The shares of Honasa Consumer, the parent company of popular brands like Mamaearth and The Derma Co, witnessed a sharp decline of 20%, touching a 52-week low. This plunge followed the company's disappointing Q2 results, which have raised questions among investors on whether this is an opportunity to invest in stocks or a signal to stay cautious.
Honasa Consumer posts first quarterly loss in five quarters
Honasa Consumer reported a consolidated loss of ₹18.57 crore for the quarter ending September 30, 2024, compared to a profit of ₹29.43 crore in the same period last year. The company attributed this loss to inventory adjustments, leading to concerns among market watchers and investors. Given the current performance, many are wondering if now is the right time to invest in stocks of this FMCG player.
Honasa’s shares have fallen below their IPO price of ₹324, opening at an intraday high of ₹319.95 and then dipping to a low of ₹295.80 on the BSE. This marks the first time in five quarters that the company has reported a loss, creating significant investor unease.
Revenue decline adds to investor concerns
In addition to its losses, Honasa Consumer also faced a decline in revenue. The company's revenue from operations dropped by 6.9% to ₹461.82 crore in Q2FY25, compared to the same figure in the corresponding period last year. Adjusting for inventory changes, the revenue stands at ₹525 crore, showing a growth rate of just 5.7%. This revenue dip has made potential investors hesitant to invest in stocks of the company.
The EBITDA margin for the September quarter also decreased by 6.6%, with an adjusted EBITDA margin of just 4.1%. Such figures indicate a challenging operational environment for Honasa, which could affect its long-term prospects and the willingness of investors to invest in stocks of this brand.
Mixed reactions from global brokerages
The financial downturn has led global brokerage firms to revise their ratings and price targets for Honasa Consumer. JPMorgan downgraded its rating to 'Underweight,' setting a new target price of ₹330 per share due to lowered revenue expectations and diminishing profit margins. On the other hand, Jefferies maintained its 'Buy' rating, though it adjusted its price target to ₹425 per share, signalling a more cautious outlook.
For those looking to invest in stocks, such mixed ratings could create confusion. The contrasting opinions from leading analysts highlight the potential risks and rewards of investing in Honasa Consumer, particularly as it navigates a challenging market environment.
What should investors consider?
With Honasa Consumer's share price currently at its lowest point in the last year, some investors may see this as a bargain to invest in stocks. However, given the company's recent financial struggles, it may be wise to proceed with caution. Analysts suggest monitoring upcoming quarters to see if the company’s strategic adjustments yield positive results.
For investors with a high-risk appetite, this could be an opportunity to invest in stocks at a lower entry point. However, for those prioritising stability, it might be advisable to wait until the company demonstrates a clearer path to profitability.
Invest in stocks
Honasa Consumer's steep 20% drop in share price, coupled with a weak Q2 performance, has certainly spooked investors. Whether or not this is the right time to invest in stocks of Honasa Consumer will depend on your investment strategy and risk tolerance. While some brokerages are still optimistic about the brand's long-term prospects, others are more cautious, reflecting the uncertainties ahead.
As always, before making any investment decisions, it’s crucial to do thorough research or consult a financial advisor to assess if this aligns with your portfolio strategy.
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