Shares of Honasa Consumer, the parent company of beauty and personal care brand Mamaearth, fell below its IPO issue price, closing around Rs 225 apiece on Friday. 

Once a glowing unicorn trying to compete with legacy players like HUL, Marico, and ITC, Mamaearth’s parent Honasa was valued at Rs 10,425 crore or $ 1.25 billion at the upper band of its IPO. However, the omnichannel beauty and personal care player’s market capitalization currently stands at Rs 7308.5 crore. 

The decline in shares follows the company’s second-quarter earnings report, leading to a sharp drop in stock price.

Shares of Honasa Consumer plummeted below the company’s IPO issue price of Rs 324, after falling more than 20% on Monday, November 18. 

The stock hit a lower circuit limit on Monday , before recovering marginally from the sell-off. The stock closed at Rs225, showing slight recovery but still significantly lower than its IPO price of Rs 324.

What went wrong?

Things turned sour for the Varun and Ghazal Alagh-led company after it admitted to more than expected impact from its inventory correction project on its second quarter earnings. The company’s performance was heavily affected by Project Neev, a general trade distribution transition that was launched to improve margins. 

Under Project Neev, Honasa Consumer aimed to streamline its distribution network by removing the two-layered channel partner structure, which included super-stockists and sub-distributors in the top-50 cities. This transition was meant to simplify operations and improve efficiency by switching to a single-layered distributor structure.

So far, the company has successfully completed the transition in 70% of these cities, but the restructuring has contributed to operational disruptions and an inventory overhang, impacting its financial results. 

Project Neev, which is part of Honasa Consumer’s broader House of Brands strategy, aims to accelerate its omnichannel plans and streamline its distribution network. This shift would enable the brand to be closer to the consumer, allowing it to gather more accurate data on consumption behaviour and better understand product sales.

“The type of distribution system we have had, we have ended up carrying relatively higher inventory in the system compared to other industries, which does take investment from our distribution system into our inventory rather than in-market and in-market resources,” Varun Alagh, Co-founder and CEO, Honasa Consumer, had noted during the company’s first quarter earnings call. 

Inventory Correction goes south

The company had initially estimated that this would have an impact of around 150 basis points (bps) due to rightsizing on inventory. However, the number was much higher by the time the project was near completion. 

“The impact of the sales return and the inventory correction that has come through, which is higher than what we had imagined it to be because as we went into executing that, we clearly realised that there were pockets of sub-distributors or in-market credits which we had not taken into account and given these are all full and final parting exercises and the impact has turned out to be higher than what we had imagined it to be,” noted Varun Alagh in the company’s latest post earnings analyst call.

The company ended up taking a Rs 63 crore hit to its Q2 FY25 revenue due to the inventory correction. The losses from inventory correction further dragged the P&L down in red after the company’s previous profitable quarters. 

Honasa Consumer posted a loss of Rs 18.71 crore in the July-September 2024 quarter, a sharp decline from a profit of Rs 29.78 crore in the same period last year.

Moreover, on the flip side of its inventory correction, distributors are stuck with unsold inventory with looming expiry dates, according to media reports. 

In an exchange filing made on Monday, Honasa clarified that total inventory in its distribution value chain stood at Rs 40.69 crore, against the quoted figure of Rs 300 crore of near-expiry inventory by the All India Consumer Products Distributors Federation (AICPDF).

The company went on to further clarify that it has already received returns worth Rs 41.21 crore out of the total returns of Rs 63.52 crore. 

According to a report by The Ken, Mamaearth, in its bid to ramp up its offline play, focused only on primary sales, that is getting stock to distributors rather than creating a demand at the retail level. 

Demand concerns

Honasa Consumer’s flagship brand, Mamaearth, has also been a significant source of disappointment for investors. The demand for the brand has been muted as shifting consumer preferences and changing consumption patterns have impacted sales. 

By focusing on launching more SKUs to cater to a variety of consumers, Honasa spread itself too wide. 

“Most importantly, on investment allocation, I think our learning is that we have gone too wide and we need to narrow our focus onto a few categories and go deep within them with our hero SKUs,” Varun Alagh said during second quarter earnings.

He further flagged that the brand requires strong pivots across product mix and SKU sizing, along with a sharper communication. 

Changing consumer preferences 

There has been a growing traction for active ingredients-based products rather than natural ingredients. Active ingredients refer to chemical components like vitamin C, Hyaluronic acid, Salicylic acid, and others, which have become increasingly popular among consumers.

In contrast, Mamaearth’s core product range has largely been focused on natural ingredients such as onion extracts, beetroot, multani mitti, ubtan, etc. 

While this prompted Honasa to shift towards new-age active ingredient-based lines like The Derma Co, Aqualogica, and Dr. Sheths, these brands are still in their early stages, and it will take time for them to mature and gain significant market share.

The Derma Co is the only brand from its new age bets that has clocked Rs 500 crore annual run-rate in actives category during first quarter. 

“Younger brands like The Derma Co., Aqualogica, BBlunt, and Dr. Sheth’s achieved more than 30% growth in 1H along with improvement in margin profile (mgmt. expects TDC to deliver double-digit EBITDA in FY26) which is a key positive,” noted JM Financial in a post earnings note. 

While other beauty and personal care peers are optimistic about demand picking during the back half of the year, Honasa remains cautious due to concerns around muted consumer spending. Bigger giants like Hindustan Unilever Limited (HUL), ITC, and Nestle India also flagged impact from urban demand slowdown. 

What do experts think?

Just days after Honasa’s second-quarter earnings, Emkay Research downgraded the stock from Buy to Sell, cutting its target price in half to Rs 300 in its research report dated November 17. 

“Mamaearth is likely to see decline in FY25E (where online growth slumped and general trade in 30% of Top-50 cities await distribution) and aims to recover base in FY26E,” stated Emkay Global in the report. 

The brokerage slashed Honasa’s topline for FY25 by 9% citing it awaits “proof of execution as the management aims for a business turnaround.” 

While JM Financial reiterated its buy rating for the stock, it also reduced its price target by 22% to Rs 410 from Rs 530. 

“We like the management’s intent in terms of identifying execution gaps. However, given the tough environment and various pilots/transitions underway, the ramp up in offline channel will be gradual and take few quarters before reverting to normalised growths,” stated the report.

(Design and feature image: Nihar Apte)

Society for Innovation & Entrepreneurship (SINE), IIT Bombay’s technology business incubator, is set to expand its reach to 1,000 startups over the next 10 years, a big leap from the 245 it has nurtured over the past 20 years.

To fuel its ambitious growth, SINE is set to launch a Rs 100-crore venture capital fund targeting deeptech startups in key sectors such as biotech, space, defence, and sustainability. The fund is expected to receive backing from IIT Bombay alumni.

SINE has supported 245 startups with an impressive 80% survival rate, said the incubator in a press release.

“SINE has incubated startups that have generated over 300 intellectual properties across critical sectors like ICT, healthcare, cleantech and industrials. Several of these startups have grown into industry-leading companies,” said Santosh J. Gharpure, Professor-in-Charge, SINE.

SINE is known for producing startups such as Gupshup, IdeaForge, ImmunoACT, Zeus Numerix, Sedemac, Atomberg, and SAFE Security. It has also supported transformative ventures in areas such as clean energy, agritech, and mobility, with startups collectively raising $942 million and valued at $3.56 billion, the release said.

“To have a scale impact, India needs to go from 100 startups per million population to 1,000. By leading the way, SINE hopes to emerge as an innovation and entrepreneurship powerhouse focussed on democratising entrepreneurship and providing quality access to coaching, capital and connects to customers and the ecosystem,” said Shaji Varghese, CEO, SINE.

Celebrating its 20th anniversary, SINE will host ‘Innovation Nation: Leveraging India’s Talent and Entrepreneurial Spirit in the Era of Disruptive Technologies’ on November 28 and 29, featuring thought leaders and policymakers discussing India’s entrepreneurial potential.

Currently, SINE collaborates with central ministries and corporates across IT, aerospace, auto, and BFSI sectors, offering resources like prototype labs, funding access, and high-end facilities at IIT Bombay.

Its current startups, including Haystack Analytics (genomics), SustLabs (energy tech), and Inspecity (space tech), underline SINE’s commitment to fostering groundbreaking solutions for societal challenges.

“IIT Bombay has invested Rs 500 crore to create a world-class research facility, which will support R&D activities in emerging areas such as semiconductors, space, quantum computing, and electric mobility among others. This will create a strong pipeline for SINE in form of research ideas that have potential to become bankable ventures,” said Professor Milind Atrey, Deputy Director (Academics, Research and Translation), IIT Bombay.

Space tech firm AgniKul Cosmos reported a more than threefold increase in revenue in FY24 but its losses widened due to higher expenses.

The Chennai-based company reported Rs 9.3 crore in revenue for FY24, entirely from non-operating income, a 225.6% year-over-year (YoY) increase, according to its latest financial statements. It did not generate any operational revenue.

The space tech firm specialises in designing, developing, and testing hardware, such as propulsion systems and structures, and software for rapid sub-orbital, orbital, and deep-space launches of lightweight and heavy payloads or satellites.

Agnikul Cosmos, still in the pre-revenue stage, is focused on strengthening its technology infrastructure, expanding ground testing capabilities, and investing heavily in research and development—factors that continue to drive its financial losses.

Its loss widened 112.3% YoY to Rs 43 crore in FY24. It was driven by a 126.4% rise in expenses, totalling Rs 52.3 crore in FY24, as opposed to Rs 23.1 crore reported in FY23. 

The losses ballooned primarily due to higher spending on employee benefits—the firm’s largest expense—which rose to Rs 17.5 crore, a nearly 80% YoY increase. Furthermore, its spending on research development expenses amounted to Rs 12.9 crore in FY24.

Agnikul Cosmos was co-founded in 2017 by Srinath Ravichandran and Moin SPM. It has secured a total equity funding of $67 million, including a Series B round of $26.7 million in 2023.

The Chennai-based firm finds itself in a sweet spot. The spotlight is on India’s affordable space launches, and it is building on this legacy by demonstrating cost-effective launches using 3D-printed rocket engines. Its Agnilet engine, first test-fired in 2021, is the world’s first single-piece 3D-printed semi-cryogenic rocket engine.

After four failed attempts, the space tech startup made history on May 30, 2024, with a triumphant sub-orbital test flight of its launch vehicle, Agnibaan SOrTeD (SubOrbital Technological Demonstrator), powered by seven Agnilet engines. It became only the second private space tech firm to achieve rocket launch success after Skyroot Aerospace’s groundbreaking Vikram S rocket launch in November 2022.

The Indian Space Research Organisation (ISRO) is playing an active role in the growth of startups in the space economy, including Agnikul Cosmos, Skyroot Aerospace, Pixxel, Dhruva Space, and Bellatrix Aerospace.

Last month, the Union Cabinet approved a Rs 1,000-crore venture capital fund for the space tech sector under the aegis of IN-SPACe.