Why the share price of Honasa Consumer fell 20% today is explained

Honasa Consumer's share price took a significant hit on November 18, falling by 20% to Rs 297.25, hitting the lower circuit limit on the National Stock Exchange (NSE). The sharp decline followed the release of the company's Q2FY25 earnings report, which showed weaker-than-expected results and marked its first quarterly loss in five quarters. 

The company reported a loss of Rs 19 crore for the July-September quarter, a stark contrast to the profit of Rs 29 crore it posted during the same period last year. Revenues also declined by 7% year-on-year, dropping to Rs 462 crore, while total expenses surged by 9% YoY, reaching Rs 506 crore. 

Analysts have attributed the poor performance to Honasa Consumer's ongoing transition to a direct-to-consumer (D2C) model under Project ‘Neev.’ The transition has led to disruptions in inventory management, impacting the company's ability to meet demand efficiently.

In response to the disappointing results, multiple brokerages downgraded the stock. Emkay Global downgraded Honasa Consumer to a ‘sell’ from its previous ‘buy’ rating, slashing its target price from Rs 600 to Rs 300. The brokerage noted that the company’s growth outlook was significantly impacted by weak business performance and cautioned that Mamaearth, Honasa's flagship brand, may see a decline in FY25, with hopes for a recovery in FY26.

Jefferies, on the other hand, maintained a ‘buy’ rating but lowered its target price to Rs 425 per share. While acknowledging the struggles due to inventory corrections, Jefferies expressed confidence in the company's founders and their ability to steer the company back on track, recognizing that challenges are common for start-ups during periods of transition.

The stock's fall below its IPO price of Rs 324 has further dampened investor confidence, and with concerns about liquidity and ongoing operational challenges, analysts expect the stock to remain under pressure in the short term. The company's recovery will depend on stabilizing its operations and navigating the complexities of its evolving business model.