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Earnings Call: Mamaearth’s parent company sees 53% rise in earnings

Honasa Consumer Limited, the parent company of Mamaearth, conducted its first earnings call in November 22, 2023, displaying a 53 percent year-on-year rise in EBITDA.

Mamaearth’s parent company Honasa Consumer Limited conducted its first earnings call on November 22, 2023. During this call, the company revealed that its earnings before interest, taxes, depreciation, and amortization (EBITDA) have seen a 53% year-on-year growth going from Rs. 26 crore in the second quarter of 2023 (Q2FY23) to Rs.40  crore in the second quarter of 2024 (Q2FY24). 

The company also saw a surge in profit after tax going from Rs 15 crore in Q2FY23 to Rs 29 crore in Q2FY24. “Our growth is actually driven by volume, whereas compared to the industry growth, which is largely driven by price,” Varun Alagh the chief executive officer (CEO) of Honasa explained. 

Reasons behind the rise in EBITDA:

Alagh explained that the company’s EBITDA had doubled because of leverage in marketing and advertising expenses. “As our brands grow, as they improve in their awareness, the marketing bucket becomes more of a value number, and in terms of percentage continues to go down, which is where we’re seeing a lot of leverage coming in,” he said, explaining that as the brands become more recognizable the marketing expenses are paying off and leading to higher EBITDA. The company has increased its advertising expenditure going from Rs. 143 crore in Q2FY23 to Rs. 174 crore Q2FY24. The advertising expenditure on Mamaearth is, “almost 500 basis points (one-hundredth of 1 percentage point) lower than the average company,” Alagh said, shedding light on how advertising expenses are spread out between the various companies that make up Honasa.

Alagh further attributed higher EBITDA to leverage in employee benefit costs and operational expenses. Employee benefit costs for the company have fallen going from Rs. 39 crore in Q2FY23 to Rs. 37 crore in Q2FY24. 

Sustainability of EBITDA margins:

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The company had an 8% EBITDA margin in Q2FY 24, it also shared its EBITDA margin for the half-year that ended on September 30, 2023, which was 7.2%. When asked whether these margins are sustainable, the company said that its half-year margins are more sustainable compared to Q2FY24. “In Q2, we have a one-off ESOP [Employee Stock Ownership Plan] reversal on account of scaling down of operations of Momspresso,” Honasa’s chief financial officer Ramanpreet Sohi said adding that this had an impact of 50 basis points on the half-year EBITDA margins, excluding which gives a more balanced view of Honasa’s EBITDA margins. ESOP reversal refers to a one-time adjustment or correction made in the accounting treatment of Employee Stock Ownership Plans. Honasa mentioned an ESOP reversal of Rs. 4.7 crore on account of Momspresso in its earnings call. 

Channel-wise performance of Honasa’s products: 

Honasa Consumer Limited is made up of a range of brands— Mamaearth, The Derma Co, Aqualogica, BBlunt, Dr. Sheth’s, and Ayuga. The company revealed that 60% of its business comes from the online segment and 35% comes from offline. “Offline continues to drive growth for larger, more mature brands like Mamaearth, while online is driving growth for younger brands, which are The Derma Co, Aqualogica, etc,” Alagh explained. 

He mentioned that as of this quarter, Honasa’s products are available in 165,000 outlets, a 47% increase in distribution. With regard to the company’s performance on online channels, Alagh highlighted that the quick commerce segment (which includes platforms like Swiggy Instamart and BigBasket) has seen a 100% year-on-year growth. 

Key priority areas of the company in the future:

“The first priority area is going to be brand-building,” Alagh said when asked what Honasa will invest in the next 3-5 years. “ I think, we’ll selectively look at either new geographies or newer category acquisition opportunities that come our way over the next three years to five years, which also potentially could be an area of investment,” he added.

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Impact of pricing deterioration:

An analyst with Nuvama Institutional Equities highlighted that Honasa has seen a 6-7% decline in pricing and asked which categories are seeing this decline. Alagh believed that this question stemmed from the fact that the volume of sales was growing faster than the actual value of sales. “it’s actually not because of price deterioration, but it is because of the channel mix change,” he said. Alagh explained that business-to-business (B2B) channels are contributing more to sales for Hosana compared to business-to-customer (B2C) channels, adding that B2B channels typically have lower per unit realization compared to B2C channels.  

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