Honasa Consumer shares climb 5% as Jefferies raises target price after Q2 show. Why is the brokerage bullish?

Shares of Mamaearth parent Honasa rallied as much as 5% to their day’s low of Rs 494 on the BSE on Monday after the company reported a strong set of earnings for the second quarter of FY27. The company reported an 86.7% year-on-year (YoY) rise in consolidated net profit to Rs 73.25 crore for the September quarter on Friday, November 6, supported by strong demand across its beauty and personal care brands, wider distribution and improving profitability.Revenue from operations increased 35.9% to Rs 731.19 crore from Rs 538.06 crore a year earlier, marking the company's highest quarterly revenue growth since its stock market listing in November 2023.Red More: Samvat 2083 outlook: 8 triggers that could turn Sensex, Nifty correction into a rally by next DiwaliVarun Alagh, chairman, CEO and co-founder of Honasa Consumer, said the September quarter reflected the company's efforts to build a larger presence in the sector. "We delivered our highest growth since listing, with revenue growing 36% YoY and EBITDA nearly doubling to Rs 93 crore," Alagh said.Why is Jefferies bullish?Jefferies has raised its target price on Honasa Consumer to Rs 700 from its previous level, indicating an upside potential of 45%, while maintaining its 'Buy' rating.The brokerage said the company delivered its strongest growth since listing, supported by broad-based momentum across brands and sales channels. The strong performance also translated into a significant margin beat, with both EBITDA and net profit doubling year-on-year. Mamaearth recorded high-teen growth, while The Derma Co (TDC) and newer brands continued to scale up rapidly. Expanding distribution is also providing greater visibility into the growth potential of newer brands.Despite elevated input cost inflation, gross margin contracted by only around 55 basis points year-on-year. EBITDA margin expanded by more than 3.8 percentage points to 12.7%, comfortably exceeding expectations.Jefferies attributed the improvement to operating leverage, a better channel mix and greater advertising and promotion (A&P) efficiency in core brands. Overall A&P spending increased 36% year-on-year, broadly in line with revenue growth, with a significantly higher allocation towards newer brands. Lower sales commissions following the shift towards offline channels and quick commerce also supported operational efficiency.Read More: Finolex Cables shares fall 5% after rallying 20% during Muhurat Trading session. More upside ahead?Jefferies remains confident that Honasa can sustain its current margin trajectory of 12.5% in the second half of the financial year. The company has also retained its guidance of 100-150 basis points of annual margin expansion over the next five years, targeting a 15% margin by FY30.Innovation and renovation will remain key focus areas as the company continues to develop products for younger consumers. Honasa is also planning to expand its presence in the hair colour category through another brand, with an announcement expected soon.Taking into account the stronger performance, Jefferies has raised its earnings estimates by 10-16%.Honasa Q2 highlightsHonasa continued to expand its offline retail network during the quarter, particularly across general trade outlets such as neighbourhood stores. Its general trade distribution network reached approximately 3.2 lakh outlets, supported by efforts to increase product availability across markets.The company also reported more than 40% YoY growth in offtake through modern trade channels, which include supermarkets and organised retail chains. The stronger offline performance is significant for Honasa, which initially built its business around digital-first beauty and personal care brands.Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here