Face wash to oral care: Mamaearth parent's new growth path post profit surge

Bengaluru: Honasa Consumer Limited, the parent company of Mamaearth, The Derma Co and Aqualogica, plans to deepen its focus on new categories such as oral care and premium skincare after reporting a profit after tax of ₹39 crore in the September quarter, compared with a loss of ₹18.5 crore a year earlier, its founder and chief executive officer Varun Alagh said on Wednesday.

The beauty and personal care company has acquired a minority stake for ₹10 crore in oral care brand Fang Oral (operated by Couch Commerce Pvt Ltd) to expand its presence in the category with teeth-whitening and electric-toothbrush products, it said in a filing with the stock exchanges. The move is aimed at capturing the growing demand for premium offerings.

“We’re seeing the rise of oral beauty is already happening and could start taking shape in India in the next decade. There is a lot of premiumization potential in this category. Within the beauty and personal care landscape, this can be a $700 million opportunity,” Alagh told analysts in the September quarter earnings call.

The firm’s operating revenue in the September quarter rose to ₹538 crore, up nearly 17% from the same period last year. While its net profit grew year-on-year, it fell sequentially from ₹41 crore in the June quarter, weighed by increased expenses.

The firm also notified a revenue recognition change on Wednesday, triggered by a shift in seller invoicing structure by the Flipkart Group, which runs its e-commerce marketplace. Flipkart now deducts logistics and fulfillment costs from the revenue, instead of stating it under a separate subhead, resulting in lower revenue in the books of sellers. However, the change has no material impact on Honasa’s bottom line, Alagh said.

Honasa’s steady quarterly performance comes as a breather for the direct-to-consumer brand, as it recovers from the cost impact of its offline distribution shift as well as a larger slowdown in beauty and personal care consumption in the country.

The company’s shares closed 3.31% higher on Wednesday on the NSE to settle at ₹283.95 apiece. The results were announced after market hours.

Project Neev shapes up

In the third quarter of FY24, Honasa moved to a direct distribution model titled Project Neev in the top 100 cities, phasing out its previous reliance on super stockists, to enhance efficiency and quality. While the transition was aimed at bolstering long-term margins and streamlining operations, it dented the firm’s revenue in the subsequent quarters.

However, the transition is nearly complete with more than 80% of the firm’s distribution now being handled by its network of direct distributors, according to Alagh.

“This time last year, the contribution from super-stockists accounted for two-thirds of our offline distribution. However, more than 80% of our distribution came from direct distributors last quarter. The change was hard but necessary and forms the foundation of the future growth of our various brands,” Alagh noted.

Core categories

Honasa’s core categories — including face washes, sunscreen, moisturizer, and shampoo — now account for 75% of its overall revenues, up from 70% last year. Revenue from its four young brands – Bblunt, Aqualogica, Dr Sheth’s, and Staze – grew 20% year-on-year in the September quarter.

It will now sharpen its focus on premium and prestige categories in skincare to increase market share and brand loyalty. “We will continue to focus on core categories to find avenues for revenue growth and grow market share using innovation,” Alagh said.

Last week, the company rolled out a prestige night skincare brand Luminéve in a partnership with beauty retailer Nykaa, focusing on active ingredients such as collagen, peptides, and niacinamide. While the segment is still nascent, Alagh believes the prestige skincare market holds the potential to touch $4 billion in the next few years.

“It [Luminéve] is still a young brand and is currently in the build phase. We see a decadent opportunity to grow the segment,” Alagh said.

Quick commerce, which now accounts for nearly 10% of its overall revenue, has helped the consumer goods company increase sales amid rising competition in the beauty and personal care segment, according to Alagh.