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Business News/ Companies / Company Results/  Mamaearth parent expects distribution strategy change to impact revenue in FY25
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Mamaearth parent expects distribution strategy change to impact revenue in FY25

The beauty and personal care brand posted a net profit of ₹30.4 crore in the March-ended quarter

Revenue from operations for the quarter of Honasa Consumer rose 21% to ₹450.8 crore amid slowing retail demand.Premium
Revenue from operations for the quarter of Honasa Consumer rose 21% to 450.8 crore amid slowing retail demand.

Honasa Consumer, the parent company behind popular brands like Mamaearth, Aqualogica, and Bblunt, is shifting gears in its distribution strategy. 

To enhance efficiency and quality, the company has moved to a direct distribution model in the top 50 cities, phasing out its previous reliance on super stockists. This transition, implemented last quarter and expected to slightly impact revenue in the short term, aims to bolster long-term margins and streamline operations.

"While we expect some impact over the next three quarters, it is the right move from a long-term perspective as super stockists add an extra cost in the distribution chain," chief executive Varun Alagh told analysts after the company's the fourth quarter results.

The omnichannel direct-to-consumer company’s new model, coupled with added technology support, affected primary sales by 200 basis points last quarter, and is anticipated to further decrease by 50-100 basis points over the next three quarters.

The transition will involve reducing inventory to accommodate the direct distribution model, Alagh noted.

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Despite these adjustments, Honasa posted decent financial results, recording a profit of 30.4 crore in the March-ended quarter, a significant recovery from a loss of nearly 160 crore in the same period last year. 

Revenue from operations surged 21% to 450.8 crore, even amid a slowdown in retail demand. For the full fiscal year 2024, Honasa reported a profit of 111.7 crore against a previous loss of 142.8 crore, with operating revenue rising 28% to 1,919.9 crore.

The company aims to grow at a compound annual growth rate (CAGR) of over 20% over the next three years. It said that it would like to improve margins this year compared to last year by at least 150 basis points in FY25.

99 price-point strategy

To capture the value-conscious consumer segment, Honasa plans to introduce products under its Mamaearth brand in the 99 category. However, the company has decided against entering the sachets market to maintain its aspirational brand image. 

"We will not enter the sachets category given that we have aspirational brands and we would like to maintain that. But, we want to get into smaller packs," Alagh explained. 

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This initiative is expected to boost the company's distribution in general trade.

Honasa aims to scale up its product line of shampoo and face washes in the 99 price point this year, and possibly look at lower priced categories next year.

Acquisitions and quick commerce

Honasa announced the acquisition of research and formulations firm Cosmogenesis Laboratories, set to close within the next four to six weeks. This acquisition is aimed at enhancing Honasa’s R&D capabilities, the firm said. 

Additionally, Honasa completed its acquisition of Fusion Cosmeceutics Pvt. Ltd., which sells skincare and beauty products under the brand Dr. Sheth's, by acquiring the remaining 34.51% stake for 30 crore.

Sales through quick commerce channels are outpacing other e-commerce platforms, with Alagh noting, "Quick commerce is growing very fast for us. In terms of contribution as a sum, it has already entered the top 5 among all channels. It is growing much faster relative to mainstream e-commerce channels and can be more profitable for us."

House-of-Brands strategy

Honasa’s skincare brand The Derma Co. achieved an annualized revenue rate of 500 crore in Q4, highlighting the company's focus on the house-of-brands strategy. The company projects Derma Co. to reach a 1,000 crore annualized revenue rate in the next three to five years, with emerging brands like Aqualogica and Dr. Sheth’s expected to hit 500 crore in the same timeframe.

Skincare remains the largest and fastest-growing segment for Honasa, contributing over 60% of the volume, with sunscreen products seeing significant growth. 

Alagh said that the company is aiming for double-digit growth for Mamaearth in FY25-FY26.

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ABOUT THE AUTHOR
Sowmya Ramasubramanian
Sowmya is a Senior Correspondent at Mint. An alumnus of Asian College of Journalism, Sowmya is deeply interested in covering sectors at the intersection of consumer and technology as well as healthcare and the venture capital ecosystem. Previously, Sowmya worked for the editorial team at YourStory. Her earlier stints include long form journalism at The Morning Context and technology reporting at The Hindu in Chennai.
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Published: 23 May 2024, 05:29 PM IST
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