Honasa Consumer Limited (HONASA) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Honasa Consumer Limited Q2 FY27 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Pooja Kovadia from JM Financial. Thank you, and over to you.

Hello. Good evening, everybody, and welcome to the TQFI27 Earnings Conference call with Hodasa Consumer Limited.

From the management team, today we have Mr. Varun Alak, co-founder, chairman, and CEO, Ms. Gazal Alak, co-founder and chief innovation officer, and Mr. Ramanpreet Sohi, chief financial officer. We start the call with opening remarks from Mr. Varun, and then proceed with the Q&A session. Over to you, Mr. Hars.

Hi, thank you. Hi, good afternoon, everyone. Welcome to the quarterly call for ONASA consumers. It's been a very good quarter for the company. I'll take you through a few highlights, and then we will open the call for your questions, which we'd love to answer. To start off, I think one of the sections that we have been talking about for the last 10-hour quarter has been the section of iBeauty, and this quarter, I would like to bring your attention to the category of hair color. We find it to be a very interesting category because this is a category which is undergoing a transition. Hair color for the longest time in India has existed in the dye format. We have seen a very active transition, which is happening in this category, to CREM format, which is a longer-lasting, less damaging, more conditioning format that globally exists in size. In India, penetration of overall hair color and dye segment is actually very low compared to global hair. It is 5% plus. We're also a relatively younger population, but that's where the penetration of this category in India is not just growing for the aging population, but what we are clearly seeing is the category is growing also on the back of non-black colors, and hence a lot of styling colors is something that the category is shaping through. And we also have obviously an angle where consumers are specific. Thank you very much. This is our financial snapshot. Quarter 2 FY27 is the highest growth quarter since we have gone public in the last 12 quarters. While doubling our EBITDA and holding a solid 12.7% EBITDA profile, even with the We've been able to manage our gross margin profile at 70% by right time of cost management, as well as price increase measures that we've taken. Most of this growth, if you see, is driven by volume. Our UBG is at 31.2% and very strong cash generation, companies, all of us. of EBITDA improvement, as we have called out in the past, and we continue to see. The data on AVTA improvement is driven by two large components. One is ANP and mix efficiencies, where about 250 to 270 basis points data has come over last year. This has come on account of favorable, you know, mix towards more profitable channels like offline QC, etc. The main thing is ANP efficiency. Be it in our bigger brands like Marmot and Dermaco as well as in our younger brands, we consistently see them becoming more effective in terms of the amount of ANP needed for growth. And of course, operating leverages where we've seen about 110 to 140 basis points EBITDA getting unlocked. This is something which we had planned for, and we continue to see shipping in our PNL. Quality of this growth. We had clearly talked about almost six to seven quarters back when we had started executing the focus category as you know, that there is a bit of mathematics at play here, but there are certain focus categories, which at that point contributed to about 70% of our revenue. And they're going to grow faster. And the balance certainly are not sort of, you know, and that matters clearly as it is staying up. The quality of company's growth is also looking better. Now the focus category is contribute to 80% plus. Thank you. It's a fairly wide growth, e-commerce as well. We have a trajectory of growth, leading to the data that we have generated. MAMRT continues its high-team growth directory in Q2 as well. focusing on the right kind of media mix, focusing on the right kind of categories, as well as the product superiority is actually paid off. We have a lot of profit share gains as well, and 140 basis points gain in face wash, 50 basis points gain in shampoo, and these are the core categories that have been measured through Nielsen and Nielsen and Nielsen, and hence, consumer-love and consumer-love. We have also seen, along with it, our SAH, et cetera, going up, so we know there is more potential to gain share as we improve the solution. Thank you. All of these brands continue to demonstrate solid growth trajectory, adding to the top line. Dermaco, of course, our second thousand-gross brand continues its strong profitability. Now offline is also responding very well to the brand, Nielsen measured market share is already about 1.2% in face washes. Outlet reach has become 65,000. Mamer for your reference is at about 300,000. So good. And we continue to focus strongly on the brand. We know that this can become a very large organization. All of us continue to build these categories as well as scale some new categories that we run to. Offline momentum continues. Our new model, our sharper execution in GT, as well as our stronger distribution in MT, is clearly growing in terms of results. Our same stores are growing at almost a few... for partition additions within Mammoth, as well as Doboco are getting into these stores, right, and gaining the data. We are also deepening our outreach reach. Overall, now Mammoth is available at 26% YOY growth in terms of ND that we've been able to achieve, and 40% plus YOY off-take growth in modern trade, which has led to strong share gains as well, both in case for child and shampoo, or the... So overall, all the investments that you've done in structure and team are clearly paying off. And we continue to be an innovation powerhouse. We are understanding what J&Ds are looking for, what the new generation wants from our brands and innovative in line with that. We did a We have a new collaboration with which IOS and Opera. Thank you. We're focusing on curl care, which is a large partition that is getting developed right now, and so on and so forth. We continue to find newer avenues to excite the consumer and remain relevant to them as our brands grow. And while during innovation, we also continue to renovate our current products and strengthen them through product superiority before the winter season. We have worked on our moisturizers, where especially the rice moisturizers from Amar has come up as a strong winner versus competition in terms of likability and guide testing scores. We have got strong clinicals on our products in Dermaco as well as Acalogica. These are communications that we will take out to the consumer to show to them how our product works. And while doing all of this, we continue to contribute back to the communities that we operate in. Mammar continues to plant trees, Dermaco continues to add back to kids. We've learned to teach you more women around hair sizing and skills, right? And the doctorship is doing more health checks to his parents, right? And we recently also hope... For preschoolers, where we are helping communities get a better future by making a stronger foundation for them in the foundation years and providing better nutrition as possible. So with that, I would like to thank you for listening to us. We'll be more than delighted to answer any questions that you have for us.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take a first question from the line of Vidisha Sheet from Ambit Capital. Please go ahead.

Yeah, thanks. My first question was on the younger brand's portfolio. Excluding Dermaco, what would be the growth in the younger brand's portfolio? Because when I see the e-com channel, that is, the growth over there has been restricted to 20-odd percent. And I'm asking because the non-Mammoth and non-TBC is essentially 100% online. So what will lift the growth momentum here and what specifically are you doing on the channel and the four or five brands which exist in this space?

Hi, Vishal.

So, even excluding Dermaco, all the other younger brands are at 40% plus growth. So, quite healthy. We don't necessarily capture all the channel growths, right? There is, of course, D2C channels which the young brands grow on, which is captured and not in online.

Here, the growths at Vishwa are just for e-commerce channels.

And some of that might not be there, right? But excluding Dermaco also, the young grands are growing at 40.

Okay, got it. Second, in case of Mammoth, the base gets higher in the second half. So what gives you the confidence? If not high-teens, then mid-teens growth can hold up here, and how would you attribute that between growth from focus categories or from distribution gains and innovation?

So, honestly, our growth is coming because of the consumer love and franchise sort of getting stronger. These high-teens growths are actually equally there on both online and offline. It's not offline-driven growth only that we're seeing. And even e-commerce is growing in high-teens for the brand. So, that is one thing that gives us confidence. Second, of course, what gives us confidence is all the consumer measures that we are measuring, be it in terms of spontaneity, be it in terms of the brand affinity and brand power, which we showed last time as well, or in terms of the SAH, PDO, or the brand. All of them are in healthy spaces. In fact, SAH has gone up more than the market share, which is where there is more opportunity to enhance distribution as well as more stronger within the current store. The Nielsen measured inventory terms have also improved. So, stock prices have actually gone down further. So, even in our current stores, we need to focus more. And most of the delta honestly is right now coming from our current distribution universe, be it in e-commerce or in MTDT, and distribution delta is there, but that's not the driver which is the core driver. 80% of the growth delta is from current stores, which is what gives us even more confidence that this is new.

Got it. And just the last one, focus categories, you mentioned that the contribution has risen by 350, 400 odd basis points. So which of the six to seven odd focus categories are contributing most to the gain? Because the reason I ask this question is that in case of mama, the face wash and shampoo market shares are rising by, say, 100 or 50 odd basis points, respectively. So is it even the smaller categories that are growing at a similar momentum? That's all for myself. Thank you.

Yeah, sorry, I don't think the comparison of contribution increase of focus categories versus market share gains is a relevant comparison, but yes, in general, face wash and shampoo are amongst our largest categories, face wash being the largest, followed by sunscreen and shampoo are the largest categories for the company. In last quarter, face wash is the fastest growing category for us, followed by shampoo, followed by sunscreen and moisturizers, which have also all grown in more than 20% of all of these categories. And so, I think overall, it's not that only one category is filling the page. It's all four of these categories have had extremely healthy growths for the company.

Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We have our next question from the line of Naman from Sangthi Family Office. Please go ahead.

Hi, hope I'm audible.

Yes, please go ahead.

So, just quickly, more from a broader and a macro perspective, right, just wanted to gain some understanding that, you know, how this beauty and personal care market. I would continue its growth, you know, like we've had a very healthy run up until from last year to this year, and we've also taken micro steps to be better than the industry, but then. How quick or how far do you think that, you know, this growth could sustain and what are the levers that we are tracking incrementally to be sure that, you know, the quality of growth is much more robust as compared to, you know, what we've already witnessed so far. So if you could just throw some light, more from a macro perspective.

So, hi.

You know, we're as a country, our per capita beauty Spend is, in fact, one of the lowest in the Asian population, in fact, it's lower than Bangladesh also, and there is only one way the per capita spend in this category will go, which is up, and women joining workforce is a very large delta that this category sees, right, and we have been seeing clear tailwinds, Wales, you know, of that also happening. And Ben is aware and the category increasing is another large macro option trend because of which the category is growing. So honestly, the category growth for the next four decades, we are extremely confident that it will continue to grow very strongly given where we are at and given where the rest of the world is. I just like even within similar GDP countries, Indonesia, for example, is 4x per capita BPC consumption compared to India. So forget Korea and the US, which might be much higher and more world. Even within ASEAN, there are markets which are far ahead of us. So I think there is a lot of inherent growth that we continue to see in BPC. And in our view, quality of growth is measured by brand strength, how you continue to become stronger and prefer choice of consumers, which is something that we track very actively through multiple independent research avenues as well as North Stars, like researches and some of the other pieces. And which gives us confidence that, you know, the quality of growth is actually as long as our brands continue to become stronger and they become the first choice of. You know, I go, uh, Thank you.

Next question is from the line of Nihal Mahesh-Sham from HSBC. Please go ahead.

Yes, hi team. Good evening and congratulations on the strong performance. I was just looking for a couple of data points to start with that. If you could give the growth of the younger brands X of Reginald, so just looking at the core growth, and second is the ARR for Dermaco to start with.

X of Reginald, younger brands are also 40% plus growth. ARR of Termaco, we disclosed last time. It continues to be in that thousand growth.

Understood. This is to understand better on the margin bit. Our A&P spends are sort of, you know, similar as a percentage of sales versus last year. So, is it that, you know, the sales commission, which is generally paid on third-party platforms, that is reducing because we are seeing a higher share of sales for the B2B quick commerce and offline trade, and that is sort of the key driver of the margin improvement, that it's a shift towards better channel mix rather than necessarily calling it operating leverage?

Yes, a part of the ANP improvement leverage that you've talked about is on account of what you just mentioned, which is where the channel makes a change and it's showing how the responses improvement goes.

Got that. Just the final thing, Varun, is that obviously for this year, you've kept mentioning about the fact that you keep targeting 150 to 200 basis point. I know Q1 had certain 1-0s, but Q2 that way is sort of a clean improvement and it is obviously trending much higher than that. As you look into the second half, I mean, is there any reason to remain cautious to still maintain that guidance or maybe there is a case that you were being conservative and you can look at operating that?

I have not seen any benefits of being too aggressive, conservative, but yes, structurally, business has done better, and, you know, what you're seeing now, that level for us seems to be a condition that we are very comfortable in.

Wonderful. I hear you. I wish you and the team all the best. Thank you so much.

Thank you. Next question is from the line of Sanjay Manial from Dam Capital. Please go ahead.

Hi, sir. So I have a few questions. One, specifically, you have spoken about the hair color category, and you also have one brand, B-Blunt, in hair care category. Now, firstly, how this B-Blunt is performing and what are your plans to grow that brand in future? And secondly, if you sort of intend to enter with one more brand within specifically hair color category.

Hi.

So, yes, BeeBlunt continues to do very well, especially the hair color portfolio in BeeBlunt is growing at 100% plus for us post our relaunch last year. Apart from hair color, BeeBlunt operates in styling category, which is also growing very well. Especially on quick commerce where a lot of styling categories have gotten unlocked as consumers look for just 10 minutes quick styling hacks. And we'll continue to double down on innovation and that as well, right? And the third category that we're presenting is the care category, which is shampoo and conditioners. And that's a play where we're doing okay, but we are going to relaunch our mix in that category to make it even more relevant to the current consumers and grow the brand stronger. Overall, the brand continues to do extremely well. And in terms of your questioning hair color, yes, we are considering entry from another brand of ours. Once we launch it, we will shortly communicate this.

Secondly, I think you mentioned about the younger brands growing at 45%, but what I understand, the younger brands include Dermaco as well. Does it really make sense to put Dermaco in younger brands as of now, and if you can sort of give X of Dermaco growth in the younger brands?

Yes, so I just did mention, so even X of Termaco, younger brands are growing at 40% plus, so unhealthy there as well. Now if we start sort of, you know, removing each and every brand, then we will need to get brand-able, because that's not a competitively good place to be. But yes, even outside of Termaco, the young brands are growing at 40%.

Okay. Thanks, sir. Thanks, Anil. Thank you.

Next question is from the line of the field. Go ahead.

Hi, thank you. Thanks for taking my question. My first question pertains to like if offline continues to drive faster growth, I just wanted to check like our volume growth is somehow like lower than the value growth. So there was a divergence. So what could be the reason for this for this quarter?

So, there is one reason is, of course, some MRP increases, so there is price-driven growth, which is also built in here, especially on account of the crude impact that we've seen, because of that we've taken some rising increases. And second is on account of just channel mix and brand mix, and so nothing of a major concern there.

Okay, sure. So this trend will sustain or like given the faster growth in offline as we shift from online to offline, like at a particular rate, it will again reverse.

So, honestly, while some parts of our portfolio are growing faster in offline, which is, let's say, Dermaco and Mamart, the other parts of our portfolio are growing much faster online because they are largely present in online only. So, from an overall company perspective, we don't expect a significant mix change towards offline. We expect e-commerce to also grow strongly as well as offline to grow strongly, but different brand partitions to participate.

Sure, this is well understood. Second question pertains to, like, how should we see the margins ahead? Like, as a younger brand scale, they would require higher brand spend. So, like, how should we see the margin expansion journey ahead? Would you be looking to sort of expand offline reach in 528 and then increase investment that may keep the margin sort of flattish or you think that it will progressively see an improvement?

So as we have communicated, you know, from our next four years perspective, we want to get to a 15% EBITDA margin profile, all that plan already contains and assumes a certain young brand profile growth. It also assumes that we will build new categories and launch new brands and still get to that destination. We necessarily don't have a year-wise goal. There are years that we will do exceptionally well in terms of ROI improvement, which is, for example, current year. There are years where we might choose to double down on growth and, you know, increase only by 50-70 basis points. Those will also be years. But overall, the objective is to continue to move towards that 15% goal that we have stated.

Sure, this is helpful. And one last question pertains to like in Q3 in general, sequentially we have seen around 10-12% sort of a growth for the previous two years. But since in Q2, we now have a high base. Do you think that sequentially we can able to sustain that around 12% types of growth in Q3?

So, we would continue to look at a YOY growth, and, you know, I don't think sequentially we should be sort of, you know, seeing the business like that. There is, of course, usability, there is basis. So, YOY, we continue to be strong. Of course, Q3 will be higher than Q2 in terms of sequentially, but I wouldn't be able to comment on percentages.

Sure, this is super helpful. Thanks a lot and happy Diwali.

Thank you. Ladies and gentlemen, to ask a question, please press star and 1 on your phone. Next question is from the line of Raunak Shah from Equirus Security. Please go ahead.

Yeah, hi, sir. Thanks for the opportunity. Sir, my question is regarding the margins, wherein our medium-term aspiration is to reach 15% average margin. However, if we see from the first half perspective, we have already reached to a 13.5% sort of benchmark, which is one kind of thing as well. But net-net, from the near-term perspective, considering festivities plus activations, which we have accelerated, from the third and fourth quarter perspective, how we are aspiring our margin will shape up any directional stuff you can highlight.

We'll be confident of being able to

hold our current trajectory and be in the same range of around 12.5. Got it.

And, sir, my second question is specifically towards the two brands, which is Ecologica and Dr. Shade. So, can you highlight some qualitative aspects how these two brands are shaping up in terms of the acceptance, in terms of the growth, and in terms of the newer activations which we are doing around these two specific franchises?

In their own cohorts, they're actually shaping up very well, and at any point of time within our portfolio, and this is why we have a portfolio strategy, we will have brands which are targeted at gaining, you know, and being additive by gaining in different parts of the market. These could be different categories, like, for example, in the case of Acalogica, our focus is to win in, apart from sunscreen, which is a good category, to also win in body, fragrant body care. And we also want to wear moisturizers in that brand, and that's something that we are doing already. We've also seen the Gen Z acceptance of that brand improving and measured by the Tom's Pond and Restaurant Service that we do. On Dr. Sheth, our earlier hypothesis was that the brand will act as a bridge between naturals and actives, and hence our proposition was all about nature and science. We've seen a much larger active population growth now and acceptance of actives. So there is a relook at the brand proposition that we are doing to make it even more relevant to that consumer and upsell to the consumer who's buying actives today to that brand. It is relatively targeted at a higher age cohort, which is where ranges like Botox, Collagen, etc., do very well for that range in a brand. And so we will continue figuring out how to do better with the relevant audiences that these brands are targeted on as context changes. The brands will also continue to evolve and continue to find.

Understood, understood. That's it from my side. Thank you, sir.

Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone.

I now hand the conference over to management for closing comments.

Over to you, sir.

Thank you so much for joining us for the call. A very happy dhanteras to you and your families, and a very happy Diwali as well. Have a great weekend. Thank you.

Thank you. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your line.