Honasa Consumer (NSE:HONASA) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Honasa Consumer Limited Q2 FY 'twenty seven 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. Please note that this conference is being recorded. I now hand the conference over to Ms. Puja Kubadia from GM Financial. Thank you, and over to you. Hello. Good evening, everybody, and welcome to the QQ FY twenty seven earnings conference call with Honasa Consumer Limited. From the management team, today, we have mister Varunala, cofounder, chairman, and CEO, miss Gazelala, cofounder and chief innovation officer, and mister Hamantreet Soni, chief financial officer. We'll start the call with opening remarks from mister and then proceed with the q and a session. Over to you, mister.

1:06 Hi. Thank you. Hi. Good afternoon, everyone. Welcome to the quarterly call for Honasa Consumer. 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 twelve quarters 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.

1:52 Hair color for the longest time in India has existed in the dye format. We have seen a very active transitioning, which is happening in this category to creme format, which is longer lasting, less damaging, more conditioning formats that we use... That globally exist in types. And in India, penetration of overall hair colors and plus dye segment is actually very low, right, compared to the global wear. It is 5% plus. We're also 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 nonblack colors.

2:42 And hence, a lot of styling colors is something that the category is shaping through. And and we also, as a company, see an angle where consumers are specifically looking for safer, toxins free colors and... Which in the long term gives opportunity to provide more natural toxins free options within the category as well. Currently, as we play in this category, we'll be blunt hair color, which is doing very well for us. In the future, we keenly watch the category and see how we can further participate and take share of this category. But, yeah, this is more from educational purposes. I move on to the quarterly results, which is our financial snapshot.

3:31 Two, FY twenty seven is the highest growth quarter since we have gone public in the last twelve quarters. And, yeah, Honasa has grown the net sales at 36% while doubling our EBITDA and holding a solid 12.7% EBITDA profile. Even with the cost pressures of crude, we've been able to manage our gross margin profile at 70% by right cutting of cost management as well as price increase measures that we've taken. Most of this growth that you see is driven by volume.

4:16 The is at 31.6%, and very strong cash generation companies, all of this growth. In terms of EBITDA improvement, as we have called out in the past and we continue to see that as per time, the delta on EBITDA improvement is driven by two large components. And one is the A and P and mix efficiencies where about 50 to 70 basis points, the data has come over last year. This is common account of favorable, you know, mix towards more profitable channels like offline QC, etcetera, that we can see as brands grow. Second is the A and P efficiency. And be it in our bigger brands like Mama's and Dramacoo as well as in our younger brands, we consistently see them becoming more effective in terms of the amount of A and B digital.

5:17 And, of course, operating leverage is where you'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. The other healthy news also is the quality of this growth. Right? We've clearly talked about almost six to seven quarters back when we had started executing the focus category agenda. And 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. Right now, and the balance that we are not sort of, you know... And that matters clearly as it is staying up, right, the quality of company's growth is also looking better. Now the focus category is going to be able to increase in class, and just focus categories themselves grew more than 40% for the organization. So the strategy that we had deployed continues to pay off.

6:23 And also the good thing that we see is if you look at the focus categories market, it's still 50,000 crores in terms of size. And we are about 5% share within the focus categories market. So a lot more headroom to grow just by focusing on focus categories and continuing to minimize and gain share is what we can see happening over the next few five years. We're gaining traction across channels. Right? It's a fairly wide growth. E commerce is growing by some cost, general trade, modern trade, both are growing by some cost. So pretty healthy trajectory of growth, you know, leading to the data that we have generated. Walmart continues its high teens trajectory in q two as well. And all our efforts in terms of focusing on the right kind of media mix, focusing on the right kind of categories as well as the product security is actually paying off. And we're seeing this growth translate into market share gains as well. And 140 basis points gain in face wash, 50 basis points gain in shampoo, and these are the four categories where we measure.

7:32 And hence, consumer love continues to improve. And we've also seen along with it, our assets are going up. So we know there is more potential to gain share as we improve distribution. Our younger brands accelerated to 45% plus y o y growth. And all my younger brands are present in different additive partitions for us. Acrologic has focused on Gen Zs with sunscreen, moisturizer, and mist. Doctor Shed is focusing on on a one active consumers. We plan this leading from hair color and styling as a category related to this. And still is building color cosmetics for Gencis, and Reginald is now building the men's grooming plate for Honasa and put together.

8:21 All of these brands continue to demonstrate solid growth to the three adding to the top line. Of course, our second thousand growth plus brand continues its strong profitable growth trajectory, and consumers have measured by the searches as almost at its ever highest. 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. Maher, for your reference, is at about 300,000. So good traction seen in just four quarters of our focus on of line for this brand, and we we continue to focus strongly on the brand. We know that this can become a very large of our.

9:11 Also, continue to create these categories as well as new categories that you enter. Offline momentum continues as a new model, our shopper execution in GT, as well as our stronger distribution in MT is clearly showing in terms of results. Our same stores are growing at almost 50% plus same store growth with more for partition additions within Walmart as well as Domoco are getting into these stores, right, and getting the data. We are also deepening our outreach with overall now. Our is available at 3.2 lakh outlets. 26% Y o Y growth in terms of any that we've been able to achieve. And 40% plus y o y offtake growth in modern trade, which has led to strong share gains as well. I mean, in the sports channel and shampoo or the...

10:06 For our brands across the modern trade players. So overall, all the investments that you've done in structure and team are are clearly paying off. Yeah. And we continue to be innovation powerhouse during the... We are understanding what journeys are looking for, what the new generation wants from our brands, and in line with that. We did a new collaboration on which was which I was, you know, cooler side, created a lot of buzz for the brand. We have entered into body washes, gynecological launch tinted, as well as the newness. We've launched this program called care, which is a large partition that is getting developed right 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. Yeah.

11:03 And while 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 moisturizer, Walmart has come up as strong winner versus competition in terms of likeability and kind testing scores. We have got strong clinicals on our products in as well as Acrologica. These are communications that we will take out to the consumer to to show them how our products are superior to the other products. And while doing all of this, we continue to contribute back to the communities that we operate in. Walmart continues to plant trees, and continues to add back to kids. We've learned to teaching more women around hairstyling and skills. Right? And doctorship is doing more handshakes to expand. Right? And we recently also opened schools for preschoolers, you know, where we are helping communities get better future by making stronger foundation for them in the in and providing better nutrition.

12:23 Mhmm. So with that, I would like to thank you for listening to us. We'd 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 our first question from the line of Videesh Shahed from Ambit Capital. Please go ahead. Yeah. Thanks. My first question was on the younger brands portfolio.

13:13 Excluding Dermaco, what would be the growth in the younger brands portfolio? Because when I see the ecom channel, that is... The growth over there has been restricted to 20 odd percent, and I'm asking because the non mama and non TBC is essentially 100% offline... Online. So what will lift the growth momentum here and what specifically are you doing on the channel and the four, five brands which exist in this space? Hi, Nishasu. Even excluding the... All the other younger brands are at 40% plus growth, so quite healthy. We don't necessarily capture all the channel growth. So, like, there is, of course, d two c channels which the young brands grew on, which is captured in... Not in online. Here, the growth that we saw just for ecommerce channels. Yeah.

14:04 And some of that might not be there. Right? So... But excluding Dermaco also, the young brands are growing at 40. Got it. Second, in case of Mama Earth, 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, growth is coming because of the consumer love and franchise sort of getting stronger. These high teen growth are actually equally there on both online and offline. It's not offline driven growth only, right, that we are seeing. And even ecommerce is growing in high teens for the brand. So that is one thing that gives us confidence. And second, of course, what gives us confidence is the... All the consumer measures that we are measuring, be it in terms of spot on, be it in terms of the brand affinity and brand power, which we showed last time as well as in the... Or in terms of the SAH video and all the brands. And all of them are in healthy spaces. In fact, SAH has gone up more than the market share, Yeah.

15:28 And 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 price have actually gone down further. So even in our current stores, we need to focus more. Right? And most of the data, honestly, is right now coming from our current distribution universe, be it in ecommerce or in MTGTs. And distribution data is there, but that's not the driver, which is the core driver. 80% of the growth data is from current stores and... Which is what gives us even more confidence that this is something new next year as well. Got it. And just the last one, focus categories, you mentioned that the contribution has driven by three fifty, 400 on basis points. So which of the six to seven odd focus categories are contributing most of the game? Because the reason I have 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.

16:36 So is it even the smaller categories that are growing at a similar momentum? That's also my sense. Thank you. Yeah. Sorry. I I don't think the the comparison of contribution increase of focus categories versus market share gains is a relevant comparison. But, yes, in general, 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 sunscreening moisturizers, which is also all grown in more than 20% to all of these categories. And so I think overall, it's not that only one category is. It's all four of these categories have had extremely healthy growth.

17:40 Got it. Thank you. I'll get back. Okay? 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 Norman from Sanghi Family Office. 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 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.

18:39 But then how quick or how far do you think that, you know, this growth would 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 would 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 duty spendings impact one of the lowest in the the Asian operation. In fact, it's lower than Bangladesh also.

19:25 And there is 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 of, you know, of of that also happening. And men's awareness in the category increasing is another large macro or option trend because of which the category is growing. So, honestly, the category growth for the next full decade, you know, 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, right, just, like, even within similar GDP countries. Indonesia, for example, is four x per capita BBC consumption compared to India. So forget Korea and US, which might be much higher in one world. Right? Even within ASEAN, there are markets which are far ahead of us. So I think there is a there is a lot of inherent growth that we'll continue to see in.

20:40 And then our view quality of growth is measured by brand strength and how you continue to come stronger and preferred choice of consumers. And which is something that we track very actively through multiple independent research avenues as well as North Star's, like, searches and some of the other pieces, you know, and which gives us confidence that, you know, the quality of the road is actually really healthy and and as long as our brands continue to become stronger, you know, they... And they become the first choice of consumers. Yeah. We continue to enjoy the the of doing it while it's giving share within the K. K. I'll just come back and let you if there are other questions. Thank you.

21:36 Next question is from the line of Nihal Mahesh Shyam 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 ex of Virgin Arts, just looking at the core growth. And second is the ARR for Dermaco to start with. Yeah. Ex of regional, younger brands are also 40% plus growth. ARR of Dermaco, we disclosed last time. It continues to be in that thousand. Understood. That's right.

22:21 Understood. We we understand better on the margin there. Our E and P spend 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 with 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. Apart of the NP improvement leverage that we've talked about is on account of what you just mentioned. So... Which is where the channel mix change and it's showing other expenses.

23:09 Got that. Just just the final thing, Warren, is that, obviously, for this year, you've you've kept mentioning about the fact that you keep targeting the, you know, one fifty to 200 basis point. I know q one had certain one offs, but q two, 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, you know, operating that? I mean, I have not seen any benefits you bring to aggressive conservative probably the better ways to be. But, yes, structurally, business has done better, and, you know, what you're seeing now that level for us seems to be foundation that we are very comfortable in.

24:06 Wonderful. I hear you. I wish you and the team all the best on behalf of the. Thank you so much. Thank you. Next question is from the line of Sanjay Maniyal 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 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 in say within specifically hair color category? Hi. So, yes, we blend continues to do very well, especially the hair color portfolio in the blend is growing at 100% plus Y o Y for us post early launch last year. Apart from hair color, V Blunt 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 ten minutes with styling hacks. And and we'll continue to double down on innovation in that as well. Right? And the third category that we are presenting is the care category, which is shampoo and conditioners.

25:35 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. Right? And although the overall, the brand continues to do extremely well. And then in terms of your question here, Alar, yes, we are considering entry from another brand of ours. Once we launch it, we will surely communicate this. Okay. Fine. Secondly, I think you have 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 sort of give x of Dermaco growth in the younger brands.

26:30 Yes. So I just did mention. So even ex of TurboCo, younger brands are growing at 40% plus, so all healthy there as well. Or if he starts sort of, you know, removing each and every brand, then he will need to get brand new. That's a that's not a competitive... The good place to be. But, yes, even beyond... Outside of the. Okay. Fine, sir. Thanks, and I'll come back in queue. Thank you. Next question is from the line of from HSBC Securities. Go ahead. Yeah. 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, are volume growth is somehow, like, lower than the value growth. So there was a divergence.

27:27 So what could be the reason for this for this quarter? So so there is one reason is, of course, some MRT increases. There's price driven growth, which is also built in here, especially on account of the full impact that we've seen because of that, we've taken the rising pieces. And second is on account of just channel mix and brand mix. And so nothing of major wins in 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?

28:23 So, honestly, while some parts of our portfolio are growing faster in offline, which is, let's say, and Ma'amarts, And the other parts of our portfolio are growing much faster online because they're largely present in online only. So from a overall company perspective, we don't expect a significant mix change towards offline. We expect ecommerce 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 a younger brand scale, they would require higher brand spend. So, like, how how should we see the margin expansion journey ahead? Would you be looking to sort of expand offline reach in FY twenty eight and then increase investment that may keep the margin sort of flattish, or do you think that it will progressively see an improvement?

29:31 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 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, like, on 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've set.

30:25 Sure. This is helpful. And one last question pertains to, like, in q three in general, sequentially, have seen around 10, 12% sort of a growth for the previous two years. But since in q two, we now have a high base. Do you think that sequentially we can able to sustain that around 12% types of growth in q three? So we would continue to look at a y o y growth. And and, you know, I I don't think sequentially we should be sort of, you know, seeing the business like that. There is, of course, seasonality. There is basis. So why why we continue to be strong? Of course, q three will be higher than q two in terms of sequentially, but I wouldn't be able to comment on percentages.

31:17 Sure. This is super helpful. Thanks a lot, and happy Diwali. Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. Next question is from the line of Ronak Shah from Equiris Securities. Sir, my question is regarding the margins, wherein our medium term aspiration is to reach 15 odd percent EBITDA margin. However, if we see from the first half perspective, we have already reached to a 13.5 sort of benchmark, which has one off 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?

32:23 We'll be confident of being able to hold our current trajectory and being the same range of around 12.5. Got it. And, sir, my second question is specifically towards the two brands, which is a college kind doctor. Can you highlight some qualitative aspect how these two brands are shaping up in terms of the acceptance, in terms of growth and in terms of the newer activations which we are doing around these two specific franchise? In their own cohorts, they're actually shaping up very well. And at any point of time within our portfolio and which is why we have a portfolio strategy, we will have brands which are targeted at gaining, you know, and being edited by gaining in different parts of the market. These could be different categories. Like, for example, in case of Acrologica, our focus is to win in... Apart from sunscreen, which is a good category, to also win in body...

33:30 Fragrant body care. So we also wanna build moisturizers in that brand, and and and that's something that we are doing We've also seen the gen z acceptance of that brand improving and measured by the Tom's point and reference service that we do. On doctor Shetz, we are our earlier hypothesis was that, you know, we will... The brand will act as a bridge between naturals and actives, and and hence our proposition was all about nature and science. And we've seen a much larger active population growth now and acceptance of actives. So there is a there is a relook at the brand proposition that we're doing to make it even more relevant to that consumer and upsell to the consumer who's buying active story through that brand. It is relatively higher...

34:28 Targeted at a higher age cohort, which is where ranges like Botox, collagen, etcetera, do very well for that range and brand. And so we 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 their efforts. 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

35:58 for closing comments. Over to you, sir. Thank you so much for joining us for the call. A very happy 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 lines.