Honasa Consumer forays into men's grooming, but HSBC flags scalability risk

Shares of Honasa Consumer Ltd., the parent company of beauty and skincare brand MamaEarth, are in focus on Friday, December 12, after the company acquired Reginald Men owner BTM Ventures at an enterprise value of ₹195 crore.

Honasa will buy 95% of the stake upfront in cash and the remaining 5% over the next 12 months.

Reginald Men reported about ₹40,000 revenue in FY24, ₹20.1 crore in FY25 so far, and ₹74 crore on a trailing twelve-month basis.

The brand operates with gross margins of 72% and Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) margins of 24%, with nearly 80% of its sales coming from South India.

The deal implies an EV to revenue multiple of 2.6x and an EV to EBITDA multiple of 10.9x.

The men's personal care segment, currently a ₹20,000 crore market, is expected to double by 2032. Honasa sees scope to scale Reginald Men through new categories, wider geographic reach and stronger distribution channels.

Brokerage firm HSBC has a 'Reduce' rating on Honasa with a price target of ₹242. The brokerage said that the Reginald Men acquisition, valued at about ₹200 crore, marks Honasa's entry into men's personal care.

It said Honasa aims to grow the brand to over ₹500 crore in revenue from its current trailing run rate of about ₹70 crore. While HSBC acknowledges the strategic intent, it mentioned that sustained scalability in Honasa's core portfolio remains uncertain.

JPMorgan is 'Underweight' on Honasa and has a price target of ₹260. The brokerage said the transaction will be funded through internal accruals and will be EBITDA accretive, but added that the profitable scale-up of the brand at a national level, where D2C still accounts for about 70%, will be a key monitorable given the high competitive intensity.

CLSA, which has an 'Outperform' rating and a price target of ₹255, said Reginald Men complements Honasa's existing portfolio and gives the company a stronger foothold to grow its share in South India.

Honasa Consumer reported a net profit of ₹39 crore in the September quarter, compared to a net loss of ₹18.5 crore during the same quarter last year. Revenue rose 16.5% on a year-on-year basis to ₹538 crore.

EBITDA stood at a positive ₹47.5 crore compared to an EBITDA loss of ₹30.7 crore.

Shares of Honasa Consumer settled 0.87% lower at ₹255 on Thursday. The Mamaearth-parent is trading below its IPO price of ₹324.