Honasa Consumer is growing again, but can it keep margins intact?

Honasa Consumer Ltd: Stock price historical chart. (Source: http://www.tradingview.com)

The key question now is whether this recovery is sustainable or whether FY26 was simply the year Honasa cut spending. The answer depends on three factors:

1. The margin recovery, which is real but came from a lever that can reverse.
2. Mamaearth’s revival, after the core brand stalled and nearly took the business down with it.
3. The younger brands, which have quietly become the growth engine.

To see why these matter, you first need to understand how Honasa makes money.

Understanding the business model

Honasa operates a house-of-brands strategy. While Mamaearth remains the flagship brand, the company also owns The Derma Co, Aqualogica, Dr. Sheth’s, BBlunt, Staze, and Reginald Men. Six of these brands have either crossed or are approaching an annual revenue run rate of Rs 100 crore or more.

The business follows an asset-light model. Product design and marketing are managed internally, while most manufacturing is outsourced. Approximately 72% of revenue comes from online channels, including marketplaces and direct-to-consumer sales, with the remainder generated through general trade and modern retail. This model delivers gross margins of around 70%, because beauty and personal care products carry more brand value than the cost of raw materials.

Summarised historical financials

Table source: AR FY25 KPI dashboard; Q4 FY26 Investor Presentation. Consolidated, Rs Cr

The structure offers two advantages. First, it enables rapid brand launches without large capital investments. Second, it operates with negative working capital, allowing growth to fund itself rather than consume cash.

However, it also creates a dependency on advertising and distribution spending. In beauty and personal care, advertising is not optional, it is essential for acquiring customers, maintaining shelf presence, and scaling new brands. Get that spending right and profit compounds. Get it wrong, and profit vanishes even when sales hold. The events of the past two years demonstrate both sides of that equation.

The 2 years that tested the business

Mamaearth’s growth story was built online. By FY24, the brand had reached roughly Rs 1,000 crore in annual revenue. However, its offline expansion relied heavily on a super-stockist model that resulted in excess inventory sitting within the distribution channel. When demand weakened, that inventory had to be cleared, and reported sales stalled.

Management responded with Project Neev, a complete overhaul of the offline distribution network. The company moved away from the super-stockist structure and adopted a direct-distributor model. At the same time, Honasa increased marketing investments to defend and relaunch the Mamaearth brand. Advertising and promotion expenses rose to 36% of revenue in FY25, up from 34.4% in FY24, while other operating expenses climbed to 21.4%.

Even though gross margin held near 70%, FY25 EBITDA margin collapsed to 3.3%, from 7.1% a year earlier. PAT fell to Rs 73 crore, and revenue grew just 7.7%.

For a company that had been listed in late 2023 on a growth story, this was the moment the market wrote it off.

If FY25 was the bill, FY26 was the payback.

The fix, and what it did to the P&L

In FY26, advertising fell to 32.9% of revenue, and other expenses dropped to 16.3%.

Gross margin barely moved, still around 70%. As a result, EBITDA margin went from 3.3% to 9.7%, and EBITDA tripled to Rs 231 crore.

Advertising and other expenses

Source: AR FY25 MD&A; Q4 FY26 Investor Presentation full-year P&L

It’s not that the company necessarily sold structurally higher margin products. It is operating leverage and advertising discipline, supported by curtailing its A&P spending and faster revenue growth.

Management is further guiding for roughly 100 basis points of margin gain a year, taking the EBITDA margin target to above 15% over five years.

The growth engine underneath

The growth is now coming from two places. Mamaearth is back to mid-teens growth by the fourth quarter of FY26, with management guiding double-digit annual growth over five years and a distribution runway from about 200,000 outlets today toward 500,000.

The company has reported numbers where each successive quarter was better than the previous one over FY26.

Quarterly summarised financials

Table Source: Honasa quarterly investor presentations, Q4 FY25 to Q4 FY26

But the more interesting shift is underneath. The younger brands, led by The Derma Co, grew over 28% excluding the recently acquired Reginald Men, and over 40% including it.

For a group long seen as a one-brand story, this is the real de-risking. If a second brand can reach the scale Mamaearth took years to build, the business stops living or dying by a single label, and that is precisely what funds the margin discipline described above.

Through FY25, as Honasa cleaned up inventory and pruned its range, Mamaearth’s listed assortment was cut by about a third. It has since started climbing back. Over the same period, the younger skincare brands did the opposite: Aqualogica and Dr. Sheth’s each roughly doubled their listed range, while newer Staze scaled from a tiny base. BBlunt is the one that has drifted lower.

SKUs of Honasa brands on a leading beauty e-commerce platform

Table Source: Thurro database – Third-party weekly tracking of brand listings on a leading beauty e-commerce platform, Jun 2026. Listings indicate assortment and shelf presence, not sales. Mar 2025 figures unavailable for two brands.

This is indicative of breadth, not revenue, and it covers one platform rather than the whole market. But it’s a useful signal. A focused, slimmed-down core brand alongside fast-widening younger brands is visible from the outside, and it matches what the company has been describing on its calls.

The counterpoint is competition. Hindustan Unilever has been pushing its Minimalist brand into the same offline actives space (products built around a named active ingredient, such as niacinamide or salicylic acid), where The Derma Co plays. Honasa’s lead is real, but it is not unchallenged, and this is the segment to watch most closely.

Finally, on topline growth, one number deserves a note of caution.

Reported revenue grew about 16% in FY26, but a Flipkart revenue-recognition change understates that. This means that on a like-for-like basis, growth was closer to 20%, with no impact on profit. So, the underlying growth is a little better than the headline suggests.

But the question is: how much is priced in?

Valuation and what we need to see

At Rs 416 a share, Honasa is valued at about Rs 13,467 crore, or 66 times trailing earnings and 9.5 times book. That is not cheap on an absolute basis.

On a relative basis, however, Nykaa, the other listed new-age beauty name, trades at over 350 times earnings. Traditional players like Marico (about 60 times) and Dabur (about 40 times) sit lower, but they earn far higher returns on equity: Marico’s Return on Equity (ROE) is around 42% and Dabur’s 17%, against Honasa’s 14%.

Comparable listed companies

Source: www.screener.in

The 66 times multiple only makes sense if the high-teens revenue growth and the climb to 15%-plus margins that management has guided actually arrive.

Mamaearth holding its double-digit growth, the younger brands staying ahead of Hindustan Unilever in actives, and margin rising without advertising being cut so far that growth stalls.

Recent price hikes taken to offset raw-material inflation will also test whether volumes hold. Get those three, and the turnaround earns its multiple. Miss them, and 66 times is a long way to fall.

Note: We have relied on data from http://www.Screener.in and http://www.tijorifinance.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

Rahul Rao has helped conduct financial literacy programmes for over 1,50,000 investors. He has also worked at an AIF, focusing on small and mid-cap opportunities.

Disclosure: The writer or his dependents do not hold shares in the securities/stocks/bonds discussed in the article.

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