Honasa Consumer Limited ($HONASA)

Ladies and gentlemen, good day, and welcome to Honasa Consumer Q4 and FY '26 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajat Gupta from JM Financial. Thank you, and over to you.

Good evening, everybody. Welcome to the 4Q FY '26 Earnings Conference Call of Honasa Consumer Limited. Today on the call, we have Mr. Varun Alagh, Co-Founder, Chairman and Chief Executive Officer; Ms. Ghazal Alagh, Co-Founder and Chief Innovation Officer; and Mr. Raman Preet Sohi, Chief Financial Officer. I now hand over the call to Mr. Varun for his opening remarks. Over to you, sir.

Thank you. Welcome, everyone, to the quarterly results call for Honasa Consumer for Q4 and FY '26. I'm here joined with Ghazal, Raman and our team. We're going to start by just quickly taking you through the presentation that we have also uploaded along with the results and then open the house for questions that you have for us. Starting with the presentation. The first section, as we always have been covering in our previous calls is the future of Indian beauty and personal care space. And today, the insights that we are talking about is the inside-out beauty. We believe there is a new trend that has been actively shaping both globally and in India, where consumers are looking for comprehensive solutions to their beauty problems, be it problems like hair fall, acne, et cetera, and to address these problems apart from topical solutions, ingestible vitamins and supplements, which aid in correcting some of these problems at the core is something that consumers have been seeking as a stronger solution to some of these problems. We are seeing this shape really well in India. We are watching this space, and we would also like to participate in this space over time. But that's an interesting insight that we wanted to present to you. Coming on to the financial snapshot, the update on Q4 and full year for the business. I'm delighted to inform that Q4 FY '26 has been a great quarter, I would say, another great quarter because this is the third consecutive quarter offering [indiscernible] growth for the company. We've delivered 28% Y-o-Y growth with EBITDA scaling almost 2.5x over last year's same quarter overall INR 682 crores in quarterly revenue, 71.4% gross margin, which has expanded by 70 basis points Y-o-Y. EBITDA at INR 77 crores, which is 11.3%. PAT at INR 69 crores, which is 10.2%. Underlying volume growth has been strong. So this growth has actually been driven by volume and not price. And we continue to be negative working capital. Just to call out this growth includes our recent acquisition of BTM Ventures as well. And this is a like-for-like growth. The reported growth of course, contains the flip card I just meant that we have been talking about over the last few quarters where revenue recognition gets impacted, but not the bottom line. And we have shared those numbers as well, right? So if you correct for the basis actually, the growth remains same, but because just the base gets changed and the -- sorry, the delivery gets changed but the base doesn't and the reported growth looks physically [indiscernible]. That's it, the like-for-like growth for the business is at 28%. We are also delighted to inform that this is the first main year for the company where the Board has decided to reward shareholders with a dividend, right, of INR 3 per equity share. This is about 50% of the fact that the company has generated for the full year, which is in excess of INR 200 crores. And the total cash payout will be about INR 98 crores as a part of this dividend. And this just signals strengthen our belief on the ongoing cash generation capability of the company and even after deploying what we feel are relevant opportunities in inorganic given we are a negative working capital company, we will continue to generate excess cash, and we would like to reward shareholders by distributing in the form of dividends. Coming to the core business highlights. I'm again elated to inform that the focus categories that we have chosen to double down on continue to actually drive growth for the company. They have grown by 35% Y-o-Y. Contribution of focus categories has increased 500 basis points in 1 year. And all the channels are growing strongly in our focus categories. So this strategy clearly has paid off. I'm also delighted to tell you that Mamaearth continues to become stronger in terms of the consumer love it's getting which is visible in the growth as well. The brand has grown at mid-teens this quarter. The brand health is at multi-quarter high the value market share across the core categories and SA has gone consistently up. And even in terms of Band Power Index, which is measured through Kantar over the last 3 years, it's actually consistently gone up. And the Hero product strategy has been working for us where our hero products are actually growing faster than the brand pointing to all our inputs coming together to fundamentally shape a better trajectory for the brand that we are far more confident of the future as well. The other brands of course continue to dominate growth, growing at almost 40% with now the inclusion of Reginald Men as well, which we've acquired. On all the brands with strong focus on product superiority, innovation and sharp consumer [indiscernible] and targeting and have shown very strong results and we continue to back them to help us win in the focus categories that we have defined. The Derma Co, of course, has been continuous start performer for us, right? It has delivered strong growth again maintaining double-digit EBITDA and the face cleanser business has almost doubled for the brand in terms of growth. It's also now visible in GT market shares in Nielsen, almost 1% market share for Derma Co face washes as well now. And we've been consistently working on formulations where all the core formulations are winning in line test for us. And Hero product contribution is already more than 50% of the brand and continues to grow. So all in all, a pretty phenomenal performance on Derma Co as well. And it is first quarter of consolidation, Reginald brand that we acquired, we've actually been able to integrate it fairly well and continue the strong momentum on the brand and the brand has actually grown by 100% plus and doubled its revenue Y-o-Y. It has also crossed INR 100 crore ARR mark and becoming the sixth brand in Honasa's portfolio to do so. And Honasa now has more than 6 brands with INR 100-plus crore or trajectories. We've also been able to unlock on newer geographies like Maharashtra, we are strengthening the brand across other commerce channels, and we are doubling down all aspirational content for the brand [indiscernible] Looking back at overall FY '26, and this is a year where we have delivered 2% Y-o-Y growth. This was our internal agenda, and the team has come together and has been able to deliver it. And this is the area where we have tripled our EBITDA taking the full year EBITDA to about 9.3% EBITDA margin, keeping in line with the promise that we will continue to improve our EBITDA's by the tune of about 100 basis points every year. Our gross profit margins continues to be healthy for the overall year. Our growth has been volume-driven, which is reflected in our UVG, and we have delivered INR 200 crores PAT for the full year this year. And all of this is basically combination of the fundamental levers that we have talked about in the past as well with a focus category strategy, focused on product superiority in all our core partitions and focusing on Hero products scaling, especially in focused brands where the [indiscernible] sharpening our content to generate much more diverse finder as well as Gen Z relevant [indiscernible] and a much more stabilized offline system, all the hard work that the team has done and the pain that sort of they have gone through in this transition is paying off now with a very strong and satisfied distribution ecosystem in the top 100 cities. Our direct distributors, stocks are also optimized at between 25 to 30 days segment. And this distribution system is helping us drive our other brands like Derma Co also in GT. And of course, our core DNA of being more innovative in all that we do across categories continues to drive this agenda and continues to drive our brands to be more relevant with our consumers. So these 6 pillars have been core to how we have been able to deliver better than planned outcome for ourselves. And in line with our confidence as well as confidence in our ability to take share and craft brands. We've also been strengthening the talent within the organization for us to be able to focus on and build more businesses in the decade to come. And we have recently made a few new appointments, which includes Sahill, who's been -- see you at multiple cosmetic and makeup companies, Dheeraj, who's been a founder of nutraceuticals brand, [ Mathur ] worked across new age companies to build businesses and shape younger businesses, and we welcome them to the team and the we will work with them on shaping the next horizon of businesses for Honasa as well. We continue to contribute to our communities as our brand scale up with the initiatives that each brands have. And apart from what our brands do, right, which is outside the domain of our CSR, all of these actually contributions are part of our marketing spend. Our CSR agenda also continue to shape strongly. Our focus has been on clean air, urban greenery and education for tomorrow, and we are continuously focusing on shaping initiatives in the communities where we operate around these 3 focus areas. And with that, I would like to thank you for listening in on the update that we had to share would love to answer the questions that you have for us.

[Operator Instructions] We'll take our first question from the line of Vivek from Jefferies India.

My first question is on the Mamaearth brand. [indiscernible] So I look into FY '27 and medium term, both...

I'm sorry, you sound muffled.

Is it better now?

Yes, please go ahead.

Sorry. So just to repeat, Varun, Mamaearth brand, FY -- the recent quarter has done well. FY '27 and medium term, given the size of the brand as well as the penetration-led opportunity in the offline side, how do you think about this brand growing into the next year as well as from a 3-year perspective?

Vivek, thanks for asking that question. So we're fairly confident of delivering a double-digit CAGR on the brand from the next 5 years perspective. And we see a lot of share gain opportunity across the focus categories that the brand has in case a shampoo and other categories, which are of interest to us on the brand, and we are investing in them. We also see distribution gain opportunities given the brand is only 200,000 outlets and potentially can get to 0.5 million outlets over the next 3 to 5 years. And I think a combination of those 2 makes us fairly feel confident that over the next 5 years, the brand should continue to grow at a double-digit CAGR.

Okay. Got it. That's very interesting. The second...

I'm sorry, you are sounding muffled again. Can you repeat the question, please?

Is it better? Is it better now? Sorry?

Yes. Yes, please repeat your question.

Apologies for this. So Varun, the second question is on the focus categories. You have had highlighted these 6 or 7 categories that you will go after and then you entered into men's category as well as you have spoken about nutraceutical. Do you think that again, these 2 initiatives will create a bit of a complexity or the organization is robust enough to handle beyond what you have already articulated as the focus parts of the portfolio.

Yes, Vivek. So I think I can say 2 things. Firstly, the men's skin care is a proposition. The categories continue to be skin care, face wash, which are the core categories that are focused for us led by sunscreens in Reginald specifically. So it's the same category, for example, sunscreen. But now we have another way to capture some of that TAM, which men are looking for within that same category. So I would see that [indiscernible]. To answer the second question, honestly, I think I would like to state -- and probably I'll take a minute to answer that question. I think you will need to understand that philosophically, we're a team and I'm a person who believes in keeping my goals and dreams on the top and changing the circumstances and constraints to achieve those goals. And I heard this very young in my career from a leader called Miles Babe Hilton, who is a blind man of 70 years and has run marathons across deserts and has not let his blindness come in his way of achieving the dreams that head set for themselves. And the one thing that he stated in that conference 5 years ago was the fact that the only limits that exist for us are the ones that we choose to accept. And I think I was fairly moved by that, and that has been my operating philosophy. And hence, if I believe there is a dream that we have as an organization, there's an opportunity that we want to go after as an organization we would want to put that upfront, and we would want to shape our organization to go after those opportunities. And then which is by -- if there are right manpower, right talent, which is required to go after some of these new categories I would rather drill that out. And if there is probably worry of profitability cut in the way that I would want to build all of those profitably very early on itself. But I would want to make sure that the opportunities that we see and that we believe we can capture, we would want to continue to go after them. And we are building a robust organization and the right kind of playbook to ensure we are able to execute on the same.

Got it. And generally, like the growth mindset. The last question is, and apologies if it's direct or fair unfair question, but I mean, over the quarter that I have seen your commentary and the presentation drift for PDC versus Aqualogica. I mean this is my sheeting and correct me if I'm wrong or if you want to add anything, but it looks like PGC has actually performed far better than probably what we would have thought, and Aqualogica has been a bit under. One, is that observation correct? And if yes or no, can you give your reasons and some backdrop to -- especially the Aqalogica brand?

So Vivek, I think on TDC specifically, that's the second brand that we started after Mamaearth, and that is the brand where we want to take it to INR 1,000 crores and become probably the only company in the last couple of decades with grafted INR 2,000 crore plus brands in this country, right, from scratch. And hence, we have been actively sharing a lot more detailed progress on Derma Co as a brand. And it is also, of course, benefited from being in the active segment that we recognized at the right time, whereby by executing it right and by finding the right kind of fundamentals, whatever we have learned on Mamaearth executing that. We've actually been able to scale that brand very strongly and which is why we specifically double down and talk about that because that's where we want to show our replicability of our playbooks and our ability to build another INR 1,000 crore brand. Rest all the brands are actually much younger, Acologica is 2 years later than dermatan 2.5 in terms of its birth year and month. And hence, they are actually here apart in terms of their progression as well. So on the rest of the brands, we provide a combined view each of the brands have their own trajectories every year we have new learnings around how to make them shop off and the overall strategy of the company has been to have horses for courses, right, different brands which have and stand for different kind of sharp propositions. And depending upon how consumer sentiments change either it's naturals or it's towards pop hydration or it's towards active trend, we will change our investment gears and make sure we are able to leverage on those consumer sentiments using the right brand chasis. If it is right now a strong tailwind on active, we are doubling out on Derma Co and sort of getting a strong share with that. As and when ecological becomes also then material enough and we would want to share more around that. We will keep bringing those updates to you as well.

Vivek, does that answer your question? Since there is no response, we'll move on to the next question. [Operator Instructions] Next question is from the line of Manoj Menon from ICICI Securities.

I have one small clarification, which is exactly in the overall growth, which has been absolutely top of the line and in a very, very impressive, how much is the growth driven by the core businesses and the newer, let's say, SKUs or products which have launched, let's say, put it this way, right? So let's say, how much of the growth is driven by the products which you have launched in the last 1 year versus which existed previously.

So if we look at just the products launched in last 1 year, Manoj, that growth would be to the tune of about 7% to 8% in -- I mean, now we've also started to look at our innovations more from a 3-year horizon than near horizon because it's unfair to see and leave innovations in just 1 year because most of the innovations that we are sort of focusing on, especially since last 1 year, our innovations where we want to enter a certain partition and actually structurally take share over time in that partition. So I think -- and we could probably from next time share and slightly medium-term number around innovation trend line as well right now. But just from the calendar year perspective, that will be the...

Sure. That's loud and clear. Secondly, on just about reginal men, whatever you can talk in a public platform about, let's say, it's been a few months, maybe 5 months now, right, already. Let's say, what's your initial take? And where do you think the brand could be not nicer numbers, right? And what are the qualitative aspects. The reason I'm asking because just as a consumer, when I was searching to buy the brand, for example, I couldn't find a brand, let's say, in a platform like Nika. So there is a common observation that probably there are a lot of long low-hanging fruits to be executed here. So just a bit of enrollment and your medium-term aspirations in the brand.

Yes, sure. So honestly, I agree with your observation. I agree with your observation that we -- we know that the brand has multiple access to actually grow and which is what we feel -- made us sort of attracted towards the brand itself 1 access of growth is distribution, which like you rightly pointed out, and we also mentioned. We are just about further extending distributions on the brand this quarter. So probably by next time when we meet, you will be able to find the brand on the platforms that you're looking for. We have done all of that basic work, and now it's just about POs and application and then scale up of that distribution, right? So that is one access on which we see the brand growing. The second axis of brand growth is just category expansion. It was largely a sunscreen brand, 98% when we bought it. We are further unlocking newer categories based on our R&D and formulation as well as consumer insight understanding. So we see categories like face washers, right serums to also become categories of future for the brand. So that's the other access on which the brand will go right now. And the third access is the geography access the brand, like we mentioned, was largely a South India focused brand. And now slowly, we are coming up on that map with opening up of Maharashtra and then focusing on other states in the future. So being pretty confident that with those 3 access and potentials of growth, the brand should continue to grow well over the next 3 to 5 years for sure.

And one last thing, if I may. I know it's very granular, but still let me attempt. So the growth in Mamaearth is very impressive in feel. Is online also growing very well? Or it's largely heavily been done by offline?

Yes. Online is also... so Mamaearth also is double-digit growth.

We'll take our next question from the line of Umang Shah from Banyan Tree Advisors. PMS.

Just had one observation. Our advertising expenses have grown at 6% or for the full year, while other expenses actually declined. I just wanted to understand what led to the two. And going forward, how do we balance between margins and sales growth. This has wanted to understand in terms of reinvesting in the brand or in terms of expanding distribution?

In general, advertising as a value spend is something that we have talked about will go up. But as percentage, it comes down and hence, that's the ANP leverage that we see getting generated in the business. And we have seen that unlocking value for us and EBITDA for us last year as well. There are 3 key sort of buckets for us from a leverage generation perspective, on our channel spend and performance spend, in seconds are brand spend. And third is our OpEx spend. And a combination of leverage from these 3 is what will help us generate that 100 basis points improvement in EBITDA profile that we have talked about from a year-on-year over the next 5 years' perspective. Our internal plan is to make sure, even from here in 5 years, we are able to improve 500 basis points on our bottom line. And the combination of these 3 levers will help us do that. The weightage between those might vary between here, some year, we might focus on channel spend, some here on Reginald, some year on OpEx to get to that expansion. But we are fairly confident of delivering our high teens CAGR over the next 5 years that we've talked about. And along with this 50 basis points EBITDA expansion in the same.

Great, sir. And sir, any reason for decline in the other expenses for full year and for Q4?

Raman this side. So I think when you look at Q4 and of course, even year-on-year, there is what we mentioned during the initial part of our conversation and presentation is the -- it's not like-for-like because the reported numbers are taking the impact of slip card settlement and the GT charges that have reduced our realization and also the expenses or distribution expenses that charges have gone out of our P&L. So the other expenses that you see being the same book. Q4 are actually around 18%. And last year was about 22% same quarter. So the 3,400,000,000,000 reduction is largely due to the leverage on the scale benefit everything, but the bottom there is more for like-for-like.

Next question is from the line of Nitin from HDFC Securities.

Congrats on the recovery. My first question is around like how are you pleased with the inflation and thoughts around highlights.

Could you repeat that question and did not understand the last part of that question.

Can you hear me now?

Yes, we can hear you better now.

So I was asking like how are we pleased with inflation and plans for price hikes?

So we did foresee the crude impact and war scenario to impact some of the PM and RM crisis for our portfolio. And in line with that, we have already executed some calibrated price increases in line with where we've also seen competition taking the price increasing the same and our RPI is still remaining fairly competitive at the premium that we want to maintain. And those have already been sort of executed as we speak in Q1. So we don't impact at least at this point of time with where crude is at this point of time. We don't expect any further price increases. But what we have already done should take care of the COGS inflation that is coming in.

Would you be able to quantify the quantum of price hike?

Not really.

Sure, no problem. And with respect to actives, like I just wanted to check like how we are placed compared to a bigger competition like so which is placing minimally aggressively in the off-line channel?

I would just say that Derma co continues to be grow really fast. In our view, it's a larger brand. And in fact, even according to Euromonitor data, it is the largest active brand in the countries. And even according to Nielsen Derma co shares are the highest amongst any other active brands in the country. So I think we are well positioned.

And how is the ARR now for the TDC brand.

Yes. We -- last we disclosed it was at INR 750 crores plus, it continues to go on from there.

Okay. And the last question pertains to like I just wanted to have a sense on like how big is the GT sort of revenue for us for FY '20. And any thoughts around like how we want to grow this channel because lots of action we have taken and it has started sort of helping us grow faster. So that's the last question.

Yes. So this channel continues to be one of our fastest-growing channels now. And fundamental imports, including right manpower, ride distribution partners, covering the right kind of stores, tracking execution at store level and ensuring quality of distribution and automatic ordering sort of systems and high visibility on distribution management system. So a combination of all of those levers is what we have deployed, which makes us feel confident and that we'll continue to win in the current outlets that we are presenting and also continue to add newer outlets, which has been our active agenda.

Next question is from the line of Mehul Desai from JM Financial.

Yes. I just wanted to know the like-for-like growth, if you remove Reginald from sales as well as EBITDA. I mean how would the core business growth look on that is on sales and EBITDA for the quarter?

So from a growth perspective, 21% will be the like-for-like growth. And from an EBITDA perspective, the impact will be just about 30 basis points in rest of all EBITDA is of the core business.

Okay. And this 21% you are removing the Flipkart impact also, right?

No. Flipkart impact will need to further remove, which is why I mentioned it's like-to-like. If you remove Flipkart impact, then it's not like-for-like.

Okay. And when you say this 40% growth for your younger brands, obviously, this includes Reginald also. I mean excluding Reginald also, I mean, I think newer brands would have seen an acceleration the younger brands in this quarter?

Yes, they are at 28% plus 28% plus.

And lastly, I mean while you did allude to Mamaearth's growth for the quarter, can you give some flavor on what was the Mamaearth growth for the full year FY '26?

So for the full year also, it's in double-digit reach.

We'll take our next question from the line of [ Yogeeta ] from Aditya Birla Capital.

Congratulations on your good set of numbers.

Can you please use your handset mode. Yogeets, please use your handset mode. Your audio is not clear.

Congratulations on the good set of numbers. So can you give some strategy, your strategy on driving tamarization in skin care and hair care? And how are we expecting this to impact growth in margins going forward?

So honestly, our underlying hypothesis around all our brands has been premiumization. We exist because we felt that the emerging middle class of the country was not being served with differentiated more aspirational brand propositions, which makes them feel like they're moving forward in life and upward in life. And hence, all the business that we have built has been by tapping on the premiumization trend. And we expect this premiumization trend to continue for decades to come.

Okay. Understood. Another question, can you give some color on the margin performance across a few brands, cold brands, Mamaearth, Derma Co and others like the performance in FY '26 and maybe some guidance for FY '27.

So from a margin standpoint, Mammoth and Derma Co both are double digit EBITDA positive. And we foresee them to continually improving their margin trajectory in the future as they have done in the past, along with growth. And from a forward-looking outcome, we like we said, I mean from the next 5 years' perspective, the company plans to grow at high teens CAGR. There will be years where we do a few points better than that and years where we'll do a few points lower. But overall, we'll grow at a high-teens stagger from an x 5 years perspective. effort would be to, of course, even do better than that. And from an EBITDA profile perspective, over the next 5 years, we want to get 500 basis points back of again, there might be years where we'll do better than that in terms of the 100 basis points or depending upon the strategy that we take. Like last year was a strategy where we delivered higher than that sort of benchmark. But overall, the plan will be over 5 years, increasing at least 500 basis points in the waterline.

Okay. Just one more question. The young brand and focus categories, have you seen the growth for this year and quarter. So do we expect to -- should we expect it to continue driving at similar levels in FY '27?

We expect the young brands to continue to grow strongly and drive growth for the company in the next year as well. And the levels, et cetera, will keep changing. Like I said, we are more aligned to the broader to the numbers that we talked about. But yes, some of young brands will continue to drive stronger growth for the company and drive growth for the overage.

And about focus category?

Again, yes, focus categories are getting more than 90% of our investment in focus. And hence, we expect them to continue to be growth drivers for the organization.

Next question is from the line of Aditya [indiscernible] from Stallion Asset.

My questions have been answered.

[Operator Instructions] Ladies and gentlemen, we'll take that as a last question for today. I now hand the conference over to management for closing comments. Over to you.

Thank you so much for asking those questions. It was a pleasure speaking to all of you. We will see you in the next quarter with, hopefully, even better set of results. Thank you.

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