Honasa Consumer- Innovation at Pace
- 2 hours ago
- 4 min read
Honasa Consumer more commonly known by its flagship brand- Mamaearth is one of those interesting case study wherein narrative around the business & its quality is opposite of what the numbers & execution reflects.
Despite all the narrative no one can doubt that Honasa has been one of the most successful outcomes in D2C space in India. In ~10 years, the company has become one of the largest BPC (beauty & personal care) company with ~Rs2400 crores of revenues and has done so without burning a lot of capital and is actually quite profitable (vs the narrative which is quite opposite).
The profitability & capital burn part is well reflected in the fact that the promoters own ~35% of the company which is probably the highest among startups that have listed in last few years and the business itself generated a net profit of Rs200 crores in FY26.
Broader narrative is that company’s revenues are sort of bought revenues wherein aggressive spending on marketing is what is leading to growth in revenues, that there is no sticky demand for its products and that revenues will plummet once marketing is curtailed or stopped.
In this blog post I will highlight what market fails to understand about company’s business model and the real strategy that has led to company’s success in a highly crowded market.
The success of Honasa has been on the back of its rapid innovation led playbook, which is based on the insight that consumers themselves do not know what they want & will like unless someone innovates and gives it to them.
Watch the following podcast from 11:25-16:30 mins to understand this insight-
The reason why this playbook works is because traditional players are always slow in innovating and that creates an opportunity for new players to offer a new product to a consumer, which if sticks, the new player will have the first mover advantage. And once the category becomes mainstream, the traditional players will enter and that will further expand the new category to the benefit of the innovator who already has an established leadership.
This narrative that Honasa is a push-based company with fad products is misunderstood in the sense that this push-based strategy is actually the reason why Honasa has been able to create a space for itself in a highly competitive FMCG space.
If the company would have gone with the mainstream offerings it would have never been able to compete with the existing players whose brands & products are already entrenched with consumers. This strategy of launching many products on the back of a fast pace innovation & understanding of consumer trends is what has worked for Honasa. And Honasa has leveraged new age tools like social media and ecommerce to do it much more rapidly.
A very good example of this playbook at work is Honasa’s Derma Co brand; Derma Co operates in the active ingredients category. This category did not exist in India four years back, but is now a >Rs2000 crores category wherein Honasa with its two brands of Derma Co & Dr Sheth’s has ~33% market share due to it being the 1st mover here.
Traditional players have just started to enter this category given that it is evident that it is not a fad but something that is sticking with consumers. Unilever bought the 2nd largest player in this category- Minimalist for over Rs3000 crores.
Using this playbook, Honasa continues to innovate & scale new brands;
Eventual outcome of this strategy would be that there would be several smaller failures like Ayuga (Ayurvedic focused brand), but there would also be some very large winners like the Derma Co.
So, the power law will play out.
And overtime as more & more hero products accumulates, the overall profile of the business will improve such that increasingly a larger share of overall business would be driven by these mainstream or pull based products and thus the margin profile of the business will also improve. Margins will improve on the back of the fact that once a product becomes mainstream, the quantum of ad spends reduces meaningfully as there is pull based demand. This is the reason why offline channel is much more profitable than online channel and is also a good indicator of mainstream or pullbased business.
This is already playing out in the company’s oldest brand of Mamaearth has successfully transitioned into the offline channel wherein offline mix is now >50% and the brand has double digit EBITDA margins vs single digit margin for the company at an overall level. Derma co is the 2nd brand which after attainting a large scale online is now being seeded into offline channel.
Plus, as quick commerce is transforming the whole offline channel, Honasa is well placed to benefit from it and accelerate its offline journey. Also as more & more brand transition to offline, even the overall offline channel becomes stronger for the company;
In summary, what is considered as negative by the market that the company launches too many products most of which are not sticky, is actually the thing that is working out for Honasa.
Lastly one thing I can say from my experience is that market participants can ignore growth & execution due to various reasons like their biases, lack of understanding, perceived risk etc only for a certain period of time. Eventually sustained growth & execution does change these things and the company/stock gets its due share of respect and valuation. Naysayers of the past eventually becomes the investors in the same stock.
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