'We will continue to build new engines of growth in terms of innovations, enter newer categories, and look at newer propositions.'
Following its public listing earlier this month, Honasa Consumer -- the parent company of the direct-to-consumer brand Mamaearth -- posted its first-ever quarterly result, with a 94 per cent increase in profits for the quarter ended September 30.
Varun Alagh, chairman and chief executive officer of Honasa Consumer, is confident in delivering market-beating growth while improving profitability.
In a telephonic interview with Aryaman Gupta/Business Standard, he speaks about the company's initial public offering (IPO) performance, profitability, challenges, and plans.
What is your take on how the IPO has performed?
The IPO has performed well. Ultimately, it is about the milestone of taking the company public.
We did receive very healthy subscriptions. All our buckets, from institutional investors to high networth individuals, retail to employees, were fully subscribed.
All of these put together tell us that the IPO was a good outcome.
Now, the more important thing is to continue to run the business most sustainably and keep meeting the kind of expectations that we have set for the market in terms of our delivery over many quarters to come for many years.
Our reputation will be built far more by what we do in the future rather than due to the IPO event.
Honasa's second-quarter (Q2) profit after tax has increased 94 per cent year-on-year to Rs 29 crore. What is driving margin improvement?
The no. 1 driver is, as our brands are scaling, we are seeing strong efficiency and leverage in our advertising and promotion (A&P) spends.
While we continue to invest in our brand building to grow, that percentage continues to go down.
That is the largest area where we are seeing our bottom line strengthening.
We are also seeing efficiency in our operating expenses and other expenses, which are our salaries and other corporate expenses.
We have also seen a bit of leverage in our procurement efficiency.
These three areas have been the largest drivers of profitability improvement.
Which of your brands and products have been the highest revenue drivers this quarter?
From a delta perspective, Mamaearth continues to be our largest brand as well as the largest driver of profits.
It continues to get better and is far ahead of other brands in terms of profitability.
But our young brands also continue to grow very strongly.
The Derma Co is already at a Rs 380 crore level (annual recurring revenue) since last quarter.
Both Aqualogica and Dr Sheth's have entered the Rs 150 crore club.
All of these brands are less than three years old.
So, it's very heartening to see the love that we have seen for our propositions, as well as our marketing and distribution playbooks working well for these brands.
Are rising expenses a concern for you? What is the biggest cost driver for the business in Q2?
Not really. We are choosing to invest in brand building. We are choosing to invest in growth because of the kind of opportunity we see in beauty and personal care.
If you look at the first half (H1) of 2023-24, the gap between revenue and expense growth is wider.
That is giving us confidence that, as the business is growing, it is becoming more efficient.
As long as that continues, we would like to invest in growth.
Brand building driven through A&P continues to be the largest area for expenses for us.
For us, it is an investment in building the brand for the long term.
This is also resulting in much stronger growth compared to fast-moving consumer goods peers.
After the IPO, given the positive quarterly results, is the business focused on profitability or growth?
It's not an 'or' question; it's an 'and' question.
What we have demonstrated in H1 is that we can deliver market-beating growth while improving profitability.
That is how we look at the future as well.
What are the company's plans for expansion?
Distribution expansion will continue to be a focus area, as well as gaining share in different categories.
We have consistently gained a share in categories such as face wash, sunscreen, shampoo, etc, and we will continue to do so both in offline and online spaces.
We have a lot of headway to increase our distribution, and we will continue to do that.
We will continue to drive awareness through brand building.
Our brands are still young and still have a long way to go in terms of driving awareness.
We will continue to build new engines of growth in terms of innovations, enter newer categories, and look at newer propositions.
The revenue contribution from Honasa's top 10 products is decreasing. How do you view this?
We are a cross-channel company. Channels like online and e-commerce require a much broader portfolio. They are not single product-oriented channels.
If we were to look at the top 10 product contributions for a brand like Mamaearth, it is around 45 per cent (of overall revenue).
When considering offline contributions, it is more than 50 per cent.
Depending on the kind of channels, these contributions do change. So, we do not bother as much about that number.
Do you foresee any challenges ahead?
We have been continuously seeing a lot of love for consumer-oriented innovations and propositions. So, no real headwinds or challenges as of now.
Feature Presentation: Aslam Hunani/Rediff.com
