Impact of distribution system scale-up to be seen in coming quarters: Honasa CEO Varun Alagh

Bengaluru: Honasa Consumer Ltd., which operates personal care brands such as Mamaearth, Aqualogica, and The Derma Co, is working towards scaling up its direct distribution system, the impact of which will be visible in the next couple of quarters, its founder and chief executive officer Varun Alagh said on Wednesday.

“We are seeing that direct distribution scale-up starting to happen. Over the next couple of quarters, we believe that the full effect of this transition will start coming into play and the GT [general trade] system should start coming back into play,” Alagh said during the company's third-quarter call with analysts.

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In the third quarter of FY24, Honasa moved to a direct distribution model in the top 50 cities, phasing out its previous reliance on super stockists, to enhance efficiency and quality. While the transition was aimed at bolstering long-term margins and streamlining operations, it dented the firm’s revenue in the subsequent quarters.

However, nearly 85% of the inventory correction was completed last quarter and the firm managed to appoint direct distributors in the top 50 cities, Alagh said.

Amid concerns

In July, Mint reported that Mamaearth’s distributors had raised concerns over excessive inventory the company had dispatched to the market, and delays in replacing damaged, unsold and expired stock. In an interview with Mint the following month, Honasa’s Alagh said that the company is working on bringing down the inventory holding period from 90 to 40 days, with a distribution strategy shift titled ‘Project Neev’.

The firm now sees 7-8% of its overall sales come from quick commerce, up from 4-5% in the previous quarter, and expects the sales channel to outperform its e-commerce business, according to Alagh.

Honasa’s profit after tax in the December quarter was flat year-on-year at ₹26 crore, swinging back from a loss of ₹24.3 crore in Q2FY25.

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Its revenue from operations rose 6% to ₹517.5 crore in the third quarter, up from ₹488.2 crore a year ago.

During the September-quarter earnings call, Alagh had said the company planned to make significant adjustments to its product lineup, marketing approach, and investment allocation across categories to revive growth for its flagship Mamaearth brand, which underperformed in that quarter.

Honasa's shares rose 2.43% to settle at ₹205.78 apiece on Wednesday on the National Stock Exchange.