Financial Analysis Summary: Honasa Consumer Limited

Period under review: Quarter ended September 30, 2025 (Q2 FY26) and comparative periods

1. Auditor’s Note

• The Independent Auditor’s Review Report (S.R. Batliboi & Associates LLP) on both standalone and consolidated unaudited financial results for Q2 FY26 and H1 FY26 contains no qualifications, concerns, or issues.
• The auditor’s conclusion states: “Nothing has come to our attention that causes us to believe that the accompanying Statement... contains any material misstatement.”
• The audit was conducted as a review engagement (SRE 2410), not a full audit, which is standard for interim results.
• No qualifications or adverse remarks noted.

2. Financial Performance

Consolidated Financials (Rs. Million)

Margins (approximate):

• Q2 FY26 EBITDA proxy (PBT + Depreciation + Finance costs):
  = 527.47 + 117.38 + 32.96 = 677.81 million
• EBITDA margin Q2 FY26 = 677.81 / 5,380.63 ≈ 12.6%
• Operating profit margin (PBT margin) Q2 FY26 = 527.47 / 5,380.63 ≈ 9.8%
• Net profit margin Q2 FY26 = 392.27 / 5,380.63 ≈ 7.3%

Quarter-on-Quarter (QoQ) and Year-on-Year (YoY) observations:

• Revenue down QoQ by ~9.6% (5,952.54 to 5,380.63 million) but up YoY by ~16.5% (4,618.22 to 5,380.63 million).
• Profit before tax down QoQ by ~5.1% but swung from loss YoY to profit.
• Net profit after tax positive and growing QoQ and sharply improved YoY (loss in Q2 FY25 to profit in Q2 FY26).
• EPS turned positive from negative in Q2 FY25.

Standalone Financials (Rs. Million)

Standalone margins:

• EBITDA proxy Q2 FY26 = PBT + Depreciation + Finance costs = 514.67 + 93.01 + 27.11 = 634.79 million
• EBITDA margin Q2 FY26 = 634.79 / 5,266.94 ≈ 12.1%
• Operating profit margin Q2 FY26 = 514.67 / 5,266.94 ≈ 9.8%
• Net profit margin Q2 FY26 = 383.47 / 5,266.94 ≈ 7.3%

3. Detailed Notes / Management Commentary

• Accounting policies: No changes reported.
• Business combination:
  • Merger of two wholly owned subsidiaries (Fusion Cosmeceutics Pvt Ltd and Just4Kids Services Pvt Ltd) effective FY25, accounted retrospectively as per Ind AS 103. Comparative figures restated accordingly.
• Project Neev:
  • Transition to a direct distribution model in top 50 cities, discontinuing super stockist layer and replacing some distributors with higher quality Tier 1 distributors.
  • Resulted in sales return provision of Rs 635.18 million in FY25, with inventory/right to return asset of Rs 114.42 million.
  • As of Sep 30, 2025, outstanding sales return provision is Rs 34.73 million with no related inventory asset.
• Employee stock options:
  • 2,342,672 options granted in Q1 FY26.
  • 186,184 shares allotted on exercise of stock options in Q2 FY26, increasing paid-up capital.
• Legal matter:
  • Overseas distributor RSM General Trading LLC filed suit in UAE claiming Rs 1,001.25 million damages.
  • Court ordered payment of Rs 576.65 million plus interest; appeal process ongoing with stay on execution.
  • Arbitration proceedings commenced in India; next procedural step due Nov 14, 2025.
• IPO proceeds utilization:
  • Rs 3,504.92 million net proceeds from IPO (Nov 2023).
  • Utilization as of Sep 2025: Rs 2,374.80 million (advertising Rs 1,325.35 million; capex Rs 78.17 million; investment in subsidiary Rs 63.85 million; corporate/inorganic Rs 907.43 million).
• Acquisition:
  • Approved acquisition of 25% stake in Couch Commerce Private Limited (brand: Fang Oral Care) for up to Rs 100 million (INR 10 Crores).
  • Target company FY25 revenue Rs 3.14 Crores; ARR FY26 ~ Rs 7 Crores.
  • Acquisition expected to close within 4 weeks from Nov 12, 2025.
• No material adjustments or caveats reported.

4. Segment Information

• The Group operates in a single business segment: beauty and personal care products (including baby care, skin care, hair care) manufactured by third-party contract manufacturers.
• No separate segment disclosures provided as per Ind AS 108.
• No geographic or product line breakdowns disclosed.

5. Capex, Projects, and Corporate Activity

• Capital expenditure:
  • Standalone capex for H1 FY26: Rs 36.69 million (cash flow statement).
  • Consolidated capex for H1 FY26: Rs 44.96 million.
  • IPO proceeds allocated Rs 78.17 million for new Exclusive Brand Outlets (EBOs) capex (utilized as of Sep 2025).
• Projects:
  • Project Neev (distribution model transition) ongoing, impacting sales returns and inventory provisioning.
• Acquisitions:
  • 25% stake acquisition in Couch Commerce Private Limited (oral care brand Fang Oral) for Rs 100 million.
• Writedowns/Provisions:
  • Sales return provision outstanding Rs 34.73 million as of Sep 30, 2025.
  • Provisions for doubtful debts and slow-moving inventory noted in cash flow adjustments (Rs 53.23 million and Rs 11.33 million respectively for H1 FY26).
• Restructuring:
  • Distribution restructuring under Project Neev.
• No writebacks or impairments reported.

6. Standalone vs Consolidated

• Consolidated results include subsidiaries: Bhabani Blunt Hairdressing Pvt Ltd, B:Blunt-Spratt Hairdressing Pvt Ltd, Honasa Consumer General Trading LLC, PT Honasa Consumer Indonesia.
• Consolidated financials show slightly higher revenue and profit reflecting subsidiaries’ contribution.
• No material divergence between standalone and consolidated results.

Summary of Key Actionable Financial Information

Conclusion

Honasa Consumer Limited reported a strong turnaround in profitability in Q2 FY26 on a consolidated basis, with revenue growth YoY and positive operating and net margins. The company continues to invest in brand building and distribution transformation (Project Neev), with controlled capex and positive operating cash flows in H1 FY26. The acquisition of a 25% stake in an oral care brand signals strategic diversification. The legal dispute with an overseas distributor remains a contingent risk but is currently stayed and under arbitration.

No auditor qualifications or material issues were noted. The company’s financial position remains robust with a healthy equity base and manageable liabilities.

Prepared for investment analysis team use.