Three key reasons why Citi sees 27% upside in Mamaearth's parent shares

Shares of Honasa Consumer Care, the parent company of Mamaearth, hogged the limelight today (February 23) after Citi, the global brokerage, initiated the coverage on the stock with a buy rating. The target price has been set at Rs 550, implying a potential upside of around 27 per cent from Thursday's closing level. 
 
The long-term positives that led the brokerage to initiate the coverage with a 'buy' rating on the Ghazal Alagh-led company are:
 
1. Honasa’s strengthening market position through innovation
 
2. growth acceleration via expanding distribution reach
 
3. entry into new sub-categories and gradual margin expansion
 
The brokerage sees outperformance in growth led by company-specific initiatives and masstige positioning.
 
While absolute multiples are rich, these are likely warranted given the company’s strong business prospects, robust growth opportunity, portfolio of brands, and improving financial metrics, the brokerage noted.
 
At around 9:34 am, shares traded 3.83 per cent higher at Rs 449.7, while at day's high it climbed 5.76 per cent and scaled to levels of Rs 458.05 per share. From the IPO issue price of as much as Rs 324, the shares have climbed a good over 33 per cent in over 3 months.

Honasa Consumer Q3 results
 
Honasa Consumer Ltd, which owns FMCG brands including Mamaearth and The Derma Co. reported a three-fold jump in consolidated profit after tax (PAT) at Rs 25.9 crore for the December quarter FY24. It logged a PAT of Rs 7.12 crore in the year-ago period, according to a regulatory filing from the company, whose shares were listed last November.
 
Other brokerages' take
 
Earlier, after the listing, Jefferies initiated its buy rating with a target of Rs 520. The brokerage cited that it expects a double-digit margin by FY26E, led by optimisation in marketing spends and scale benefits.
 
There is a consensus view of a buy call for the stock from 3 analysts, Trendlyne data shows.