Honasa Consumer Ltd Upgraded to Hold by MarketsMOJO on Improved Fundamentals and Technicals

Quality Assessment: Strong Operational Performance and Financial Health

Honasa Consumer’s quality metrics have notably improved, driven by its very positive financial performance in the second quarter of FY25-26. The company reported a remarkable 179.33% growth in operating profit, reaching ₹47.64 crores, the highest quarterly figure recorded to date. This surge underpins the company’s operational efficiency and market traction.

Profit after tax (PAT) also demonstrated robust growth, rising by 112.8% to ₹39.23 crores compared to the previous four-quarter average. Return on Capital Employed (ROCE) for the half-year stood at a healthy 12.95%, signalling effective utilisation of capital resources. Meanwhile, the Return on Equity (ROE) is at a fair 10.4%, reflecting steady shareholder returns.

Importantly, Honasa Consumer maintains a conservative capital structure with an average Debt to Equity ratio of zero, underscoring its low financial risk and strong balance sheet. This prudent financial management enhances the company’s quality rating and supports its upgraded investment stance.

Valuation: Attractive Pricing Relative to Peers

The company’s valuation metrics have also contributed to the rating upgrade. Trading at ₹277.75, Honasa Consumer is priced at a Price to Book (P/B) ratio of 7.1, which, while not low in absolute terms, is considered fair given the company’s growth prospects and profitability metrics. The stock is currently trading at a discount compared to its peers’ historical averages, offering investors a reasonable entry point.

Moreover, the Price/Earnings to Growth (PEG) ratio stands at 1, indicating that the stock’s price fairly reflects its earnings growth potential. This balanced valuation, combined with strong fundamentals, supports the Hold rating, suggesting limited downside risk with potential for moderate appreciation.

Financial Trend: Sustained Growth and Market-Beating Returns

Honasa Consumer’s financial trend has been decidedly positive, with consistent growth in profitability and returns. The company has declared positive results for two consecutive quarters, signalling sustained momentum. Operating profit has grown at an annualised rate of 38.39%, a strong indicator of long-term growth potential.

Over the past year, the stock has delivered a total return of 27.09%, significantly outperforming the broader market benchmark, the Sensex, which returned 5.16% over the same period. This market-beating performance is complemented by a 68.5% rise in profits, reinforcing the company’s growth credentials.

Promoter confidence has also strengthened, with promoters increasing their stake by 0.57% in the previous quarter to hold 35.54% of the company. This uptick in promoter holding is a positive signal, reflecting belief in the company’s future prospects and strategic direction.

Technical Analysis: Shift from Bearish to Mildly Bearish Outlook

The technical grade for Honasa Consumer has improved, prompting the upgrade in investment rating. The technical trend has shifted from bearish to mildly bearish, indicating a less negative momentum and potential for stabilisation or recovery.

Key technical indicators present a mixed but improving picture. The Moving Average Convergence Divergence (MACD) remains bearish on the weekly timeframe, but monthly signals are neutral. The Relative Strength Index (RSI) shows no clear signal on both weekly and monthly charts, suggesting the stock is neither overbought nor oversold.

Bollinger Bands indicate sideways movement on the weekly chart and mildly bearish conditions monthly, while daily moving averages remain bearish. The KST (Know Sure Thing) indicator is bearish weekly but lacks a monthly trend, and Dow Theory signals a mildly bearish weekly trend with no monthly trend established. On-Balance Volume (OBV) shows no clear trend on either timeframe.

Despite these mixed signals, the overall technical environment has improved sufficiently to support a Hold rating, reflecting reduced downside risk and the possibility of a technical turnaround.

Price and Market Context

Currently trading at ₹277.75, the stock is near its recent close of ₹276.40, with a day’s high of ₹283.20 and low of ₹271.25. The 52-week high stands at ₹334.00, while the 52-week low is ₹190.00, indicating a wide trading range and room for price appreciation.

Short-term returns show mixed performance: a 1-week gain of 1.96% contrasts with a 1-month decline of 4.65%, closely tracking the Sensex’s 4.67% fall. Year-to-date, the stock is down 3%, but over one year it has surged 27.09%, outperforming the Sensex’s 5.16% gain. Longer-term data is not available for this stock.

Conclusion: A Balanced Hold Rating Reflecting Improved Fundamentals and Technicals

The upgrade of Honasa Consumer Ltd’s investment rating from Sell to Hold is justified by a comprehensive improvement across quality, valuation, financial trends, and technical indicators. The company’s strong quarterly earnings, low leverage, and rising promoter confidence underpin its fundamental strength. Meanwhile, valuation metrics suggest the stock is fairly priced relative to growth prospects and peers.

Technically, the shift from bearish to mildly bearish conditions reduces downside risk and hints at potential price stability or recovery. However, some indicators remain cautious, warranting a Hold rather than a Buy rating at this stage.

Investors should monitor upcoming quarterly results and technical developments closely, as further improvements could warrant a more bullish stance. For now, Honasa Consumer represents a stable mid-cap FMCG stock with solid growth credentials and a balanced risk-reward profile.

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