Companies
Honasa denies distributors’ association's claims of unsold stock, says secondary dues have been cleared
Summary
- This comes nearly four months after Mint reported that the body raised similar concerns of excessive inventory that the company had dispatched to the market and delays in replacing damaged, unsold and expired stock.
Honasa Consumer, the parent to personal care brand Mamaearth, has denied allegations made by the All India Consumer Products Distributors Federation (AICPDF) regarding unsold stocks causing financial burden on distributors and retailers, noting that the figures mentioned by the industry body is “inconsistent" with the sales driven through the channel.
“We have actively and transparently addressed our transition (under Project Neev) to a direct distribution model during our results for Q2FY25. Significant progress has been made to remove stocks worth ₹63 crore from our distribution system as part of transition away from super stockists. All secondary claims from active distributors have been cleared up till August and the rest are in final stages," the company said in a statement on Tuesday evening.
The AICPDF on Tuesday claimed that several distributors and retailers are facing an “alarming crisis" of unsold stocks nearing expiry, resulting in an estimated financial burden to the tune of ₹300 crore.
Also Read: Honasa share price extends losses, falls 18% to 52-week low on weak Q2 results
“Adding to the crisis, credit notes worth more than approximately ₹50 crore remain unsettled, creating severe cash flow challenges and threatening the stability of the entire distribution network," the body said in a statement.
This comes nearly four months after Mint reported that the body raised similar concerns of excessive inventory that 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’.
Distribution strategy
Mamaearth’s distribution strategy involved super stockists, a set of intermediaries who would distribute products sourced from the company to sub-stockists and select retailers. However, Alagh had said in the Q4 FY24 earnings call that dealing with super stockists resulted in poor-quality sales and lack of data. So under ‘Project Neev’, the company shifted to a direct distribution model seeking more control.
Also Read: Honasa to implement structural changes for Mamaearth following weak Q2 results
“Given these efforts, the claims made are not reflective of the current reality. As of 31st October 2024, our total stock with our active channel partners, as per our Distribution Management System, is in line with revised norms. As per Nielsen RMS data, our Stock Turnover Ratio has improved from 35 to 27 days in the past year while the category still stands at 35 days in general trade. This directly disproves the claim of high expiry of stock in retail," Mamaearth noted.
Performance and stock movement
Shares of Honasa Consumer plunged 20% on Monday to drop below its listing price as analysts cut price targets after the company reported a weaker-than-expected financial performance in the September quarter, hurt by slow growth in its flagship brand Mamaearth.
The company, also the parent of brands including Aqualogica and The Derma Co, reported a loss of ₹18.5 crore against a profit of ₹29.4 crore in the year-ago period, while revenue from operations fell to ₹461 crore from ₹496 crore a year ago.
Honasa’s shares on Tuesday fell 11.6% to ₹262.75 per share.
