Shares of Honasa Consumer Ltd., the parent company of beauty and skincare brand Mamaearth Ltd., turned recovered as much as 15% from its intraday low to trade with gains during Friday's trading session.

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The recovery came after brokerage firm Jefferies initiated a "conviction" buy on the stock, the first after the stock listed. The brokerage ascribed a price target of ₹520 on the stock, which is a potential upside of nearly 70% on the stock from its current levels.

Shares of the Mamaearth-parent had declined as much as 12% in morning trading, slipping below the mark of ₹300.

Jefferies expects Honasa to report industry-leading growth of 27% over the next three years. It is also expecting double-digit margins by financial year 2026, led by an optimisation in marketing spends and scale benefits.

The brokerage expects the company's BPC business to grow in double-digits with steady gains for its online channel. It also called Honasa's prioritising growth over profitability as the "correct strategy."

The company's shares went public on Tuesday, making a subdued listing, ending its stock market debut with gains of 4% above its IPO price of ₹324.

In a conversation with CNBC-TV18 on November 2, Envision Capital's Nilesh Shah said that while Mamaearth is a good brand and has good products, he will not invest in the stock right now.

"I would probably give it a pass right now. I think the business is great, the brand is selling, and the products are selling, undoubtedly. Therefore, in the next 5-10 years, this business – probably from ₹1,000 crore – will become ₹5,000-10,000 crore revenue company," said Shah.

Honasa Consumer saw its three-day IPO being subscribed 7.6 times led mainly by institutional investors and employees. It included a fresh equity issue of ₹365 crore and an Offer for Sale of around 4.12 crore shares.

Retail investors chose to exercise caution on the IPO, with their portion being subscribed only 1.35 times.

"I would advise investors to be extremely cautious on Honasa, sheer valuations at which the company has come with IPO, I think makes me extremely worried about any further commitment. Again, out here, although the opportunity size is pretty large, the margin of safety from an entry perspective, I think the company in my opinion, and I might be wrong, has not left much on the table," Ajay Bodke, Market Expert told CNBC-TV18.

"The pain, that's some the new age companies went in, when they listed at very high valuations I think in my opinion, I won’t be too surprised if the investors who have enthusiastically piled on Honasa at the current valuation might have to endure that pain before the stock starts going up. There has to be at least time correction if not price correction in Honasa," he added.

The stock is currently trading 2.1% higher at ₹308.40.

(Edited by : Amrita)

First Published:Nov 10, 2023 9:57 AM IST