Honasa Vs Distributor: Dubai’s Top Court Rules In Favour Of Honasa

Almost a year-long courtroom drama between Honasa and its distributor RSM General Trading LLC finally went in favour of Honasa as Dubai’s top court, the Court of Cassation, overturned the Appeal Court’s decision, calling it “flawed, defective and lacking reasoning”. 

The Appeal Court had previously upheld another Dubai court’s order in favour of RSM, asking Honasa to pay AED 25 Mn (around INR 56 Cr) as a compensation. 

In an exchange filing today (April 3), Honasa said, “The company is now in receipt of judgment dated March 26, 2025, passed by the Cassation Court wherein the court has overturned the Appeal Court Judgement and referred the matter to the Court of Appeal for a rehearing by a new bench.”

The Cassation Court also sent the case back to the Dubai Court of Appeal for a fresh hearing by a new panel of judges and ensured Honasa that the original order to pay AED 25 Mn is paused until the rehearing concludes. 

Last year, RSM sued Honasa for the unlawful termination of its distributorship, Following which, the Dubai Court ordered the Mamaearth paarent to pay AED 25 Mn as compensation. 

The legal discourse between both parties has taken several turns, with cases being filed in India too. 

The  Delhi HC’s order in August not only asked RSM General Trading to revoke its execution proceedings in Dubai against Honasa but also to deposit INR 57.17 Cr along with added interest in the registry of the court until the withdrawal of execution proceedings in Dubai against Honasa. 

Following this, the D2C giant was also to initiate contempt proceedings against RSM in the Delhi HC for failing to comply with the court’s ruling.  

The Court of Cassation’s ruling came as a silver lining for Honasa amid a more gloomy situation both on the stock market and the financial front. 

Why Is Honasa Struggling? 

While the company’s stock slumped 3.66% on a year-to-date basis, led by the weakened broader market for most of this year and bottom-line losses. However, the company has given a positive return of 14% in the last month (at CMP). The company slipped into the red in the quarter ended September 2024 (Q2 FY25), posting a consolidated net loss of INR 18.6 Cr. The company had reported a net profit of INR 29.4 Cr in the year-ago quarter and INR 40.3 Cr in the preceding June quarter.

Until this quarter, the company remained profitable since its listing in November 2023. In the same Q2 quarter, Honasa underwent a change in distribution model under ‘Project Neev’. As a part of this project, it was to transition into a distribution model from super stockist model for the top 50 cities. 

As a result, the company’s distributor channel comprises 69% direct distributors and 31% super stockists in Q3 FY25 against 62% super stockists and 38% direct distributors in FY24. 

But this change also resulted in the unsold inventory for Honasa lying with distributors and retailers. In November, All India Consumer Products Distributors Federation (AICPDF) also pointed out that these large insolvent inventories are causing a financial burden to the tune of INR 300 Cr for the company. But Honasa clarified in a filing that total inventory in its distribution value chain stood at INR 40.69 Cr.

Adding to this challenge is the rising competition in the online beauty and personal care market in India, with the likes of Nykaa, Plum, Pilgrim, and Minimalist giving tough competition to one another. Not to mention, besides Mamaearth, Honasa has the Derma Co., Aqualogica, BBlunt, BBLunt Salone and Dr. Sheth’s in its portfolio

In the latest quarter result of Q3 FY25, Honasa reported a flat consolidated net profit of INR 26.02 Cr from INR 25.90 Cr in the year-ago quarter, while its operating revenue grew 6% to INR 517.51 Cr during the quarter from INR 488.22 Cr in Q3 FY24.

Recent brokerage outlooks on Honasa have also been largely negative, reflecting concerns about the company’s growth trajectory and financial performance. 

For instance, Emkay Global reduced the target price by 50% to INR 300 from INR 600, citing weak Q2 FY25 results and challenges in revenue growth and margins. Citi also gave the same TP as Emkay while downgrading Honasa’s rating to “Sell”. 

Shares of Honasa were trading 1.84% above at INR 240 on the BSE at 12:45 PM today.