 "Water purifier, water, Eureka Forbes,")
Nomura on Eureka Forbes: Japanese brokerage firm Nomura has upgraded Eureka Forbes stock to 'Buy' from 'Neutral', seeking comfort from the home appliance maker's premium product launches, higher ad spends, and a low base.
"We expect structural drivers of low penetration premiumisation to drive ~10 per cent industry growth for water purifiers. EFL's initiatives of premium product launches, higher ad spends, and a low base should help it outperform, with ~12-14 per cent revenue growth in FY25/26F," said Siddhartha Bera and Kapil Singh, research analysts, Nomura.
Margins, too, analysts at Nomura added, have multiple tailwinds from higher spare/ service revenue, direct-to-consumer sales, and operating leverage, which will drive expansion.
"Eureka Forbes has corrected by 18 per cent in the past six months, as against the Nifty50's over 10-per cent rally, and current valuations at ~33x FY26F price-to-earnings (P/E) look attractive to us given the strong ~40 per cent EPS CAGR over FY24-26E, and healthy free cash flow (FCF) generation of ~Rs 290 crore/Rs 370 crore in FY25E/26E," the brokerage said while upgrading the stock from 'Neutral.
The change in stance comes after the company posted steady March quarter (Q4FY24) results.
In Q4FY24, Eureka Forbes reported a 31.1 per cent increase in net profit to Rs 21.4 crore, alongside an 8.8 per cent rise in revenue to Rs 553.1 crore compared to Q4FY23.
Although total expenses increased 3.1 per cent Y-o-Y, with higher employee expenses and service charges offset by lower other expenses, Ebitda improved by 11.1 per cent to Rs 52.7 crore.
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In their assessment of Eureka Forbes' performance in the fourth quarter of FY24, Nomura analysts pointed out a revenue shortfall compared to estimates. However, they observed that Ebitda (excluding ESOP) surpassed expectations. Notably, the Ebitda margin outperformed forecasts, propelled by lower raw material expenses and reduced other costs.
Despite a slight dip in profit before tax, the management remains optimistic, attributing near-term demand softness to a weaker e-commerce channel and shifting consumer spending patterns towards seasonal products.
Looking ahead to FY25, management plans to prioritise the scaling up of premium launches to drive higher-value growth.
Management highlighted gaining market share in water purifiers during Q4 and anticipated further gains in FY25, supported by increased direct annual maintenance contract (AMC) revenue.
With healthy gross margins and promising operating leverage, the company aims for further margin enhancement in the future.
"We lower FY25E/ 26E revenue estimate by 3-4 per cent to factor in near-term demand softness. We lower Ebitda margin by 40bp/60bp to 11.7 per cent/14.3 per cent over FY25E/26E (10.3 per cent in FY24) leading to an ~7.7% cut in EPS for FY26E. We trim our target price to Rs 534 (from Rs 568)," Nomura said.
At 10:00 AM, shares of Eureka Forbes were trading 0.51 per cent higher at Rs 436.50 per share. By comparison, S&P BSE Sensex was trading 0.47 per cent lower at 74,152.06 levels.
Eureka Forbes is one of India's leading health and hygiene leaders with brands like Aquaguard & Forbes. EFL's product portfolio encompasses water purification, vacuum cleaning, air purification, and home security solutions.
