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Strong execution; positive outlook

Eureka Forbes (EFL) delivered resilient performance with 6 th consecutive quarter of doubledigit revenue growth (from continuing business) and steady improvement in margin profile. Product business saw high-teens growth (vs. teens growth in Q3) led by broad based growth across its segments. Same can be attributed to a combination of internal initiatives (high innovation intensity, increased investment behind brands) undertaken by EFL coupled with improvement in category growths. While water purifier services business growth (due to ASP dilution & accrual accounting) has been relatively lower, management indicated that green shoots are visible (improving AMC volumes) led by its interventions (filter innovations, digital investments, consumer campaigns) which should help improve growth in FY26E. Margin delivery was key positive surprise led by better mix, lower buyback/consumer spends, cost management and operating leverage. Management commentary remains positive, expects revenue momentum to remain healthy which along with cost optimisation/scale leverage should provide fuel to invest behind growth as well as drive margin expansion. We like EFL’s growth story (focus on breaking category barriers to drive growth in products/services business) & see scope to improve margins. Execution so far has been impressive; a debt-free balance sheet, negative working capital and strong FCF generation provide comfort. Factoring better margin delivery, we have raised our FY26/27E est. by 4-5%. Maintain Buy with revised TP of INR 685 (40x June 27E EPS).

* Double-digit growth continues with high-teens growth in Product business: EFL’s consol. sales, EBITDA and adj. PAT grew 10.7%, 44.6% and 40.3% to INR 6.1bn, INR 771mn and INR 486mn respectively. Revenue was largely inline - growth was led by product business which grew in high teens helped by innovations and growth investments. While services business continues to trail product business growth, mgmt. expect trajectory to improve here with green shoots (uptick in AMC volumes) now emerging. Going ahead, management’s expects product business sales growth to sustain in mid-high teens and overall margins to see gradual improvement notwithstanding high A&SP spends, driven by better mix, costs optimisation program and operating leverage.

* Margin delivery surprises positively driving overall earnings beat: Consol. GM improved by 38bps to 59.7% (vs our est. of 57.8%), though improved sequentially by 188bps driven by cost efficiencies at COGS level, mix improvement and lower buyback/consumer spends (higher in 3Q due to festive season). This, along with lower growth in staff costs (c.4% yoy) and other overheads (c.+9% yoy) vs. revenue – a function of operating leverage & cost management resulted in sharp EBITDA margin expansion of 295 bps to 12.6% (c.200bps above our estimate of 10.6%). This was notwithstanding high growth investments – A&SP spends grew 25% yoy to 10.7% of sales (up c.130bps yoy) in FY25. Adjusted EBITDA (ex-ESOP cost) grew 27% yoy to INR 792mn with margin at 12.9%. ESOP cost were lower yoy due to annual valuation trueup. Reported EBITDA grew 44.6% to INR 771mn (17.3% above estimate), while adj. PAT grew 40.3% to INR 486mn (25.3% above estimate).

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SEBI Registration Number is INM000010361