Buy Eureka Forbes Ltd For Target Rs.725 By Emkay Global Financial Services Ltd
We initiate coverage on Eureka Forbes (EFL) with BUY and TP of Rs725 (50x Sep-27E PER; ~24% upside), with the stock price having the potential to double in 3-4Y. Under the new management, EFL (a leading health and hygiene brand) is transforming products/services and unlocking significant growth in highly underpenetrated categories of water purifiers/vacuum cleaners (EFL pioneered these and leads with ~40%/60% market shares, respectively), entering adjacent categories. Focus on category-led campaigns, affordability (models from Rs6.5k), and distribution (~20k pin codes) led to 7 straight quarters of double-digit growth despite weak sentiment/softness among peers in the other appliance category. Service momentum is reviving (double-digit AMC bookings in Q1). Despite rising R&D/marketing spends, margins rose by ~400bps in 2Y to 11% in FY25 (although lags Kent’s ~15-20%, implying major headroom). We bake in revenue/EBITDA/EPS CAGR of ~13%/20%/24% over FY25–28E, with robust net cash of Rs2.5bn now (vs net debt in FY23), FCFE yield (~3% by FY28E), and ROCEs (+250% in FY25, adjusted for Goodwill/other Intangibles).
From barriers to breakthrough – Driving category growth; early success visible
EFL’s leadership in highly underpenetrated categories (6%/2% in water purifiers/vacuum cleaners) offers significant growth headroom. Backed by 6x R&D and 8x A&P investments in 3Y, EFL is reshaping category perception, breaking affordability barriers, and delivering sustained double-digit product growth (vs low single-digit growth over the last decade). The focused thrust on affordability (entry models at Rs6.5k) and new product-led premiumization (~Rs15–20k) aided growth in water purifiers. In vacuum cleaners, new offerings (3x rise in robotic SKUs in a year) and ‘cleaning as easy as 1-2-3’ campaign target first-time users. Robotics is now +50% of vacuum cleaner revenues. We model 13%/15% revenue CAGR over FY25–28E for water purifiers/vacuum cleaners.
Transformation underway in service business; digitization to act as a catalyst
EFL has overhauled service offerings by moving beyond AMCs to tailored solutions, driving the installed app base to 1.6mn in FY25 (vs 140k in May-23) via an enhanced user interface. Digitization (slot-based booking, technician tracking) has lifted app-based engagement (80% complaints are online vs 33% in May-23); low penetration is being addressed via tiered AMCs (from Rs599), QR-coded filters for authenticity, and 1-hour service guarantees. While historically muted (~2% CAGR over FY23-25), early greenshoots are visible (service bookings saw double-digit growth in Q1FY26). We believe the services revenue engine will start firing, with ~13% revenue CAGR over FY25–28E.
Sharpened focus on profitability; valuation at 50x Sep-27E PER
EFL has turned around sharply, expanding margins to ~11% in FY25 (vs ~7% in FY23) and moving to Rs2.5bn net cash despite high marketing, digital, and R&D spends. Margins, however, remain well below Kent’s ~15–20%, offering meaningful upside potential. EFL is now embarking on its next phase of EBITDA optimization. We value EFL at 50x Sep-27E PER, on ~24% EPS CAGR, superior returns, and an asset-light model.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
