Buy Eureka Forbes Ltd for the Target Rs.650 by Emkay Global Financial Services Ltd
Eureka Forbes (EFL) reported a decent Q4 (revenue up 11.6% YoY), led by double-digit topline growth in the Electric Water Purifier (EWP) category after resolving the elevated e-com channel inventory issues witnessed in Q3. Growth momentum also remained strong across emerging categories, including robotic vacuum cleaners (nearly two-third of overall vacuum cleaner sales), air purifiers (4x revenue in Q4FY26 on a low base), and water softeners. Filters are expected to emerge as a growth lever for the services business going ahead. Despite geopolitical unrest, EFL maintained its long-term growth ambition (2x revenue/3x EBITDA growth by FY30), however, the management has adopted a cautious stance on FY27 margins, prioritizing margin protection alongside growth acceleration. This reflects rising commodity headwinds, leading to ~6- 7% price hike from Apr-26 (first in four years). The management indicated that demand trends remain unaffected so far, and this will remain a key monitorable going ahead. Factoring flattish FY27 margins (vs FY26 levels) amid commodity inflation, we cut our FY27E/28E EBITDAM by ~63/58bps, resulting in an EPS cut of ~7/10%. Retain BUY with a lower TP of Rs650 (vs Rs700 earlier) based on 45x Mar-28E PER. Structural growth levers including low penetration across categories (EWP, vacuum, air purifiers) and strong leadership remain intact.
Q4 growth in line; margins better than expected
Consolidated revenue of Rs6.8bn (+11.6% YoY) was largely in line with our/consensus estimate. Growth was led by double-digit growth in EWP and strong traction in emerging categories (robotic vacuums, air purifiers, softeners). Consol EBITDA stood at Rs856mn (+11%YoY), with margin of 12.5% (~80/184bps beat on our/consensus estimate). APAT rose ~9% YoY to Rs510mn (4% beat vs consensus) due to better operating profitability.
Earnings call KTAs
1) Q4 revenue was up 12%, with e-com related disruptions in EWP normalizing vs Q3. Products delivered teen growth, while EFL achieved its third year of margin expansion with ~12% 3Y revenue CAGR
2) The management highlighted its product categories remain underpenetrated and expects growth acceleration ahead, led by improving volume traction/consumer awareness programs.
3) For FY27, the two key strategic priorities are accelerating growth and protecting margins at current levels.
4) The West Asia crisis has led to sharp inflation in key inputs (polymers, metals, currencies). To offset this, EFL took a ~6–7% price hike in Apr-26 (first in last 4Y).
5) The management indicated early trends remain encouraging (no material impact on volumes yet), with no channel-filling seen in Q4FY26 despite price hikes—a positive for Q1FY27; management remains cautiously optimistic, with mixed sentiment but no material demand impact yet.
6) They reiterated focus on agility, prioritizing cost control measures over further price hikes.
7) EFL reiterated its FY30 aspiration of ~2x/3x revenue/EBITDA growth; FY27 could play out as black swan year.
8) Robotics are currently imported; the Dixon partnership has initiated SKD assembly, with localization expected to progress gradually.
9) Filters are emerging as key growth lever, led by EFL’s large installed Aquaguard base.
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