IGI Logo

Eureka Forbes (EFL) delivered resilient revenue performance with double-digit revenue growth, notwithstanding the challenging market conditions (visible in muted growths for consumer durable peers). Key positives were – a) double digit volume & value in product business led by mainstay water purifier business (>10%+ growth) and vacuum cleaner, b) decisive turnaround in service business with double-digit growth in bookings led by volumes & ASP. While reported services revenue (due to accrual accounting) has been relatively lower, the strong growth in bookings led by its interventions (filter innovations, digital investments, consumer campaigns) provides visibility on uptick in growth from 4QFY26E & FY27E. Margin delivery was weaker owing to lower gross margins (tactical promotions), higher service charge and growth spends. Management sounded more confident, expects revenue momentum to remain healthy (in products/service bookings) 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. With product business momentum sustaining, likely uptick in service business revenues over next few quarters can lead to further rerating. Factoring 1Q miss on margins, we have cut our FY26-28E est. by 3-8%. Roll forward & maintain Buy with revised TP of INR 715 (40x Sep 27E EPS).

* Double-digit growth in mainstay water purifier business; services business sees strong bookings: EFL’s consol. sales, EBITDA and adj. PAT grew 9.8%, 9.2% and 20.3% to INR 6.1bn, INR 615mn and INR 387mn respectively. Revenue growth was broadly inline with est. led by double-digit volume and value growth in product’s business (for 7th consecutive quarter). Within this, water purifier (broad-based growth in economy and premium segment) and vacuum cleaner (led by robotics +52%) reported double-digit growth. Service business (accounting for 1/3rd of total revenue as on FY25) saw a turnaround with double-digit growth in service bookings led by volume (increased AMC counts) and ASP. Going ahead, management expects momentum in product business to sustain and service business to deliver double-digit growth in service bookings.

* Lower gross margin & high growth spends drives earnings miss: Gross margin down 86bps yoy to 60.1% (JMFe: 60.7%), though improved sequentially (+40bps), as impact of tactical promotions were offset by benign RM environment and healthy mix. Operating leverage was seen as growth in staff costs (+3% yoy) and other expenses (+6.5% yoy) trailed revenue growth, notwithstanding the impact of higher growth spends and service charges (total impact of 66bps and 80bps respectively). Resultant EBITDA grew 9.2% yoy to INR 615mn and margin remained flattish yoy at 10.1% (vs. ours & street est. 11–12%). Adjusted for ESOP charges (down 36% yoy), EBITDA grew 3% yoy to INR 671mn with 11% margin (down 70bps yoy). Reported PAT up 20.3% yoy to INR 387mn led by higher other income (3x of LY). For FY26, management aims for EBITDA growth and margin expansion led by GM progression, operating leverage and benefit from cost efficiencies.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361