IGI Logo

Another strong quarter as momentum starts to build

Eureka’s (EFL) Q2FY26 results were stronger than expected, with revenue up 15% YoY (~3% above Emkay estimate), driven by high-teen growth in products business. This is the 8th successive quarter of double-digit growth for the product business. The turnaround in the services business accelerated, with double-digit growth in AMC bookings. In water purifiers, growth was driven by the scale-up of the two-year range, which significantly reduced the cost of ownership and resulted in over ~70% of buyers being first-time users. The cleaning segment is seeing traction, driven by robotic products, which are emerging as a new growth engine for the company. Strong growth in underpenetrated categories continues, showing the resultant impact on revenue/margins, driving a meaningful increase (~9-11%) in FY26-28E EPS. EFL continues to transform products/services and unlock significant growth in highly underpenetrated categories of water purifiers/vacuum cleaners (with ~40%/60% of market share; refer to our initiation report Eureka moment - Discovering a secular growth story). We raise FY26-28E EPS by ~9-11%, given the continued strong performance and the long growth runway. We maintain BUY, while raising our TP by ~7% to Rs775 (from Rs725), on 50x Sep-27E PER

Q2: 8th successive quarter of double-digit growth, with margin expansion

Q2 consolidated revenue was Rs7.7bn (up 15% YoY; 3% beat each on consensus/Emkay estimate). The product division saw high-teen growth. Growth spends continued, with 21% YoY increase in A&SP spends (up by 58bps YoY). EBITDA stood at Rs977mn (up 34% YoY), with margins at 12.6% (175bps/156bps beat on consensus/Emkay estimate). PAT stood at Rs629mn, up 51% YoY (20%/21% beat on consensus/Emkay estimate).

Earnings call KTAs

1) Product and services businesses grew in high teens, on a high base from last year, and the company expects this momentum to sustain. 2) The festive season saw strong traction across offline and online channels. 3) Growth in products was driven by volume and pricing in the economy and premium segments, whereas the mid-premium segment lost share. Premium products are generally priced above Rs20,000. 4) In water purifiers, growth was supported by the scale-up of the two-year range, which significantly reduced the cost of ownership. 5) More than ~70% of customers purchasing this product were first-time buyers. 6) Demand environment remains stable even after the festive season. 7) The cleaning segment is performing well, led by robotic products, which are emerging as the new growth engine. 8) Gross margins in this segment are healthy and non-dilutive. 9) The company has a strong customer base and aims to cross-sell other products, such as air purifiers. 10) EFL is in the process of launching new features in robotic vacuum cleaners (eg: cleaning pet hair). 11) Competition is increasing, and the management believes that this will drive greater awareness and consequently, higher demand. 12) EFL has a strong omnichannel presence – modern trade and e-commerce saw strong growth, whereas traditional trade was slow.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354