Eureka Forbes Stock: JM Financial launches coverage with a “buy” call, with 30% up

Long-term purchase inventory: Domestic broker JM Financial has launched compensation with Eureka Forbes’ “purchase” rating and target price £610 shows an upside of 30% from the current low of stock. The brokerage highlighted the company’s growth potential, strong financial position, and operational efficiency as key investment factors. Despite some competitive risks and implementation challenges, JM Financial believes Eureka Forbes has room for expansion.

Growth outlook and financial strength

JM Financial said Eureka Forbes has multiple means of growth, including profits in market share, increased penetration and improved margins. The brokerage company operates in a large, addressable market with ample opportunity, supported by a debt-free balance sheet, negative working capital, and robust free cash flow (FCF) generation. I emphasized that. However, key risks include strengthening competition in the product segment and scaling up services slower than expected.

According to JM Financial, Eureka Forbes could achieve double-digit revenue growth in the middle of their teenage years. The company’s strong financial position, asset lighting business model and excellent return on investment capital (ROIC) add to its appeal.

Stocks that have fallen by more than 20% in the past three months are trading at a forward price (PE) ratio of 43 times, compared to an average annual average of 55 times. However, the broker has pointed out that Eureka Forbes’ business scale remains smaller than that of consumers’ durable peers, and that post-ownership transaction history remains limited.

Revenue Outlook

JM Financial expects Eureka Forbes’ consolidated revenue to grow at a combined annual growth rate (CAGR) between FY25 and FY27, with post-tax profit (PAT) rising at a CAGR of 38% . This growth is driven by a steady rise in margins, 10-quarter growth in the water purifier segment, and the continuous expansion of vacuum cleaners and air purifiers. It is expected that the service business will also be actively involved.

The brokerage will grow EBITDA and EBITDA (excluding employee share ownership plans or ESOP) at a CAGR of 28% and 26%, respectively, with approximately 274 basis points (BPS) and an estimated margin increase for fiscal year 2025-27. I’m predicting. 244 bps.

Market leadership and strategic evolution

Founded in 1982, Eureca Forbes has pioneered the water purifier and vacuum cleaner segment in India and has built strong brand recognition with Aquaguard and Eureca Forbes.

According to JM Financial, these categories offer significant growth opportunities given their low penetration rates. This is less than 6% for water purifiers and less than 2% for vacuum cleaners and air purifiers. However, issues such as high cost of ownership and consumer unwillingness have historically been slow to adopt.

JM Financial has been unshiny for the decade before the company’s acquisition by Advent International (FY12-22), losing market share for water purifiers, and inadequate product innovation, limited category development. We noted that profitability was reduced due to the effectiveness of initiatives and service execution. Nevertheless, Eureka Forbes held a dominant market position, holding a share of 35-40% in water filters and a share of 60-70% in vacuum cleaners.

Conversion based on project Udaan

Following its acquisition, Eureka Forbes implemented Project Udaan, a transformation initiative led by MD and CEO Pratik Pota. JM Financial highlighted that the initiative focused on reviving growth in its product business and achieving sustainable profitability, optimizing organizational structure and enhancing cash generation.

Several strategic interventions have been made to enhance product delivery, including rebooting economy range products, strengthening premiums through innovation, and increasing media engagement. The services business also saw improvements, including a better-built annual maintenance agreement (AMC) plan and strengthening digital assets. These measures accelerated revenue growth, with improved service metrics and increased profitability, and positive results.

Stock Performance and Finance

The stock has earned limited profits over the past year, up just 1%. However, it fell by more than 12% in February, indicating a loss of 8% in January and 5.5% in December for three months. In daytime trading, stock prices fell 3.7% £465.05. Currently, it is 28% below the December 2024 peak. £It’s 648.40, but it hit 17% from the 52-week low. £397.15 Recorded in June 2024.

Financially, Eurecaforbes reported a 52.5% increase in consolidated net income £Compared to December quarter, 35.03 crore £The same period last year was 22.97 crore. Business revenues increased by 10.8% £597.74 crores, top £539.43 crores for the corresponding quarter of FY24. However, total costs increased by 8.4% £554.86 crores.

Disclaimer: The above views and recommendations are those of the individual analyst or brokerage company, not mint. We advise investors to check with a certified expert before making an investment decision.