Eureka Forbes Q2 Results Review - Well On Course; Transformational Benefits Becoming Visible: ICICI Securities

ICICI Securities Report

Observations from Eureka Forbes Ltd.'s Q2 FY24:

1. continuing businesses have reported highest growth in past five quarters,

2. cost optimisation has led to margin expansion YoY,

3. balance sheet has remained net cash with strong free cash flow generation, and

4. continuation in new product launches.

We note the transformational benefits have started to reflect in Eureka’s quarterly performance and model them in H2 FY24 and FY25.

We believe in high growth potential due to multiple tailwinds such as -

1. lower penetration of most products (less than 5%),

2. deteriorating water and air pollution levels in India,

3. failure of multiple competing brands to gain market share more than 5%.

We model profit after tax compound annual growth rate of 66.1% with Ebitda margin expansion of 310 bps over FY23-25E.

Maintain 'Buy' with DCF-based target price of Rs 700.

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