Nuvama initiates coverage on Eureka Forbes, sees 21% upside potential

Shares of Eureka Forbes Ltd (EFL) were trading lower in Wednesday's session even as Nuvama Institutional Equities initiated coverage on the multinational home appliance maker with a bullish outlook.

In its report, Nuvama noted that Eureka Forbes, incorporated in 1982, is India's largest electric water purifier (EWP) company, commanding a 40–45 per cent share of the organised Rs 4,900 crore market. Despite low penetration of just 6 per cent, the brokerage highlighted the company's position as the only large full-stack EWP player in the segment.

According to the domestic brokerage, Eureka Forbes is strengthening its brand proposition of "purity of trust" by focusing on four areas: innovative product offerings, revitalised advertising and promotions, omni-channel reach, and a revamped after-sales service network, which currently contributes 33 per cent of its revenue.

It projects a revenue compound annual growth rate (CAGR) of 14 per cent for EFL over FY25–28E, alongside a stronger 24 per cent EBITDA CAGR and 31 per cent PAT CAGR. This growth, Nuvama said, is expected to be driven by 300 basis points (bps) of operating leverage during the period, following a 530 bps improvement recorded between FY23 and FY25, aided by cost optimisation.

On this basis, Nuvama initiated coverage on Eureka Forbes with a 'BUY' rating and set a target price of Rs 700 per share. This implies an upside potential of about 21 per cent from current levels.

That said, the brokerage flagged key risks to its thesis, including delays in or weaker-than-expected outcomes from the after-sales service revamp, as well as irrational competitive intensity in the sector.

As of last check, shares of Eureka Forbes were trading 0.44 per cent lower at Rs 576.60 on BSE.