Eureka Forbes stock gains 2% after Nomura initiates ‘neutral’ coverage

Nomura expects Eureka Forbes to do well in the medium term, while factoring the current valuation at 36x FY26F EPS (Earnings Per Share) in the recovery.

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Eureka Forbes’ shares rose by 2 percent to reach Rs 535 per share on December 5, following the initiation of ‘neutral’ coverage by brokerage firm Nomura. The firm set a target price of Rs 568 per share, indicating a 6 percent increase from current levels.

Over the past month, Eureka Forbes’ stock has risen by over 7 percent, compared to a 7 percent increase in the benchmark Sensex.

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Eureka Forbes is one of the leading providers of health and hygiene products in India ranging from water purifiers to vacuum cleaners.

Highlighting the rationale behind their rating, analysts at Nomura said,” Structural drivers such as rising electricity availability, access to piped water (~69 percent of rural households in September 2023 against 19 percent in August 2019) and high levels of total dissolved solids (TDS) in water in many states necessitate water purifiers. Low penetration levels (approximately 8 percent of HHs) imply long-term growth visibility.”

Overall, Nomura expects Eureka Forbes to deliver a revenue CAGR of 12 percent over FY23-26F, with EBITDA margin improving to 14.9 percent by FY26F (10.2 percent in 1HFY24), led by operating leverage and cost control.

“While we expect the company to do well in the medium term, the current valuation at 36x FY26F EPS (Earnings Per Share) factors in the recovery,” the brokerage firm added.

Also Read | Eureka Forbes Consolidated September 2023 Net Sales at Rs 591.45 crore, up 2.65% Y-o-Y

New management structure in place to drive growth

Moreover, according to analysts, the company’s employee stock ownership plan (ESOP) is extensive. Every manager has been given ESOPs to align their goals with those of the company, which gives them the power to fuel growth. Pratik Pota became the MD and CEO in August 2022. In his previous role, he was the CEO of Jubilant Foodworks and played a crucial role in turning around and expanding Domino’s (unlisted) chain in India.

Gaurav Khandelwal was appointed as CFO and Shubham Srivastava as Chief Product and Technology Officer. The board is headed by Arvind Uppal, who has a track record of turning around businesses, such as Whirlpool in both durable and non-durable categories.

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