Eureka Forbes spurts 6%. What are investors betting on?

Eureka Forbes is planning a structured programme in cost reduction, productivity, and cash optimisation.

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Eureka Forbes shares have been on fire ever since the home appliances company reported a 346 percent year-on-year jump in its consolidated net profit to Rs 20.59 crore for the quarter ended March 2023. The company posted its results on May 30 and the stock has appreciated 30 percent since then. On June 16, the stock gained another 6 percent and was quoting at Rs 565 on the NSE at 11:45 am.

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According to analysts, apart from the triple-digit boost to the net profit, positive management commentary is also a key trigger behind the optimism.

“Execution of specific transformation initiatives helped improve our EBITDA margin to 9.3 percent, up by 300 basis pints YoY. This combined with a 72 percent YoY reduction in our net debt will allow us the headroom to invest for growth,” Pratik Pota, MD and CEO, Eureka Forbes had said after the results.

Pota was earlier the chief executive officer of Jubilant Foodworks.

Project Udaan

In its first ever investor call after the company’s listing, the management talked about Project Udaan. The company plans to expand the water purifier category by offering affordable, innovative, and premium products, as well as improve customer experience through digital tools.

“Eureka Forbes is planning a structured programmein cost reduction, productivity, and cash optimisation. It also aims to educate Indians and drive awareness on cleaning and air purifiers products,” said Elara Capital analysts in a note.

D2C health and hygiene leader

Currently, water purifiers in India have a very low penetration of only 5 percent. In urban areas, it is at 12 percent and in rural it is 3 percent. The management wants water purifier, cleaning, and air to be the three growth pillars for the company.

“This exciting strategy, titled Project Udaan, will propel us towards a vision of transforming into a vibrant D2C health and hygiene leader,” said Pota.

During the March quarter, the company took big strides on this front and launched a new range in water purifiers including Aquaguard Superio, Blaze, and Eden. It also launched the latest range of robotic vacuum cleaners.

Elara Capital has a target of Rs 570 on the stock with return on equity estimated at 12 percent in FY24 and FY25.

Shareholding pattern

Construction major Shapoorji Pallonji and Company exited Eureka Forbes in July 2022 after selling its stake to the new owner Lunolux, a firm backed by private equity firm Advent International. Lunolux now holds 72.5 percent in the company.

Foreign institutional investors hold 10.9 percent in the company with India Discovery Fund having 8.3 percent stake and Antara India Evergreen Fund with 2.58 percent stake.

The company has a market capitalisation of Rs 10,935 crore.

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