Kotak Institutional Equities has reaffirmed a BUY rating on Eureka Forbes, assigning a fair value target of Rs 780 against the current market price of Rs 560, signaling substantial upside potential for investors. The consumer durables giant demonstrated solid growth across electric water purifiers and vacuum cleaner segments in FY2025, maintaining margin expansion amidst controlled operating costs. While the service business showed limited growth and a decline in AMC advances tempered near-term service revenues, the company's aggressive innovation, technology integration, and strengthening digital foothold position it favorably for sustained expansion. Financial prudence reflected by the shift to a net cash position further underpins the investment case.

Research Recommendation and Market Position

Kotak Institutional Equities continues to endorse Eureka Forbes as a compelling buy proposition in the consumer durables sector. With a current market price of Rs560 and a target price set at Rs780, investors stand to gain approximately 39% potential returns over the next 12 months. The report highlights Eureka Forbes' resilience in several core product categories and its effective margin management as key drivers behind this positive stance.

Robust Growth in Product Segments in FY2025

The company witnessed an accelerated 18.1% year-on-year growth in its flagship electric water purifier segment, supported by volume increases and product mix enhancement. Meanwhile, vacuum cleaners delivered a steady 12.8% growth, characterized by an evolving product mix favoring robotic vacuum cleaners, which now constitute over 50% of the vacuum cleaner sales in Q1FY26. Although conventional vacuum cleaners recorded a decline, the expanding robotics segment is expected to propel future growth momentum.

Service Business and AMC Advances: Mixed Dynamics

Eureka Forbes' service business recorded a modest 3% growth in FY2025. Within this, sales of filters and spares surged over 20%, cushioning a slight 1.7% sales decline in pure service offerings. Notably, AMC advances contracted by 5.5%, a metric indicative of potential near-term pressure on service revenue. However, the company is strategically steering towards higher-tenor AMC plans to ensure better customer retention and stable future revenue streams.

Disciplined Cost Controls Amid Elevated Advertisement Spend

Despite a notable 25.5% increase in advertising and promotion expenses, totaling Rs2.6 billion, Eureka Forbes adeptly exercised tight control over other overheads. This operational discipline resulted in a robust 180-basis-point expansion in EBITDA margins to 10.9% for FY2025. Cost efficiencies were achieved through reductions in IT, conference, and communication expenses, alongside a slight decrease in service-related costs.

Digitization and Technological Initiatives Take Center Stage

The company significantly advanced its digital capabilities, reflected in a 0.6 million increase in its app installed base, now standing at over 1.6 million users. Furthermore, digital adoption surged with 64% of AMC purchases occurring digitally—an increase of 14 percentage points year-on-year—and 80% of customer complaints booked through digital platforms, up by 4 percentage points. These initiatives aim to enhance customer engagement and operational efficiency.

Financial Health Strengthened: Transition to Net Cash Position

Highlighting its financial prudence, Eureka Forbes shifted from a net debt of Rs1.6 billion in March 2022 to a healthy net cash position of Rs3.1 billion by March 2025. This improved liquidity profile provides strategic flexibility for future investments and secures a robust balance sheet foundation amid competitive pressures.

Alignment of Management Incentives via Performance-Based Stock Options

Eureka Forbes has instituted a comprehensive ESOP scheme predominantly weighted toward performance-based vesting. Approximately 94% of the 16.6 million options granted to management are linked to stringent performance metrics, ensuring strong alignment between employee incentives and shareholder value creation. As of FY2025, only the service-based options have vested, while performance-based vestings are scheduled contingent on reaching specified financial outcomes.

Valuation and Stock Price Outlook

At its current trading level of Rs560, Eureka Forbes offers investors a target price set at Rs780 by Kotak Institutional Equities, underpinning a lucrative upside of nearly 39.3%. With projected earnings per share growth exceeding 26% in FY2026 and almost 35% in FY2027, coupled with an anticipated EBITDA margin expansion to 14% by FY2028, the stock presents a compelling risk-reward profile.

Recommended Trading Levels

Support Levels: Rs520, Rs485
Resistance Levels: Rs615, Rs700
Given the positive growth trajectory and margin expansion potential, accumulation on dips near support zones is advised, targeting the aforementioned fair value zone.

Bottomline for Investors

Kotak Institutional Equities paints a bullish outlook on Eureka Forbes, underscored by strong product growth, prudent financial management, and strategic investments in innovation and digital transformation. Despite some short-term softness in AMC advances, the company's proactive measures in service enhancements and the shift toward higher-tenor contracts provide mitigating factors. Investors seeking exposure to a robust consumer durables play with sustainable growth and margin expansion potential may find Eureka Forbes an attractive addition to their portfolio.