Introducing Blaze Insta And Aquaguard Ritz Pro With IoT Will Elevate Future Market Presence

Key Takeaways

• Focus on premium innovations and digitalization enhances revenue growth and market share in premium and digital segments.
  
• Growing investment in smart devices and advertising boosts brand penetration and prepares product lines for future growth.
  
• Challenges in market demand, channel penetration, and ASP dilution may hinder Eureka Forbes' ability to sustain revenue and expand its customer base effectively.

Catalysts

Engages in the provision of health and hygiene products and services in India and internationally.

• Eureka Forbes' focus on innovations, including the launch of premium products like Blaze Insta hot water purifier and Aquaguard Ritz Pro with IoT, positions them as thought leaders in the category. This focus on premium innovations can drive revenue growth by capturing higher market share in the premium segments.
  
• The strategic emphasis on digitizing the business, including enhanced customer engagement through smart devices and digital sales channels, is likely to boost earnings and improve operational efficiency, positively impacting net margins.
  
• Increased advertising and sales promotion spending (19% year-on-year in Q3) alongside sustained commitment to these growth investments is likely to drive further revenue growth and brand penetration across various market segments.
  
• The vacuum cleaner and air purifier businesses, especially in the robotics and smart cleaning categories, represent growth engines expected to deliver future revenue growth as these product segments mature and become widely adopted.
  
• Initiatives to drive service revenue and enhance customer experience, including technology investments and better organizational focus, are anticipated to create long-term revenue streams and enhance profitability through improved service-related income.

Eureka Forbes Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Eureka Forbes's revenue will grow by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 10.1% in 3 years time.
• Analysts expect earnings to reach ₹3.5 billion (and earnings per share of ₹16.7) by about February 2028, up from ₹1.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 56.2x on those 2028 earnings, down from 68.9x today. This future PE is greater than the current PE for the IN Consumer Durables industry at 43.6x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.76%, as per the Simply Wall St company report.

Eureka Forbes Future Earnings Per Share Growth

Risks

• The company is experiencing relatively muted demand conditions, which could impact its future revenue growth if these conditions continue or worsen.
  
• Despite reporting strong growth in premium product sales, the overall market penetration remains low, indicating a limited current customer base and potential difficulties in scaling revenue.
  
• The increased spending on advertising and sales promotions to drive growth may not sustainably increase revenues if market demand does not respond favorably, impacting net margins.
  
• The rise in service business volume is not translating into equivalent revenue growth due to ASP dilution from tiered AMCs, potentially impacting earnings from the service segment.
  
• Competition from other companies with different channel mixes highlights the challenges in channel penetration and effectiveness, which could affect revenue consistency if overlooked.

Valuation

• The analysts have a consensus price target of ₹649.8 for Eureka Forbes based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹750.0, and the most bearish reporting a price target of just ₹586.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹34.3 billion, earnings will come to ₹3.5 billion, and it would be trading on a PE ratio of 56.2x, assuming you use a discount rate of 15.8%.
  
• Given the current share price of ₹485.2, the analyst price target of ₹649.8 is 25.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.