Eternal Shares Plunge After Q2 Profit Miss
Mumbai – Shares of Eternal Industries plunged over 4% in early trade on Dalal Street today after the company reported a sharp 63% year-on-year (YoY) decline in its consolidated Profit After Tax (PAT) for the second quarter.
The diversified conglomerate’s stock reacted swiftly to the Q2 earnings report, which showed PAT at just ₹112 crore for the quarter ending September 30. This was a steep fall from the robust ₹302 crore posted in the same period last year, causing the stock to open with a significant gap down on the National Stock Exchange (NSE).
What Drove the Steep Profit Decline?
A deeper analysis of the company’s financial statements points to a combination of strategic expenses and persistent market headwinds. The two primary factors behind the profit erosion were:
- One-Time Strategic Expense: Eternal Industries recorded a one-time expense of ₹95 crore related to the commissioning of its new greenfield facility in Dahej, Gujarat. Management clarified this was a planned investment to double its production capacity for high-margin export products, with benefits expected to materialize from Q4 FY24 onwards.
- Margin Compression: Like others in the manufacturing sector, the company faced sustained pressure on its margins. A spike in key raw material costs and elevated global logistics expenses squeezed its EBITDA margin by over 450 basis points compared to the previous year.
The Silver Lining: Strong Revenue Growth Keeps Analysts Positive
Despite the alarming profit figures, brokerage houses are focusing on a different metric: the company’s strong top-line performance.
Eternal’s revenue from operations witnessed a healthy 18% YoY growth, climbing to ₹4,850 crore. This robust revenue indicates that underlying customer demand for its products remains strong and that the company is successfully capturing more market share. This top-line resilience is the key reason why analysts are maintaining a positive outlook on the stock.
Why Brokerages Remain Bullish on Eternal Industries
The analyst community is looking past the short-term pain, viewing the current situation as a strategic trade-off for long-term gain.
- In a note to investors, Motilal Oswal maintained its ‘Buy’ rating on the stock. “The Q2 PAT miss is largely attributable to one-off, non-recurring expenses and transient margin pressures. The strong revenue growth, however, confirms our core thesis of robust underlying demand,” the report stated. The firm held its target price of ₹1,450, suggesting a significant upside.
- ICICI Direct echoed this sentiment, highlighting the company’s strong order book, which has swelled by 25% since the last quarter. “Eternal’s management has made a conscious choice to prioritise growth and long-term capacity building over short-term profitability,” the brokerage said.
For investors, the current stock price dip presents a classic dilemma. While the profit decline is concerning, the unwavering conviction from analysts suggests this could be a strategic entry point for those with a long-term investment horizon. All eyes are now on the upcoming Q3 results to see if the company’s forward-looking strategy begins to bear fruit.
