Eureka Forbes Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Strong quarter, product-led: Revenue grew 13.6% YoY (14.7% adjusted), driven by a 20% surge in the product business across water purifiers and vacuum cleaners, with both volume and premium mix contributing.
• Margins expanded despite investment: Adjusted EBITDA margin rose 106 bps YoY to 11.5%, even after a deliberate 40% increase in advertising spend, as operating leverage and cost efficiencies kicked in.
• Service transformation is in motion: Phase 2 of the turnaround is underway, with an expanding AMC base, new filter sales, and digital-led cost reductions, though management declined to quantify the service revenue growth rate.
• The buyback scheme is a hit: The upgrade program saw a very strong response, with over half of premium device participants being existing users, and it will now become a permanent part of the strategy.
• What to watch next quarter: Whether the festive demand momentum sustains into Q3, the pace of AMC base expansion, and any impact from the impending BIS regulation rollout on the competitive landscape.

Product Growth Engine

• Broad-based volume and mix growth: Product business grew 20% YoY, driven by volume from penetration efforts and ASP improvement from premium innovations like under-the-counter and instant hot water purifiers.
• Vacuum cleaners led by premium: Growth in vacuum cleaners was biased toward ASP improvement, with strong demand in robotics, handheld, and upright segments.
• Festive season delivered: Growth accelerated sequentially through the festive period from Pujas to Diwali, with e-commerce as the fastest-growing channel and robust tertiary sales.
• Market share gains: The company outgrew the market, with share increases visible in both traditional and modern trade, and faster growth in tier 2 and tier 3 towns than in metros.
• Replacement cycle remains long: The typical replacement cycle is 6-7 years or longer, much longer than other durables, making the buyback scheme a key tool to accelerate upgrades.

Pratik Pota: "We will have a focus, with an approach that will have a very clear focus on driving penetration... equally however, we will remain focused on driving innovations, driving differentiation... We expect both of them to grow and which will lead to a very healthy and a balanced growth profile."

Service Transformation (Phase 2)

• Affordable AMC rollout: The company rolled out tiered, more affordable AMC options at a slightly lower ASP by design, which drove an encouraging expansion of the AMC user base.
• New filter go-to-market: A new filter with QR code authentication was launched, backed by advertising investment and strengthened distribution, including through technicians outside the system.
• Digital driving cost efficiency: Service charges reduced 12% YoY, driven by a larger share of digital AMCs, digital consumer interactions, and leakage control measures.
• Customer experience at lifetime highs: Service tags and NPS scores are significantly higher YoY and at their best-ever levels, with 80% of interactions now happening through digital forums.
• Conversion metrics improving: AMC conversion rates improved for first-time adopters coming out of warranty, though management declined to share detailed trend metrics.

Margin & Cost Structure

• Gross margin dipped on mix and promotions: Gross margin at 56.3% was 111 bps lower YoY due to the buyback scheme and channel mix, with a sequential drop that is a normal seasonal effect of higher product salience in Q2.
• Operating leverage absorbed investments: A 40% YoY increase in ad spend was more than offset by a 217 bps reduction in other expenses as a percentage of revenue, excluding ESOP.
• ESOP charges stabilizing: Non-cash ESOP charges fell to ₹5.7 cr from ₹10.7 cr YoY and are expected to stabilize at these levels.
• Trade receivables are a timing issue: The increase in receivables was driven by higher growth in e-commerce and modern trade channels with standard credit terms, and is expected to unwind in H2.

Strategic Initiatives

• Buyback scheme now permanent: The upgrade program saw a very strong response from both existing users and competition users, and will continue as part of the strategy going forward.
• Rental pilot stays on slow burn: The rental pilot delivered learnings and KPIs, but management is choosing to prioritize the 20%+ product sales growth and will not scale it yet to avoid distracting teams.
• Robotics push with in-home demos: A new robotic device with an auto dust station was launched at a ₹34,000-₹35,000 price point, supported by in-home and live online demos across direct sales, modern trade, and e-commerce channels.
• BIS regulation seen as a tailwind: All products will be compliant well in time, and management views the impending BIS rollout as a boost for the organized sector that will encourage more sustainable, high-recovery products.

Pratik Pota: "The impending BIS rollout, is very good for the industry, and it is something that will give the organized sector a much-needed boost. It will also encourage all of us to drive products that have high water recovery and therefore are far more sustainable."

Long-Term Vision

• Rebuilding for the next 40 years: Management framed the current strategy as designing and rebuilding the business for the next 40 years, on the foundation of the last 40.
• Calibrated profitability expansion: Profitability expansion will be systematic and step-in-step, with operating leverage partly reinvested into driving category growth and innovations rather than dropping straight to the bottom line.
• Two growth engines in parallel: The strategy is to simultaneously drive penetration through affordability and volumes, and drive upgrades through innovation, aesthetics, and design, expecting both to grow.

Pratik Pota: "This is a business that we are designing and rebuilding, as we say often, for the next 40 years, building on the foundation that are being laid in the last 40."

Guidance & Commitments

Key Metrics