Eureka Forbes Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Product engine firing on all cylinders: Six straight quarters of mid-to-high-teens product growth, broad-based across water, cleaning and air categories and across online and offline channels.
• Margins hit a record, with room to run: Q4 adjusted EBITDA margin reached 13%, the highest ever, while full-year margins expanded 136 bps to 11.7% despite a 121 bps step-up in growth investments.
• Service is the next growth unlock: Service revenue has lagged but is now showing green shoots, with AMC value growth beginning to come through and a suite of interventions from tiered pricing to a new technician app now live.
• The vacuum cleaner bet is accelerating: The category is running 2 to 3 years ahead of independent forecasts, and Eureka Forbes has taken market leadership in robotics despite global competition.
• What to watch next quarter: Whether service revenue growth actually accelerates from current levels, the pace of new product launches over the next 3 to 4 months, and any moderation in the elevated competitive intensity across water purifiers.

Product Growth: The Core Engine

• Sustained momentum: Product business has now delivered six consecutive quarters of mid-to-high-teens growth, driven by both volume expansion and premiumization. Growth was broad-based across water, cleaning, air and all other categories, and across online and offline channels.
• Innovation pipeline: Over 30 new products were launched during the year, including several industry-first products, with more rolling out in the next 3 to 4 months. The first IoT product was rolled out last year and its scale-up is now breaking out, driving growth for the overall category.
• Premiumization tailwind: The premium portfolio grew faster than the overall average last year, supported by products like Aura 2x and Aquaguard Enhance NXT which carry a 2-year filter life that reduces total cost of ownership.
• Competitive intensity as a positive: Management views heightened competitive activity across water purifiers as good for driving overall category visibility and growth, arguing that as the unequivocal market leader, Eureka Forbes stands to gain a larger share of that growth.

Pota: "We believe that this is very, very good for driving overall category visibility, overall category awareness, overall category growth. As the strongest brand in this category and as the market leader, the unequivocal, unambiguous, unquestioned market leader, as the category grows, we stand to gain a larger share of that growth."

Service Business: The Turnaround Underway

• Lagging but not declining: Service revenue has trailed the product business but did not decline. The salience of product versus service has shifted simply because product grew in the high-teens while service lacked growth.
• Lead indicators turning: AMC booking, the lead indicator of future service revenue, is now showing value growth beginning to come through. Unit AMC sales expanded last year.
• Intervention stack: Management has deployed tiered and affordable AMC offerings starting from Rs. 599, QR code-enabled filters for genuineness verification, a first-ever service campaign directing consumers to genuine players, and a new technician app that blocks new calls until a pending complaint is resolved. All thousands of technicians are now digitally enabled on the platform with incentives paid by Eureka Forbes, though they remain on third-party payrolls.
• Service quality at lifetime highs: Customer satisfaction scores measured by NPS have improved significantly YoY and are now at lifetime high levels, though management acknowledges there is still ground to cover in managing service failure moments.
• Margin profile advantage: The service business will always carry a gross margin profile much higher than the product business, making its acceleration a direct contributor to overall margin expansion.

Vacuum Cleaners & Robotics: The Next Big Category

• Category running ahead of forecasts: The vacuum cleaner category has seen strong acceptance and increased relevance over the last two years, driven by handheld, cordless and robotic formats. An independent Technopak study forecast a market size for 2028 that will now be reached in FY26, putting the category 2 to 3 years ahead of initial estimates.
• Market leadership in robotics: Eureka Forbes is now the market leader in robotics despite fierce competition from global players. Robotics was initially centered around e-commerce but is increasingly seeing adoption in offline channels including modern trade and traditional trade, which plays to Eureka Forbes' strength since global brands lack offline presence.
• Investment ramp-up: The company will build out the robotics portfolio even further and increase investments in go-to-market and category awareness creation. Shraddha Kapoor has been signed as brand ambassador for the vacuum cleaner portfolio.
• Growth trajectory: The robotics segment is expected to grow at 75-80% to 100-110% in the next few years, and the overall vacuum cleaner category will spread from online to offline, allowing Eureka Forbes to increase share and strength as the category grows.

Pota: "The way to think about the potential of vacuum cleaners now, is in a way to think about how washing machines... they replace and they offer the same service in cleaning that washing machines offer in washing."

Margins: Record Levels with Headroom

• Full-year expansion: Margins expanded 136 bps to 11.7% for the full year, achieved despite a 121 bps increase in advertising and sales promotion spends. Cost management and operating leverage were the key enablers.
• Q4 peak: Q4 adjusted EBITDA margins reached 13%, the highest ever, up 183 bps YoY. Gross margins at 59.5% were higher by 202 bps sequentially due to cost efficiencies, better product mix, and lower buyback and consumer spends post the festive season.
• Institutionalized cost program: The cost program has become institutionalized, providing headroom for both growth investments and margin expansion. IT costs are being addressed through technology changes, contract renegotiations, and vendor consolidation. COGS improvements come from volume growth enabling vendor renegotiations and questioning every component for replacements without impacting quality or customer experience.
• Growth bias explicit: Management remains obsessed about growth with a bigger bias on growth over margin. Margin improvement will come from disciplined cost management and operating leverage from growth, not from cutting investment.

Khandelwal: "When you marry a 58% gross margin with double-digit growth and are able to maintain a reasonably well-disciplined cost profile, in many ways the margin flow-through becomes a consequence."

Balance Sheet & Capital Allocation

• Net cash position: Net surplus of Rs. 284 crores at year-end, with cash generation leading to a 42.1% reduction in finance costs.
• Exceptional items: Q4 had exceptional net income of Rs. 2.1 crores, comprising Rs. 10 crores from an insurance claim settlement for the Delhi warehouse fire, offset by Rs. 7.9 crores in non-cash inventory write-offs related to an assessment of transformation initiatives and future product plans.
• Investment appetite intact: Advertising spend was stepped up last year and will continue to step up in the future. The company is a growth business and creating greater awareness is a key enabler, with no specific guidance on whether A&SP spends will moderate.

Competitive Landscape & Category Dynamics

• Heightened activity across categories: All categories, especially water, have seen increased competitive activity, greater visibility, and more innovation from different players including new brands.
• Category growth exceeding forecasts: In water purifiers, air purifiers, and vacuum cleaners, actual growth over the last 1.5 to 2 years has been significantly faster and higher than what independent third-party studies forecasted.
• Third-party supplier risk managed: Interventions over the last 1 to 1.5 years include call masking so customers cannot know technician numbers or vice versa, restrictive access mechanisms for partners accessing data, and QR code-enabled filters to verify genuineness.
• Product-service split undisclosed: Management declined to share the product and service revenue mix during the call, stating it will be disclosed in the annual report for FY25.

Guidance & Commitments

Key Metrics