Eureka Forbes Limited — Q2 FY26 earnings call

Eureka Forbes reported a strong Q2 FY26, with revenue growing 14.9% YoY to ₹773 crores, marking the first time the company added over ₹100 crores in revenue YoY in a single quarter. Adjusted EBITDA for Q2 crossed ₹100 crores, achieving a lifetime high margin of 13.1%, an expansion of 162 basis points YoY. Profit After Tax (PAT) for Q2 stood at ₹61.6 crores, representing an 8% margin and a 32% YoY growth. For H1 FY26, revenue reached ₹1,381 crores (12.7% YoY growth), Adjusted EBITDA was ₹168.5 crores (20% YoY growth), and Reported PAT was ₹100.1 crores (nearly 29% growth).

The products business has delivered consistent and broad-based double-digit growth for the last two years. Key drivers include the expanded 2-year range in water purifiers, which lowers lifetime ownership costs and attracts first-time category entrants (70% of new users). The Smart IoT range is scaling up well, and the robotics range, including new premium additions like Forbes SmartClean Auto Bin and Fully Automatic Cleaning Station, grew strongly, now contributing nearly 60% of VC sales. This growth was volume and mix led, spanning both economy and premium segments, with no expected margin dilution.

The service business turnaround gained momentum, with overall service revenue, including AMC bookings, growing in high teens in Q2. AMC bookings growth accelerated to strong double-digits in value, driven by both volumes and higher ASPs from multi-year AMCs. The company has strengthened interventions to improve customer service KPIs, which have reached an all-time high. Initiatives include special desks for escalations, proactive pre-emption teams, social media focus, and improved spares availability, with visible results expected in the next 3-6 months.

Q2 adjusted EBITDA margin expanded 162 basis points YoY to 13.1%, even after a 21% increase in advertising and promotion spends. This improvement is attributed to operating leverage and successful cost programs. While Q2 gross margins were 56.5% (up 25 bps YoY), they saw a 322 bps sequential contraction due to seasonality. Management aims for full-year margin improvement, expecting YoY margin expansion to be healthy, but not as high as last year's 120-125 bps to allow for continued growth investments. Gross margins are expected to remain range-bound.

Eureka Forbes views its D2C health tech company vision as a logical digital extension of its legacy direct sales model, leveraging a first-party data of 15 million customers and an app with over 1.5 million monthly active users for direct engagement and cross-selling. The company recently inaugurated a revamped R&D centre in Bangalore to enhance product innovation capabilities. While open to new category entries, management sees abundant runway for growth in current categories like water purifiers (~6-6.5% penetration), cleaning, and air purifiers.

Working capital was impacted in H1, with debtors increasing due to Q2 seasonality (monsoons, pre-festive billing), a revenue mix biased towards e-commerce and modern trade, and customer orders being back-ended due to the GST 2.0 rollout. 87% of the debtor increase was attributed to e-commerce and modern trade channels. Inventory also increased due to seasonal buildup and a conscious decision to boost import portfolio stock. Management expects these working capital dynamics to unwind in H2. The overall demand environment remains mixed and challenging, though post-festive sales momentum is reasonable.

The company's vendor contract negotiation process, initiated about a year ago, is ongoing and has contributed to stable gross margins through cost efficiencies. This process involves discussing forward plans with vendors to secure better pricing, especially given strong volume growth. IT spends have remained stable over the last three years (₹53 crores in FY23, ₹54 crores in FY24, ₹48 crores in FY25), despite significant digitization, indicating operating leverage and efficiency gains in technology.