Eureka Forbes Limited — Q3 FY25 earnings call

Call held 11 Feb 2025

Management summary

Eureka Forbes reported strong Q3 FY25 results with 11% YoY revenue growth to ₹597.8 crores, primarily driven by robust product innovation and mid-teen growth in the product business. Profitability saw significant improvement, with adjusted EBITDA margin expanding 94 bps to 10.8% and PAT surging 53.6% to ₹34.8 crores. The company continues to focus on innovation, customer experience, and cost efficiencies amidst challenging demand conditions, while acknowledging the need to accelerate service revenue growth.

Highlights

  • Revenue of ₹597.8 crores, up 11% YoY (11.3% excluding discontinued operations).

  • Adjusted EBITDA margin expanded 94 bps YoY to 10.8%.

  • Profit after tax (PAT) grew 53.6% YoY to ₹34.8 crores.

  • Product business achieved mid-teen growth, driven by premium innovations.

  • Air purifier business grew 3x YoY in the seasonally critical Q3.

  • Credit rating upgraded to AA- Stable by CARE, third upgrade in 2 years.

Concerns

  • Relatively soft demand conditions and muted demand environment.

  • Service revenue growth underperformed product growth.

  • ASP dilution in AMC due to tiered structure, despite volume growth.

Key financials

  1. Revenue ₹597.8 Cr +11%YoY
  2. Adjusted EBITDA Margin 10.8% +0.94%YoY
  3. PAT ₹34.8 Cr +53.6%YoY
  4. Gross Margins 57.5% -1.4%YoY
  5. A&SP Spends Growth — +19%YoY
  6. Depreciation ₹8.1 Cr
  7. Non-cash ESOP Charges ₹5.7 Cr

What they filed

Q1 FY27: revenue up 15.3%, net profit up 41.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue673 598 613 608 773 +15%645 +8%684 +12%701 +15%
EBITDA72 59 78 61 96 +33%67 +14%85 +9%67 +10%
Net profit47 35 51 39 62 +32%9 −74%51 +0%55 +41%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

medium confidence
  • Debt Debt disclosed
    I'm pleased to share that our credit rating has now been upgraded to AA- Stable by CARE. I must point out that this is the third upgrade in the last 2 years. In this quarter, rating coverage was also started by CRISIL at similar levels.

Guidance & targets

Profitability

  • ESOP Charges Profitability · ongoing · High confidence Rs. 5.7 crores per quarter, Rs. 23-25 crores annually
    We expect ESOP charges to stabilize at these levels. So roughly, you can assume the ESOP charges to be anywhere between Rs. 23 crores to Rs. 25 crores on an annual basis.

    — Mr. Gaurav Khandelwal

  • Margin efficiencies Profitability · going ahead · Medium confidence driving year-on-year margin efficiencies
    Our aim would remain to keep on driving year-on-year margin efficiencies, and we expect that to sustain going ahead.

    — Mr. Gaurav Khandelwal

Growth

  • Sustained and profitable growth Growth · periods ahead · Medium confidence Sustained and profitable growth
    We remain confident of driving sustained and profitable growth in the periods ahead.

    — Mr. Pratik Pota

Service Revenue

  • Service revenue growth momentum Service Revenue · periods ahead · Medium confidence gain momentum
    Between them, we expect our service revenue to gain momentum in the periods ahead.

    — Mr. Pratik Pota

What to watch in Q4 FY25

Service revenue growth momentum

Next quarter / periods ahead
Current Underperformed product growth in Q3 FY25
Target Gaining momentum

Why it matters

Service revenue is a key annuity business, and its growth is crucial for overall profitability and customer lifetime value.

Between them, we expect our service revenue to gain momentum in the periods ahead.

Risks & concerns

  • Soft demand conditions

    medium

    Looking ahead, notwithstanding the relatively soft demand conditions, our focus will continue to remain on driving growth.

    Management acknowledged

  • Muted demand environment

    medium

    Added to this, was the relatively muted demand environment. A combination of product innovations, sustained advertisement and sales promotion spends, and attractive consumer offers led to this growth in Q3.

    Management acknowledged

  • Service revenue lagging product growth

    medium

    Our service revenue underperformed product, like you mentioned, and our growth was well below product growth. That said, we have rolled out, as you mentioned, a number of initiatives towards driving service revenue.

    Both acknowledged

  • Unorganized market and leakages in service

    medium

    There is a very large unorganized market, a parallel market, which keeps interplaying with the organized Aquaguard in Eureka Forbes service market. And while we have worked systematically to cut leakages, co-opting a much larger share has taken time.

    Both acknowledged

Q&A highlights

6 direct
Water purifier volume growth and base variant performance Direct
our performance in Q3 was on the back of both, volume growth in water purifiers and on the back of our premium innovations doing well... volume growth sustained, and we saw good, strong volume growth continue.

Clarifies that volume growth is still strong, not just premiumization, which is crucial for penetration in a low-penetration market.

Asked by Umang Mehta

Channel mix comparison with Kent and strategy for GT channel Direct
we see many areas in which we can learn and we can change and drive our operations... we are truly an omnichannel company.

Addresses competitive landscape and company's approach to channel strategy, indicating willingness to adapt while maintaining omnichannel focus.

Asked by Umang Mehta

Service revenue growth and sustainability of Q3 profitability Partial
our service revenue underperformed product... we expect our service revenue to gain momentum in the periods ahead... there is a very clear headroom which exists as far as profitability is concerned.

Highlights a current weakness (service revenue growth) but provides management's view on future improvement and continued margin expansion potential.

Asked by Aniruddha Joshi

Air purifier market growth and North India centricity Direct
we saw a very healthy increase. We had a tripling of revenues from air purifiers in the last quarter... while the market is still very North-centric, that mix will change.

Confirms strong growth in a seasonal category and outlines expectations for geographical diversification.

Asked by Aniruddha Joshi

Premium vs. mass portfolio growth and premium salience Direct
we've seen overall volume growth and that volume growth has not been restricted to premium portfolio, but also to our economy portfolio. Second, I think, clearly, premium for us has been over-indexed in this particular quarter.

Clarifies that growth is broad-based across price points, but premium segment is currently over-indexed, indicating successful premiumization efforts.

Asked by Siddhartha Bera

Tiered AMC adoption and impact on service growth Direct
we have seen very clearly this year is robust volume growth, robust growth in unit AMCs that we have sold... the launch of the tiered AMC has indeed worked the way we had hoped it would, which is to drive volume growth and drive AMC adoption.

Explains the strategy behind tiered AMCs and confirms its success in driving volume/adoption, despite ASP dilution.

Asked by Siddhartha Bera

Revenue recognition policy for service contracts (AMC) Direct
The revenue recognition happens exactly basis the tenure of the AMC... on an average, our AMCs end up with a tenure of anywhere between 18% to 20%, and hence you will find roughly 70% of our revenue coming within the year.

Clarifies accounting practices for AMC revenue, addressing a potential concern about aggressive revenue recognition.

Asked by Palak

Cross-selling opportunities and customer data utilization Partial
it's a fair feedback. And what you point out is clearly an early win opportunity. We do it in a few cases, but in a few cases, we still have learnings. So, thank you for the feedback, and we'll make sure that we incorporate it in some form.

Highlights a clear area for improvement in leveraging existing customer base for cross-selling, indicating potential for future revenue growth.

Asked by Rishabh Gang

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview

Eureka Forbes reported a robust Q3 FY25 with revenues reaching ₹597.8 crores, marking an 11% year-on-year growth, or 11.3% excluding discontinued operations. This represents the fifth consecutive quarter of double-digit growth for the continuing business, primarily driven by a mid-teen growth in the product segment. Adjusted EBITDA margin expanded by 94 basis points to 10.8%, and Profit After Tax (PAT) surged by 53.6% year-on-year to ₹34.8 crores, despite a 19% increase in advertising and sales promotion spends.

Innovation as a Growth Driver

The company emphasized innovation as a key factor for its growth, particularly in premium products. New launches like the Blaze Insta hot water purifier and Designo NXT Under-The-Counter water purifier have become market leaders in their segments. Towards the end of Q3, Eureka Forbes launched India's first truly smart water purifier, the Aquaguard Ritz Pro with IoT, aiming to enhance customer engagement and drive product integration into daily life. This focus on innovation is expected to continue driving growth in the premium portfolio.

Channel and Category Performance

Growth was broad-based across all channels, with e-commerce showing particularly strong growth, followed by direct sales. The retail segment experienced muted growth post the festive period. In the cleaning segment, robotic vacuum cleaners like Forbes Smartclean Pro and Forbes Robo Vac N Mop Easy were key growth engines. The air purifier business saw significant traction, growing 3x year-on-year in the seasonally critical Q3, although it remains North-centric with expectations for future geographical diversification.

Service Business and Customer Experience

While customer service KPIs showed significant improvement in Q3 due to technology investments and organizational focus, service revenue growth underperformed product growth. The tiered AMC structure launched earlier successfully drove volume growth and AMC adoption, though it led to some ASP dilution. Management expects service revenue to gain momentum as various initiatives, including managing the unorganized market and reducing leakages, begin to yield results. The company is committed to its journey of customer centricity.

Profitability and Cost Efficiencies

The improved profitability, with EBITDA margin expansion, was attributed to operating leverage and cost efficiencies. Gross margins stood at 57.5%, an increase of 125 basis points sequentially but a decrease of 142 basis points year-on-year due to consumer offers and channel mix. The company's credit rating was upgraded to AA- Stable by CARE, reflecting improved financial health and marking the third upgrade in the last two years. Non-cash ESOP charges were ₹5.7 crores, similar to Q2, and are expected to stabilize at these levels.

Future Outlook and Strategic Focus

Despite soft demand conditions, Eureka Forbes remains focused on driving growth through sustained investments in penetration, innovation, customer experience, digitization, and cost efficiencies. The company aims to continue expanding profitability and margins, leveraging its omnichannel presence and strong direct sales network to drive customer lifetime value and cross-selling opportunities. Management expressed confidence in driving sustained and profitable growth in the periods ahead, with significant headroom for further margin improvement.

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