Eureka Forbes Ltd (EUREKAFORB) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to the Eureka Forbes Limited Q2 FY '27 earnings conference call. We have Mr. Pratik Pota, Managing Director and CEO, and Mr. Gaurav Khandelwal, CFO, Eureka Forbes with us. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference,
Moderator: an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. Before I hand it over to Mr. Pratik Pota, please note the disclaimer. Certain statements made by the management in today's call may be forward-looking statements. These forward-looking statements reflect management's best judgment and analysis as of today. The actual results may differ materially from the current expectations based on a number of factors affecting the business. I now hand the conference over to Mr. Pratik Pota. Thank you and over to you, sir.
Pratik Pota (Eureka Forbes): Good afternoon, and welcome to the Q2 FY '27 earnings call of Eureka Forbes Limited. Let me begin with the performance for the quarter. In line with our strategy to accelerate growth, I'm pleased to share the revenue grew 15% in Q2 FY '27. For the first half, revenue growth now stands at 15.1%, a clear step-up from 12.7% in H1 last year. What was particularly encouraging was the quality and breadth of this growth. Growth was broad-based across channels and categories, with the products business delivering high teens growth year-on-year. Within that, our water purifier business continued its strong momentum, delivering high teens growth and gaining market share. Growth was driven by a healthy combination of volumes and higher ASPs with particularly strong momentum in the economy segment, while our mid-tier and premium offerings also performed well. Water purifier penetration in India remains relatively low, and we see significant headroom for category expansion. Our strategy is therefore clear, to make water purification accessible to many more households while continuing to premiumize and innovate at the top end of the market. Our innovation pipeline remains robust, and during the quarter, we accelerated the pace of new product introductions. In water purifiers, we launched the industry first 4-year range designed to reduce lifetime cost and to make purifier ownership convenient for consumers. We are also encouraged by the sustained market share gains we have seen in water purifiers over the past few quarters. An important enabler has been the significant strengthening of our in-store presence. We are rolling out currently Eureka Forbes branded fixtures across large retail stores, improving our visibility at the point of sale and strengthening customer engagement and conversion. Beyond our core, our emerging categories comprising robotic vacuum cleaners, water softeners and air purifiers grew significantly faster than average, reinforcing our conviction in these categories as future growth engines and in our ambition to build Eureka Forbes into a broader health and hygiene company. Robotic vacuum cleaners continued to grow strongly, driven by premiumization and increasing adoption of fully automatic automated cleaning solutions. We increasingly see robotic cleaners becoming a part of the daily-use appliance ecosystem in Indian households. Our new campaign, Ghar Ka Naya Favorite, builds on this insight by positioning the robotic cleaner as a trusted new member of the family, delivering effortless cleaning and convenience. Water softeners delivered healthy double-digit growth led by strong volume momentum and increasing category adoption. Our priority here is to accelerate category adoption and category creation through consumer education. Our new campaign, Life hard nahi, aapka paani hard hai, connects hard water with everyday consumer concerns such as hair fall, and is designed to build awareness of both the problem and the solution. Our air purifier business also scaled up sharply ahead of the seasonal demand period, delivering strong growth during the quarter. We launched six new SKUs under the Aeroguard brand, materially strengthening our portfolio and positioning us well for the opportunity in the second half. Turning to service, our performance remained broadly in line with the trajectory of the previous quarter. The impact of the AMC price increases taken earlier in the year continued to be partly visible, and has been compounded by the broader inflationary environment. That said, servicing remains fundamental to water purifier ownership, and we remain confident of the
Pratik Pota (Eureka Forbes): rivals. At the same time, we continue to strengthen our core service proposition. Aquaguard Express Care, with same day service promise is one such example of how we are making our proposition much more differentiated and improving the customer experience. Encouragingly, growth in our filter business accelerated during the quarter, supported by stronger customer engagement and awareness. Given the size of our install customer base, we see a significant long-term opportunity to increase filter penetration and build a larger recurring revenue stream from this franchise. Let me put the quarter's performance in perspective from a quality of growth point of view. Our 15% revenue growth this quarter comes on top of 14.9% growth in Q2 last year. Against this demanding base, the performance gives us greater confidence that the growth acceleration that we've been working towards is taking hold. Importantly, this acceleration has not come at the expense of profitability. Adjusted EBITDA margin expanded by 43 basis points year-on-year to 13.6% in Q2, reflecting disciplined cost management and operating leverage. At the same time, commodity inflation has intensified in recent months and is beginning to create pressure on gross margins. We deliberately refrained from taking pricing actions during the festive period, choosing instead to prioritize growth, customer acquisition and category expansion. Going forward, we will remain agile. We are evaluating selective pricing interventions where appropriate while continuing to drive productivity and cost optimization across the organization. Our objective is to offset inflationary pressures without compromising the growth momentum we have worked hard to build. We also stepped up our advertising and sales promotion investments during the quarter, particularly behind in-store visibility, new product launches and consumer campaigns. These are deliberate investments behind the growth opportunities we see across our categories. Turning now to our H1 performance. Our objective entering FY '25 was to move the company onto a higher growth trajectory, and our performance in the first half gives us increasing conviction that we are doing just that. H1 FY '25 revenues grew 15.1% compared with 12.7% in H1 last year, while adjusted EBITDA margin remained flat versus last year at 12.2% despite commodity headwinds and higher upfront investments behind growth. The fact that we have been able to accelerate growth, gain market share and maintain profitability simultaneously is particularly encouraging. As we enter the second half, our focus is straightforward: accelerate growth and drive profitability. On margins, we expect the commodity environment to remain challenging. We will respond through a combination of productivity initiatives, cost optimization measures and selective pricing interventions. To summarize, I believe H1 FY '25 represents an important inflection point in our journey. We have changed gears. The acceleration in growth, sustained and significant market share gains and expansion of our emerging categories are increasingly reflecting the strategic choices and investments we have made over the last few years. There is significant headroom ahead of us, but we enter this next phase from a position of strength with a stronger portfolio, a faster innovation engine, deeper retail execution and sharper consumer engagement across our installed base. Together, these capabilities give us greater confidence in our ability to sustain higher growth and continue gaining market share. With that, let me hand over to Gaurav to take you through the financial performance in greater detail.
Gaurav Khandelwal (Eureka Forbes): Thank you, Pratik, and good afternoon, everyone. I will begin by covering our financial performance for the quarter, followed by a summary of our H1 performance. Revenue for the quarter grew by 15% year-on-year to
Gaurav Khandelwal (Eureka Forbes): 190 crores. This performance is particularly encouraging, coming on the back of a strong Q2 last year with 14.9% growth, and reflects healthy momentum across our categories and channels. Our product business grew in high teens year-on-year driven by innovations and strong execution leading to sustain momentum and strong market share gains in the EWP category. During the quarter, we launched the industry first four-year product range. Emerging categories maintain their strong growth trajectory with robotics benefiting from premiumization and expanded portfolio while both water softeners and air purifiers witnessed robust volume led growth. On the service business side, growth in filter sales accelerated and AMCs remained steady in line with Q1 trends. Our focus here will be on driving filter sales growth and launching newer propositions in AMCs. While we typically look at the business on a year-on-year basis, it's important to call out that a product business has delivered a strong quarter-on-quarter growth led by both water and emerging categories. Within that, our water purifier business witnessed a sequential quarter-on-quarter growth of over 30%, reflecting strong consumer demand and continued market share gains. Moving on to profitability. Adjusted EBITDA for the quarter grew by 18.8% year-on-year to 120.7 crore with adjusted margins expanding 43 basis points year-on-year to reach 13.6%. This was driven entirely by operating leverage. Q2 margins were at lifetime high. Gross margins were impacted by commodity inflation and declined by 138 basis points year-on-year to 55.1% and they remained broadly within our expectations. The commodity environment continues to remain challenging with inflation persisting across several key input categories and in some cases are in fact worsening. We continue to closely monitor commodity trends which are showing no signs of waiting and are hence planning a calibrated price increase post the festive period. We had taken a conscious call not to increase prices during the festive season. Moving on to operating expenses. As the business continues to scale, the benefits of operating leverage are becoming increasingly visible. Total opex grew by 10.2% year-on-year resulting in a meaningful improvement to the opex ratio to 41.6% of revenue, down 181 basis points year-on-year. This has been the key driver of EBITDA margin expansion and is despite step up in advertisement and sales promotion spends. These investments were focused on in-store presence and strengthen in-market execution and support growth acceleration during the peak demand period. Adjusted PBT for Q2 grew by 17.8% year-on-year to 105 crore. Reported PAT grew by 19.1% year-on-year to achieve highest-ever quarterly PAT of 73 crore. Moving on to H1 FY '27 performance now. At the beginning of the year, we had stated that FY '27 would be a year where growth accelerates and we have backed that ambition with meaningful investments across the business. Alongside this, we stepped up and front-loaded our growth investments with enhanced in-store presence and high impact consumer campaigns across categories. These initiatives have played out as planned and H1 revenue grew by 15.1% year-on-year to 1,590 crore, which is a significant step up from the 12.7% growth in H1 FY '26. Adjusted EBITDA for H1 grew by 15.5% year-on-year to 195 crore with adjusted margins being flat on a year-on-year basis at 12.2%. What is particularly encouraging as is that this margin stability was achieved despite an extremely challenging cost environment and significant front-loading of growth investments during H1. Reported PAT for H1 grew by 28.6% year-on-year to 129 crore. Pre-exceptional items PAT grew by 14.1% year-on-year to 114 crore. Turning now to the balance sheet. We ended the quarter with a net cash surplus of 304 crore. Cash flow in H1 was impacted due to working capital deployment. The first half typically involves higher working capital deployment due to two reasons. There is an inventory build-up ahead of the festive season and there is a higher share of modern trade and e-commerce sales which are on standard credit terms. In addition, during quarter 2, we
Gaurav Khandelwal (Eureka Forbes): simply increase inventory levels ahead of the implementation of BIS norms to ensure supply continuity and uninterrupted product availability during the transition period which also coincides with the peak festive demand. Historically, a significant proportion of annual operating cash flow has been generated during the second half of the year as inventory levels normalize and receivables are collected. To illustrate in FY '26, the entire operating cash flow for the year was generated in H2 alone. H1 cash flow operations was negative. A similar trend will be visible in FY '27 as well. Looking ahead, our priorities remain clear. First, we intend to build and accelerate on the growth momentum from the first half of FY '27. Second, on profitability, given the challenging cost environment, calibrated pricing actions will be undertaken effective mid-November. However, given the lag between cost increases already being seen and the price increase, the full impact of price increases will be visible only in Q4. Hence, Q3 will witness a transitionary impact on margins. That said, we expect margins to recover in Q4 and we continue to aim for flat margins on a full year basis. With that, I will hand it back to the moderator and open the floor for questions. Before we begin our Q&A, I would like to wish all of you and your families a very happy Diwali. Thank you.
Moderator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Siddharth Bera with Nomura. Please go ahead.
Siddharth Bera (Nomura): Yeah. Hi, sir. Diwali wishes to the entire team and congrats on a great set of numbers as well. Sir, first question is on the water purifier side. I mean, would it be possible to share the volume or value breakup in the quarter on a Y-o-Y basis, just to understand the amount of price increases we have taken till now? And if you can quantify how much we would need more to sort of get back to our earlier gross margin levels, that will be the one. And second, sir, some granular data point now, like this two-year product has been in the market for at least a year. So if you can share some trends about what is the contribution from that in our portfolio so just to understand the type of acceleration it is seeing, and and, thirdly, on the four-year life as well, if you can share some more insights on how is the initial traction building up?
Pratik Pota (Eureka Forbes): Siddharth, good afternoon and thank you for the wishes, and I wish you and family the same. Let me respond to your questions about water first, and the water purifier's performance and the profile of growth. As as you saw in the results and in my opening remarks, we've had a very strong performance in water purifiers in in quarter two. We delivered growth in high teen and for us, what was very encouraging was that the growth was on the back of very very healthy volume growth and price increase. This continued the pattern that we had seen in quarter one as well. So while not getting to specific numbers, I would like to reiterate that the growth was you know, a healthy combination and the volume contribution to the growth was higher than pricing, significantly higher. And so that was your first question. On your on your question about two-year product, you're right. We had launched a range of products with two-year filter life through the last 15 months. We were very encouraged with the response that we saw on these products. What these products do essentially, Siddharth, is that they increase the customer convenience, reduce the lifetime cost of ownership and reduce also the need for service interventions. And therefore, they they address a very fundamental customer need. These products have done very well for us and then now they contribute to a a large share of our overall overall revenues, and overall mix.
Pratik Pota (Eureka Forbes): and and growing healthily as well. On the four-year product, Siddharth, you're absolutely right. We we launched it in quarter two and, as you can imagine, the four-year product you know, addresses a very, very fundamental category barrier. In all our consumer work, we kept hearing from non-users that the uncertainty and the lack of control over recurring cost would you know, was one one barrier which kept potential customers away. So, what a four-year product does, and that comes with along with unconditional warranty on both parts and filters. What that does is it gives complete visibility and complete control and certainty to a to a potential buyer on lifetime cost of ownership. We've launched this in quarter two across modern trade and e-commerce and we have seen a very, very encouraging response to the port- to the product launches. We've also rolled out both point of sale visibility interventions as well as some influencer digital marketing campaigns, which you might have caught, which again are helping create the buzz and driving customer interest. On your earlier question of how much pricing would be required to be taken, I think it's important, Siddharth, to to remember that in any pricing that's action that we evaluate and take, we have to balance the need for margins and the need to maintain our growth trajectory, which, as you as we discussed, has actually moved up in the first half of the year. As we look ahead at the pricing in November, we are looking at a at a price range of price increase range of between 3% to 4% to be rolled out post post Diwali.
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