Ladies and gentlemen, good day and welcome to Eureka Forbes Limited Q2 FY 2025 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. If you need assistance during this conference, please signal an operator by pressing star and 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 this disclaimer. Certain statements made by 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.
Thank you. Good afternoon, and I welcome you all to the Q2 FY 2025 Earnings Call of Eureka Forbes Limited. I hope all of you had a good Diwali break, and my best wishes to you and your family. Starting off with the Q2 performance. In Q2, we recorded a revenue growth of 13.6% over last year, with a revenue of INR 672.9 crores. Excluding the impact of discontinued operations, our Q2 revenues grew by 14.7% year-on-year. This was our fourth successive quarter of double-digit growth for our continuing business, and it was underpinned by a product business which grew in excess of 20%. Our interventions last quarter in the areas of innovation, portfolio, pricing, and the step-up in growth investment led to sustained high growth in our product business.
In line with our strategy, we stepped up our advertising and sales promotion spend, which grew 40% year-on-year in Q2. This, as you will recall, is on the back of a 21% growth that we had in quarter one. The consumer response to our innovations and new campaigns has been quite encouraging. During this quarter, we also launched aggressive buyback offers to drive replacements and upgrades, and this received a very encouraging response as well. The vacuum cleaner category continued its pivot towards premium cleaning with robotics devices and the premium upright and cordless vacuum cleaners being the engines of growth. An important dimension to draw attention to is the increased growth being witnessed in both our categories. The combination of higher activity, more innovations, premiumization, and increased visibility is helping drive this growth.
This, as you can understand, is and will be a helpful tailwind for us in the future. On the channel side, growth was broad-based across all channels, with particularly strong growth in e-commerce and modern trade. As you are aware, we picked up service transformation in phase II of our strategy earlier this year. As part of this, our focus continued on improving the customer experience in growing our service franchise. Our AMC base expanded year- on- year, driven by more affordable segmented AMCs, which had a lower ASP. In addition, the expenses of our distribution and our go-to-market systems for filters tapped into the non-AMC customer base. The impact of growth and the associated operating leverage was visible on all profitability parameters. On the profitability side, adjusted EBITDA margins increased to 11.5%, expanding 106 basis points on a year-on-year basis.
This margin improvement was delivered despite our deliberate choice of significantly dialing up our advertising spend that I spoke about earlier. Our profit after tax grew 83% year on year at INR 46.7 crores for Q2. As we look ahead, we will remain focused on executing our transformation strategy, drawing energy from our recent performance. With our product business continuing to grow strongly and with the acceleration of our service transformation efforts, we are confident of driving sustained and profitable growth in the period ahead. With that, I now hand you over to Gaurav. Gaurav, over to you.
Thank you, Pratik, and good afternoon, everyone. Starting off with the headline numbers. Our revenues at INR 672.9 crores grew 13.6% on a year-on-year basis. Adjusted for discontinued businesses, our revenues grew by 14.7%. Adjusted EBITDA margins expanded 106 basis points year on year to 11.5% quarter two . Adjusted PBT grew 36.2% year on year and profit at INR 46.7 crore grew 83.2% year on year. On the revenue side, product business saw +30% growth, and we continue to see broad-based growth in both electric water purifiers and vacuum cleaners. Driven by premium innovations, realizations improved, leading to both volume and mix being growth drivers. Growth initiatives were supported by bolt-on growth investments in advertising and trade promotion spends. Aligned with our strategy, advertising and trade promotion spends grew 30.1% year- on- year in quarter two.
Part of these investments have also driven by an early festive season when supporting new innovations. We intend to continue stepped-up growth investments. Our quarter two gross margin is at 66.3%, 111 basis points lower versus previous year. This was driven by a combination of buyback offers and channel mix. Commodity prices remained range-bound during the quarter. The sequential drop in margins is a seasonal phenomenon as witnessed in previous years also. This is largely due to the fact that in quarter two, the product business has got a higher share compared to service business. Driven by operating leverage, our expenses as a percentage to revenue, excluding ESOP charges, were lower by 217 basis points versus previous year. Our focus on VA program will continue to drive further efficiencies. Within expenses, if I were to give some color, service charges reduced by 12% year on year.
This reduction was mostly driven by a larger share of digital AMCs and consumer interactions happening via the digital route and also leakage control measures that have been taken by the company. Going forward, we will make specific investments in driving improved customer experience. Non-cash ESOP charges for Q2 FY 2025 is INR 5.7 crores versus INR 10.7 crores in quarter two last year, INR 8.7 crores in quarter one FY 2025. We expect ESOP charges to now stabilize at these levels. Other lines below EBITDA remains largely stable. Depreciation for the quarter stood at INR 7.2 crores, and amortization was at INR 6.8 crores. It may be noted that while the depreciation charge is linked to CapEx investments, amortization charge in the P&L is largely for intangible assets, which were created as part of acquisition accounting. On the balance sheet side, net surplus improved to INR 119 crore.
Trade receivables increased due to channel mix with higher growth in e-com and modern trade. There are standard credit terms in both these channels, and we expect this to unwind in half two of this year. Inventory increase was due to festive buildup that was carried out. In summary, sustained double-digit growth for four quarters for the maintenance business and steady year-on-year margin improvements despite significant bolt-on growth investments give us the confidence in our strategy of driving sustained profitable growth. Thank you.
May we proceed with the question and answer session?
Yes, please.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question, press star and one on their telephone. If you wish to remove yourself from the question queue, you may press star and two. As are requested, please use handsets when asking a question. You are also requested to limit your questions to one question and one follow-up question per participant. For further questions, please rejoin the queue. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. The first question is from the line of Umang Mehta from Kotak Securities. Please go ahead.
Yes. Thank you for the opportunity. From Anna. Just one first question was on if you can share some month-on-month growth rates in water purifier products, vacuum cleaner products and service segment. If not for the quarter, just for the first half, that will help understand the.
Umang, thank you. Thank you very much for your question and for your wishes. As we mentioned in our opening remarks, as the results reflect, I think our quarter two performance was on the back of a very strong product growth in excess of 20%. This growth was extremely broad-based. We saw similar strong growth across both water purifiers and vacuum cleaners. This came on account of, A, volume growth, B, the success of our premium innovation, and C, our investments that we made in driving advertising and driving visibility across both on air and on the ground. The growth was, as we mentioned earlier as well, broad-based in terms of channels as well. While e-com was the fastest growing channel, we saw robust growth in retail and in our direct channels as well.
I would say in terms of both category as well as channels, our growth was extremely well distributed.
Sure. But mainly on the service business, like you grow in consumer spend. At least that trend will continue in the second quarter?
Yeah. Umang, I will take the question. On the service side, we have now moved to as part of phase II strategy of growing the franchise. Our focus is on replicating our experience that we saw on the product side, where you get more consumers into the franchise. As part of that strategy, what we have done is that we have made our offerings even more affordable. As a consequence of that, what we have seen is our AMC base to go up. We have also seen our AMC volumes to go up, and that is something which is given as an indication that our strategy of product that worked well for us is something that should work well in service as well. That is how service is panning out.
As you can imagine, getting more people into the franchise in an annuity business is critical, and that has come with an ASP drop, which we are conscious of. Going ahead, we would then see that on a lifetime value basis, you will see this playing out in the quarters ahead. An important number I will draw your attention to is the fact that if you look at the liability that we carry on our balance sheet, which is towards the annuitized revenue, that continues to remain very healthy.
Understood. This is helpful. Thanks a lot. I will have follow-up questions. Thank you.
Thank you. We have the next question from the line of Siddharth Bera from Nomura. Please go ahead.
Yeah, thanks for the opportunity and good set of numbers.
Sorry to interrupt, but your line sounds a little muffled. If you could please change the mode.
Is it better now?
Yes, this is good. Thank you.
Okay. Thanks for the opportunity, sir, and congrats on the set of numbers. Sir, first question again. You have mentioned that the product volume growth or product growth has been very strong. Some color there about, is it largely volume driven or what amount can be volume and what can be the ASP would be very helpful to understand this and some indication about how we have also some indication about how the growth trends are. Are some of these trends in the near term, in the preceding period? Some color information.
Thank you, Siddharth. Thank you for the question. On your first question on our performance on the product business and some color on that. I am happy to report that both for water purifier and for vacuum cleaner, our growth was a combination of volume growth as also an increase in our ASP. Let me double-click on both the categories individually. In the case of water, as you are aware, we have a penetration task that has been ongoing, and that reflected in our decision to invest once again in an advertising campaign to drive awareness. Again, that led to a very strong volume growth in the water business. In addition, our premium innovations, one of them was under-the-counter product, the other one was an instant hot water product. Both of these helped strengthen our ASPs. Our premium portfolio within water purifiers grew well ahead of the other.
As a result, our ASPs improved as well. So in water, it was a premium combination of both volume and ASPs. In the case of vacuum cleaner, as you are aware, there is a pivot happening in the category, which we have spoken about earlier, and that is towards convenient cleaning. The category for a long time been driven and anchored in conventional cleaning category, and it is to bring vacuum cleaners and corded vacuum cleaners. In the last couple of years, and especially the last two to three quarters, we have seen that pivot accelerate. This quarter, we saw growth again led by the premium segments of robotics and the handheld and the upright vacuum cleaners. Again, in this category, we are happy to see volume growth, but a much greater bite of the overall growth came from the ASP improvement.
I think it is important to also underline that in neither of the categories was there a pricing-led growth. We did not take pricing. It was on the back of both volumes and ASPs. Does that answer your question, Siddharth, the first question?
Yes.
Okay. Got it. On the second question that you asked about festive, you are right. Now we have had the entire festive season behind us. And if you look at our performance, especially in the most recent period of Diwali, I think we saw two patterns play out. First, the growth that we saw from the Pujas to Dussehra, so Navratri period through Diwali, it was a very clear acceleration. The growth picked up. The consumer, the footfalls in the market and the sentiment improved. And that was a very clear uptick, which in turn reflected in robust demand during Diwali across all our channels. Once again, as I mentioned earlier, e-com was the fastest-growing channel, even during Diwali and overall festive. Our modern trade did well, as did our direct channel. Traditional trade, while also growing, was slower to grow compared to the other channels.
Overall, I would say we are happy with the way festive has performed for us. It was a strong performance. Our tertiary sales were robust, and again, reflected what we spoke about earlier. There was a volume impact, and there was a very encouraging response to our premium innovation. And therefore, the festive momentum was very positive. I think it is important to, however, underline in the same breath that given that festive and Diwali timing, a lot of the primary billing that went behind this tertiary billing actually happened in quarter two and is reflected in our performance, which we called out in our remarks as well. So while the tertiaries have played out through October and through Q3, the primaries have been baked into the Q2 numbers. We will now see the replenishment happen through November and December.
Got it. Sir, my question is on schemes you have launched to drive upgradation of consumers. Some numbers you have about what percentage of buyers will be upgrading in your and any sort of detail you have to share there?
No, that is a really good question. I am glad you picked up the schemes that we have driven and our very concerted plan that we have driven to drive upgradation, to drive faster replacement. If you recall in our earlier call, especially last year, we had spoken about the fact that while part one of our agenda in water was to drive penetration, part two was indeed to drive replacement and upgrades. That has played out this year, especially in quarter two. You are happy to see, therefore, that the response to our buyback scheme was very strong, and that came from both our existing installed base of users, but also from our non-user base, our non-patient base. Our premium portfolio did well with almost half of the new customers who were coming in, half or more, being upgraders to our premium products.
As you can imagine, this was focused sharply on our premium product. So premium product actually saw a very encouraging response with, like I said, more than half of the users being upgraders or people who are buying faster. I hope that helps.
Yeah. Thanks a lot, sir. This is helpful.
Thank you.
Thank you. The next question is from the line of Naushad Chaudhary from Birla Mutual Fund. Please go ahead.
Thanks for the opportunity and congrats on a set of numbers. First, the bookkeeping, sir. The P&L service charges this time was slightly lower year-on-year. What has happened there, and is this something we should treat as a new normal for the business?
Yeah. Thanks for a clear question. The service charge reduction was largely driven by two things. First is the fact that as we digitize more and more of our business, we are seeing the extent of our digital AMC sales go up, and equally our consumer interactions via digital means go up. Just to give you a data point around that. Today, 80% of our interactions are now happening through digital forums. When that happens, it obviously leads to a situation where the service charge that you are paying through the non-digital or offline route, those go down. The second thing that has happened is that as you can imagine, on a very large network, there would always be opportunities or there would always be certain areas of leakage that could arise, and those leakages are being addressed one by one.
As we've mentioned in the past, driving cost efficiency is a continuous process and again, as an ongoing process, we keep identifying new opportunities that are there to keep driving efficiencies. That is the other thing which has played out. Having said that, I think as we mentioned in phase II of our transformation, service is an absolute priority and while these efficiencies come in, it gives us the headroom to invest in certain consumer or customer experience initiatives, and we will make those investments as we go ahead. This will be a combination as we go ahead in this journey, a combination of certain efficiencies staying out, but then part or some parts of those efficiencies getting deployed back in driving superior customer experience.
Understood, sir. Well, clear. Second, on the BIS regulation for the water purifier. Any update on this? If that happens, how do you think this can benefit or impact the organized BIS space?
Naushad, that's again a very good question, and I think the impending BIS rollout, I think it's very good for the industry. 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. I can say that all our products are and will be compliant well in time for the BIS implementation. We are aware that this is something that is a very important initiative and a very important area of focus for us, and our entire portfolio will be compliant. We believe that as BIS guidelines get accepted and get implemented, this will help drive the organized sector more favorably.
By when we should.
I'm sorry to interrupt. We have a question.
Just a follow-up on this.
Yes, you may. Please rejoin the queue if you have follow-up questions, sir. Thank you. We have the next question from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Thanks for the opportunity. Sir, the efforts which we have done, we can see the fruits of those efforts are seen in this quarter. Just wanted to understand how are we in terms of the market share across the products? So what would be the good performance, let's say, in market share terms across the region? Secondly, have we seen the growth broad-based, means is it across the regions in India or is it in some pockets? Because most of the companies are integrating weaker consumer off take. We are among the very few companies which have shown such performance. Is there any particular region where we are getting this growth or any other abnormality or any rural urban kind of a like share more on that? That is the second question. Yeah.
No, thanks, Aniruddha. I think we spoke about the fact that we had a strong broad-based growth. Happy to report that it also reflected in a market share increase that we have seen in our retail business. This market share increase was evident in both the traditional trade and the modern trade channels. Clearly, therefore, we have, in the last quarter, outgrown the market. Your second question about the growth profile and was it broad-based. I think growth was broad-based. We spoke about category-wise, the growth was broad-based across both water and cleaning. It was broad-based in terms of regions as well. All our regions had strong growth. Amongst the regions, we have seen the South region grow faster. Again, that's something that over-indexed on our overall growth.
In terms of town class, we saw all town classes grow, but the tier two and tier three towns and the mid-tier towns actually grew faster than the metro and tier one towns. That again, that growth pattern and profile reflects what we are seeing in other consumer businesses elsewhere. The smaller towns have grown a little faster. I would say while there was uniform growth everywhere, the growth tires and the growth over-injecting was, A, in e-commerce, B, in the South region, and C, in the tier two and tier three towns.
Okay, sure, sir. This is the last question. When we had spoken somewhere around that time, there were 80 million water purifier install base, and I guess we were directly servicing around 1 million water purifiers. Where does this number stand now? In a way, has that penetration or direct servicing has gone up considerably? Or how should we read this, and where do we see this number, let's say, going up in three years? Because we have been hearing some conversations on this. Just wanted to see where we are now. That's it from my side. Thank you.
Thank you, Aniruddha. That's a really good question. You're absolutely right. We had talked about a significant expansion in our installed base. Our strategy, as we discussed earlier, was to drive volumes and drive penetration. In the year one of our transmission strategy, we spoke about a significant volume growth that we delivered on the back of affordable Aquaguard and the advertising that is supporting it. That has led to a significant growth in our overall installed base. We've also seen, as we mentioned earlier in the call, growth in our service franchise, in our service installed base. We've separately also spoken about, and it's there on the investor day, about the fact that we've got access to almost 14 million first-party data. That again, as you imagine, is an extremely valuable asset. Happy to say that our installed base has grown overall.
Our base of AMC users also has grown encouragingly. But as you're aware, we don't give these numbers separately. We don't give volume growth numbers separately. But I think they both have moved in the right direction. Both our overall installed base of Aquaguard users and also within that base of AMC users.
Sure. Many thanks. Very helpful.
Thank you, Aniruddha.
The next question is from the line of Nandita Rajhansa from Marcellus Investment Managers. Please go ahead.
Thank you. First of all, congratulations to you, Mr. Pratik for the excellent set of numbers. My question is two-fold. One is a little related and the second is basically on the founder side. The first related question is that we have been hearing this and I am seeing this in the data as well, that there is a growing urban demand overall across the country. I wanted to understand that why please had a very good Q2, which could easily also be co-driver for monsoon and therefore the higher penetration of water purifiers, but how sustainable is this going forward? The second question are regarding the decrease in trade receivables and increase in trade payables, as well as the gross margin reduction Q2 . If you can just give us more color on these aspects.
No, thank you, Nandita. Thank you for the wishes. Let me respond to your first question before handing you over to Gaurav with a question on receivables. I think you've spoken about the context as being demand challenging, and I think we have spoken about that as well earlier. I think the change that we are seeing now is that we are seeing a greater adoption and a greater acceptance of the water purifier category. I think there is increased activity. There is a lot more innovation happening. There's a lot more visibility in terms of advertising and on the ground. There are more players entering. So there's a lot of excitement. Plus the fact that we in the last 18 months or so have sustained our advertising investment in driving basic category need and relevance.
I think all of that is reflecting in an improved category adoption and category growth rate. So that's a tailwind that's working for us, which I spoke about in my opening remarks. In addition, what we've been doing, as you're aware, is being focused on driving our own penetration efforts and driving more efficiently our premium innovations. These have worked for us, and as we mentioned earlier, we've had now four quarters of double-digit growth in our continuing business. Our growth has been high teens. This quarter was 20%+ . We feel good about the plans that we've got lined up for the future. We feel good about what we've got being rolled out in both quarter three, quarter four and beyond. We feel that between our efforts of driving penetration, driving innovation, creating more relevance, investing, as we said earlier, ahead of the curve on advertising.
Of course, our execution improvement on the ground. We believe that we'll be able to sustain strong product growth in the foreseeable future. I don't want to quantify it and get down to numbers, but strong growth, robust product growth, we have immense confidence in being able to deliver it. Yeah, Gaurav.
Yeah.Pratik , to the first question on trade receivables, we've seen from a growth profile standpoint, strong growth on the e-com side and strong growth on the modern trade side. Our other channels and geographies have also grown, but the growth has been relatively higher in these two channels. These channels operate with standard terms of trade in terms of credit that is there with major players. Hence what you see is a reflection of those trade terms in a debtors position. So this is something which is very normal. It is something which will unwind between October and November, because that is when collections fall due, and part of that has already happened in October. You will also note that this is a consistent pattern that happens every year because of the simple fact that festive is always around October or early November.
That's the reason why trade receivables have gone up, but this is more a question of timing than anything else. The second thing is around gross margin. Again, when you look at gross margins from a sequential basis, this again is something which is a function of seasonality. Quarter two for us is the biggest quarter of the year, and within that, the product mix goes up because there is festive selling, et cetera, that happens. There is selling which is related to monsoon that happens. Given the fact that product gross margins are lower than service, there is an overall portfolio effect that happens. If I draw your attention to even, let's say, last year, there was a sequential drop of gross margins that had happened, and then these gross margins come back again in quarter three once the portfolio rebalances.
I'll draw your attention to our half one margins. If you look at it on a half one basis, our margins are 58.2% versus last year of 58.8%.
Understood. Just to point on trade payables, there's a decline in trade payables as well.
I think it's a function of. Part of our trade payables are linked to our import portfolio. So there are certain, for example, the vacuum cleaner portfolio, that supply chain is China-based largely. Now for a festive build-up, you bring in VCs, et cetera, and those payment terms are something where you end up giving payments. So it is more a function of, again, linked to inventory, which is there and its regular inventory dealings that are happening.
Understood. Just one last thing.
Sorry to interrupt. May I request you to please rejoin the queue if you have further questions. Thank you.
Okay.
The next question comes from the line of Diya Brijwani from White Whale Partners . Go ahead.
Pratik, really appreciate the initiatives you all have been taking on the AMC contracts. Any metrics that you can share on the renewal rates given that the first year of service is free? Any rates that you can share on that? That would be my first question. Second is, any updates you have mentioned on the pilot that you have been running on the rental model. How has the progress on that been?
Thank you, Diya. Thank you for the question. I will respond on your first question on metrics linked to our AMCs and our contract. Let me first pull back and talk about what we have seen in the service business that we spoke earlier in the call as well. Our service strategy, just to recap, has been to sort of follow the same analogous thought that we did with product a year and a half ago. Which is to recognize that one barrier to our service and to our AMC into a contract has been the high perceived cost. Therefore, what we have done, as you are aware, is to offer consumers and our customers segmented and tiered AMC options, as well as unit sales and unit options.
Knowing that in our unit business, the more volumes we have and the more customers come off the franchise, the better will be the revenue stream in the future. So with that objective, we have rolled out affordable AMC. As I mentioned earlier, we are seeing that reflect now in a growing service franchise and service base. So that has been the first encouraging output and outcome of what we have done. That, of course, as I mentioned earlier, has given us slightly lower ASP, but that was by design to drive affordability. I think we do not share detailed metrics of how the conversions are trending. So happy to report that our conversion, because I think you asked a question about the first-time user. So our conversion metrics have improved in terms of people who are first-time adopters of AMCs.
People who had bought a device and were into warranty and adoption of AMC actually has improved last quarter. We sort of do not share numbers beyond that. On your second question, the rental pilot. The pilot continues on a slow burn, and I want to sort of talk about that a little bit because it is a question that we have been asked earlier as well, and it is a very fair question. I think the rental pilot continues, and it is delivered whatever we wanted to deliver in terms of learnings, in terms of the KPI. The debate that we have internally is when to step it up. This is a problem of plenty anyways, because when we are growing at 20%+ in a product business, you want to be careful not to reprioritize that when we open up a new front as far as rental goes.
Because any such initiative would require investment, require creating the right awareness, the right focus in the field and go-to-market system. So it is a matter of prioritization. As of now, we are choosing to prioritize our product sales business before we scale up our rental business. So it remains on our FY 2027 Strategic V ision, but given the strong momentum and our strong, I guess, just the conviction that we have in product, we believe that this is not the right time to digress and to distract our teams from that agenda by getting into scaling up rentals.
Got it. That's helpful. Thank you.
Thank you.
Thank you. The next question is from the line of Harshit Kapadia from Elara Capital. Please go ahead.
Thanks for the opportunity and once again, congratulations on a very good set of another good quarter. Two questions from my side. When you mentioned that premium products have been one of the major contributors, how will you define a premium product? Is it based on price point or is it based on liter? And what contribution is premium in your current portfolio within water purifier and vacuum cleaner?
No, thank you, Harshit. Thank you for the wishes and the feedback. We have seen, as you mentioned rightly, growth come by in our premium business and premium portfolio. While I talk about and answer your question in detail in just a minute, I also want to underline that we saw growth in all parts of our portfolio. It wasn't just in the premium business. It was strong, first of all, strong volume growth overall in the water business and indeed in VC. We saw strong growth in economy network and not just in the premium. Therefore, we were encouraged to see that the growth was very broad-based. Coming to your specific question on premium growth and how we define premium products, they are defined by price points, and the price points are different for RO devices and different for UV devices.
In the case of UV devices, the price point that we have is more than INR 12,000 for UV devices, and for RO devices is more than INR 20,000. Any product that we have in the price band, which is, like I mentioned earlier, more than INR 12,000 or more than INR 20,000, will be defined as a premium product.
Okay. What percentage right now would be of your premium product in your portfolio, sir?
While we don't share that breakout, Harshit, given the fact that the premium portfolio has grown faster than the overall category average, you can imagine that the mix of premium has strengthened compared to last year versus last year. Again, just to wind the clock back a little bit, same time last year, as you recall, our growth was driven largely by the economy segment. We were talking about our intention to grow premium and to make sure we had a much more balanced growth profile. Now, as we look back and reflect on the last one-year journey, and of course, the last quarter, we feel good about the journey we have traversed, where our transformation work and efforts continue to bear fruit and give us volume growth and revenue growth.
We now have a different growth engine aspiring for us, which is the premium innovation and the premium business.
Fair enough.
Harshit, sorry to interrupt. If you have further questions, may I request you to please rejoin the queue?
Sure.
Thank you.
Thank you.
Next question, ladies and gentlemen, from the line of Anupam Goswami from SUD Life. Please go ahead.
Sir, if you can shed some light, like maybe some points, on the service segment and how much we are growing in that, and given our newer launches, do we give any minimum sort of free services or a guarantee period? And where do we see the service segment as a percentage of the total revenue going forward?
Got it. Thank you, Anupam. On the service segment, we don't give out a separate revenue every quarter. It would be fair to say that service revenue constitutes about a third, roughly, of our overall business. Our service transformation agenda was picked up earlier this year. Our transformation strategy was divided broadly into two phases. Phase I was to restore product growth. This was a business you would recall, hadn't had product growth for almost a decade. It was important for us to bring product growth back, which we began doing last year. And very deliberately this year, in addition to product, we picked up our service transformation agenda. We feel good about the progress we've made in the last six months. I spoke earlier about the fact that we've driven now affordable AMC.
We've also now picked up the agenda of targeting the non-AMC user, installed base of customers who are comfortable, in fact, would prefer not to have an AMC and are very comfortable replacing filters as and when they need that. We've now bolted on our efforts by having focus on a new filter hood market that I spoke about earlier. That's beginning to bear fruit as well. That's now reflecting in our service segment expanding, the franchise or AMC base expanding, and also a strong pickup effect in our filter fee. Also what we have not spoken about, and it's important to underline, is that our customer experience KPI also has improved significantly year on year. Our service KPIs, our service nets, our NPS numbers are far higher than last year and at a lifetime high. That's on your first question.
On your second question, how the whole service structure? Yes, when we sell a new product, in the first year, we have a warranty that covers the first year. As part of that warranty, depending on which segment the product falls into, we either have one or we have two free service options being given to the customer. That's part of the warranty offering, wherein our technician goes to the customer's home, cleans up the filters, any other help required, services the device, and comes back. At the end of that one-year period, we then attempt to convert our customers into our AMC offering. Some customers take it up right then, some customers wait for some time, and some customers, like I said earlier, prefer not to go in for an AMC and wait for a filter change to come by. That's the way it's structured, the construct.
Okay. Behind the margin improvement, is it only because of the premium segment catching up, or is there any service segment also? I mean, especially from the point of view like where would you see the margin going forward? One was the future that service segment will come up and we had a lot of leakage in that segment and also premium product. So where is that strategy playing out?
Gaurav, yeah.
I think at a macro level, the margin improvement is being driven by operating leverage. Because if fundamentally you look at, it is the near 14% growth which is giving us that operating leverage advantage because at high gross margin levels, that plays out quite well. Because again, I would just like to reiterate that this margin improvement that you see is after a 40% year-on-year growth in advertisement and sales promotion spend. It is largely being driven by operating leverage. There will obviously, on an ongoing basis, opportunities of cost efficiencies that may be kind of worked upon. But at a macro level, it is going to be operating leverage, which is the biggest source of profitability improvement.
Okay, watching capital, if you can.
We have a question from the queue.
Okay, thanks. I will check.
Thank you. Next question is from the line of Harsh from Nepean Capital. Please go ahead.
Thanks for giving me the opportunity. I hope I am audible.
Yes, Harsh. We hear you clearly. Thank you.
Yeah, thank you. So I have two questions. Firstly, on the volume, how much of the volume has contributed to our 27% CAGR? Secondly, on ASP improvement, I understand that we are pushing on the broad base both with penetration and premiumization both. So I would just like to understand what mix that we have in our mind, given that the mix for premiumization stands even as the margin moves. So that is the two questions I have.
Thank you, Harsh. Let me sort of answer the second question before I come to the first question. I think the exciting opportunity that we have in water purifier is that we have both a penetration task and also an upgradation task. It is a category that has 6% penetration. As you can imagine, there is a long runway we have to drive category adoption and convert non-users. Towards that, we remain invested in driving awareness, driving relevance, driving affordability, driving access and distribution. That has led to a strong growth in our economy portfolio this year, and therefore in our volumes, which I spoke about earlier. Equally, we are lucky to have a very large installed base of users. The average replacement cycle for water purifiers has been typically six to seven years or in many cases even longer.
That is much, much longer than what other categories typically have or have begun to have more recently. The reason for that is the category has not driven innovations significantly until recently. A big part of the strategy now is to tap into our installed base, and indeed installed base of water purifier user more generally, to give them very, very differentiated and clearly different products, a premium product which they can upgrade to. That is what will lead to, and that is what we mean by ASP increase. Our growth this last quarter was a combination of both, of strong volume growth in water, accompanied by a higher mix of premium which led to an ASP increase. Going forward, we expect this two-step tango to continue.
We will have a focus, almost a Janus-faced approach, that we will have a very clear focus on driving penetration. We will make sure that we drive affordability, we grow volumes, we drive relevance. Equally, however, we will remain focused on driving innovations, driving differentiation, giving consumers specific functional reasons or other reasons, be it design, form factor, to upgrade their devices faster. So we expect both of them to grow, and this will lead towards a very healthy and a balanced growth profile. I think on buyback, you asked about the contribution, which was your first question. I mentioned earlier that we were encouraged by the response to the buyback offer. So you may have seen our press advertising that we ran across the country. We also ran a lot of digital campaigns around it.
Those are our television campaigns running both in quarter two and more recently in October, focused on our premium products. That led to a very encouraging response from our customers. While we do not give numbers out in terms of the adoption of buyback, acceptance of buyback, the number I did mention is that more than half of our premium device users are buyback users actually, were existing users who came in to upgrade their devices. To be honest, this is the first time we have done an effort of this nature at this scale. We have always had buyback offers running in bits and pieces earlier. But with this kind of support and this kind of visibility, it is the first time. We have been fairly encouraged and enthused by the response we have received, and we intend to continue this as an area of focus for us.
Fair enough, sir. That is all from my end. Thank you.
Thank you.
Thank you. The next question is from the line of Yash from Stallion Asset. Please go ahead.
Hi. Thank you for the opportunity. I just want to understand, just from the management's vision perspective, so after this transformation project is over, do you believe that the business has the potential to have a significantly higher EBITDA margin, maybe something like 15%-16% for the next three, four years?
Yash, thank you for that question, and I'm glad you asked a more longer-term question because really the exciting part about Eureka Forbes is that there is a here and now opportunity, but there is also a much more exciting longer-term opportunity. This is a business with tremendous assets. We've got an incredible brand in Aquaguard and a very strong corporate brand in Eureka Forbes. We've got two strong categories, two large categories, which are both under-penetrated, which are both relevant and seeing increased adoption, increased growth, water and cleaning. We've got a very large service business. We've now got a growing digital backend as reflected in all our digital growth, et cetera. So with these foundational assets and such strong assets, we have an extremely promising and a very high growth model ahead of us.
We will be a much larger business as we go forward, and we will have growth, and I'm talking of the next five, 10, 15 years. This is a business that we are designing and rebuilding, as we say often, for the next 40 years, building on the foundations that have been laid in the last 40. Now, as we grow, as we drive innovation, as we drive penetration, one big part of that effort will also be to improve profitability. As you can imagine, in a business with healthy gross margins like ours, as revenues grow, there will be some obvious impact to operating leverage on our EBITDA. Equally, however, we have to invest that in driving category growth, in supporting our innovations, and in general, just keeping both the categories option. So over time, longer-term, we will grow.
There'll be profitability expansion, but it'll be calibrated, it'll be systematic, it'll be step and step. Gaurav, you want to add to that?
Absolutely. I think one thing I'll just draw attention to the fact is that we are still literally at the end of the second year of the transformation. So obviously we are at a stage where there is still a very clear runway that is there, and it's at the end of second year, we are at another mile, which is roughly 11.5 . It also tells us that there is a roadmap which will take us beyond this. Now, where exactly it lends time, we'll see. But from our perspective, I think, again, goes back to the point that with a high gross margin profile and a focus on expanding category, growth comes, and with that follows operating leverage, which automatically ensures profitability.
Okay. Got it. Just coming back to the previous question of this buyback scheme. I just want to understand, are you targeting existing Eureka Forbes customers and telling them that if you upgrade to a latest model? I just want to understand how this works.
Yes, Yash. The logic, like I said earlier, is to talk with your existing users of water purifiers more generally, not just Aquaguard, and give them specific reasons, both linked to product and innovation, as also supported by some financial incentives and offers and discounts to accelerate their repurchase. So whether it is our instant hot water product or it is our under-the-sink product or our glass FilmTec product or our stainless steel product, we have specific buyback offers, specific offers on different products targeted at existing users across all channels, whether it is through direct sales channel or through retail or through e-commerce. We've had different versions of these offers running. As I mentioned earlier, we were encouraged with the response that we have received.
Right. You continue this offer for the rest of the year?
Please join the queue, sir.
It will be part of our strategy going forward, yes.
Okay, thank you.
We have the next question from the line of Rishabh Gang from Sacheti Family Office. Go ahead.
Yeah. Thank you for the sir. Really want to appreciate your great performance and efforts with the team. I understand a good amount of growth is coming from the robotics and we have done new product launches as well. I want to understand what are we doing and going to do incrementally for brand awareness as well as increasing sales, especially cross-sales. Do we have demonstrated use cases? Like what is the status of this across India? And any cross-selling initiatives that you have, especially for those people who have bought cheaper models, we could say. Is there any referral mechanism that you have for this?
No, thank you, Rishabh. Thank you for two things. One is for appreciating the performance, but thank you for asking a question that's very close to my heart. Absolutely right. I think you spotted the opportunity well. Yes, we've talked about robotics being an engine of growth. Robotics is a category that has now grown handsomely for us, for the last many quarters, and we believe that a long runway for growth lies ahead. What are we doing. Actually, before that, why is robotics growing so well? I think it's important to recognize the fundamentals that are driving the growth. I think the consumer, especially post-pandemic, realized the need for an automated cleaning solution at home, just in case the domestic help was not available.
Because the solution had to be automated, it had to be a convenient one, which wouldn't require, it shouldn't require a lot of manual effort. That is driven two segments broadly. One is the cordless and the handled vacuum cleaner, and the other one is the robotic segment. Robotics far more than the former. Our attempt and our strategy in robotics is two-fold. The first one is to drive robotics penetration, and to make sure that there is adoption at different price points. One part of the strategy is to have a portfolio that straddles from economy to the premium segment. One interesting nuance in robotics is that, because it's so low in penetration, and there is growing awareness, the consumer is looking for more and more premium options.
We've just launched last quarter a product, which is a robotic device with an auto bin station, with an auto dust station. In other words, the robotic device will go dock, get recharged automatically. Not just that, the dust in the vacuum cleaner, in the robotic device, will get emptied and sucked into the bin, and that bin can store that dust for as much as 60, 65 days. It needs to be emptied only once in two months. Extremely convenient for the consumer. That obviously has a premium price point that comes to the INR 34,000, INR 35,000 price point as compared to INR 23,000, INR 24,000, which the others come at. But that has seen extremely encouraging adoption because the consumer is looking for more and more convenient solutions.
That is the attempt, that we have to have a full spectrum of products from the affordable one, which are maybe more gyro-based, to the more premium ones, which are full station to dust station, which are all laser or lidar based. That's the attempt at, first of all, building out a full portfolio of products. The second part, and I think the question you asked was spot on, how do we create a much greater awareness about these products? How do we use our strengths and our assets, like the installed base, to drive that adoption of robotics? For the first time, we've actually begun investing in advertising our robotic vacuum cleaners. You would have seen in sort of the leading publications, full-page ads, with robotic devices.
We've also done a lot of work with digital influencers, and the digital marketing campaign has gained ground in the last quarter. You will see us invest going forward as well in driving awareness for robotic cleaners. I think the other thing we've done, which is building on our strength of service and from water, is offering customers an in-home demo of robotic devices. Of course, our direct field team does that. That's a great strength. The same in-home demo option is available to customers even in modern trade. If a modern trade customer walks into a Vijay Sales or into a Croma and looks at a robotic device and wants an in-home demo, somebody will go to a house, take the device, do a demo, and land the sale. Equally, we are supporting our online sales efforts, Amazon, Flipkart, et cetera, with an online demo.
We will have a live online demo happen, and if the customer wants to follow it up with a physical demo, that's an option as well. We are using our strengths and our assets to drive awareness of robotics. Yes, both our installed base and within that specifically, like you said, installed base of premium water purifier users, that's a very, very valuable base into whom we can cross-sell these robotic products. There's work going on in that as well. I get quite excited by the opportunity that robotics offers us.
How about the AMC front, right? How are we capturing the existing customers for AMC which have not been with us for some time? Also, once the product is sold, right, the first AMC after the product warranty is very important. If that goes out, our things, then the person actually becomes a customer of the non-Eureka AMC. How are we ensuring that the customer sticks with us post the first year of work on the vacuum cleaner? Do we have any after-sales revenue opportunity, like service or consumables in vacuum cleaners and air purifier as well? Yes, sir.
Yes, Rishabh, on your second question, the follow-up question. Certainly for both vacuum cleaners and robotics ones that you asked about earlier, but also for air purifiers. We have a consumables opportunity, and the fact that we have both a direct sales network but also a growing B2C presence will allow us and allows us to monetize that more effectively. That's going into your question on the opportunity, after-sales opportunity. On AMCs, you're right, absolutely. The effort is to provide our customers a very, very good and a superlative experience in that first year post-purchase, which is within the warranty period. What comprises that? First of all, post-purchase or CD installation, making sure that the customer's expectations of installations are delivered. Number one.
Number two, wherever the customer has a query, and very often our new users and new adopters have a lot of queries about the purifier, about the water, and all of that. How do we address those queries both virtually and remotely, and if required physically, promptly? The third use case or third issue is when there is a complaint. Very often what happens is when the source water quality changes or becomes adverse, the customer calls and complains. So how fast we respond to that complaint will also define, of course, the customer experience.
The better the customer experience in the warranty period, the higher, as you imagine, is the probability of conversion from warranty to our AMC. It is important to note that the AMC adoption is not a day one activity. It is not as if on the 12 month, first day, people either do or not do.
It is a continuous process. So up to six to seven months after the end of warranty, there is a gradual adoption of the AMC, and the curve continues to increase. That is a function of various things: customer's intent, time, the filters continuing to work for longer, et cetera. So the revenue opportunity continues for six, seven months thereafter. You are absolutely right, there is a lot of work that is going on in targeting this customer, both through our business partner network and increasingly through our B2C outreach. Like I said earlier, we have seen success and we have seen encouraging increase in conversion of the warranty users into AMC. That said, I think it is also important to remember that there are many customers who would not want to have an AMC and would prefer to change the filters as and when required.
Now, going back to your question about after-sales opportunities, the interesting part and the good part about that category is that there will certainly be an aftermarket opportunity, because either through AMC or through filter change, there will be necessarily a need for the customer to change the filter. So we have to do two things. A, we have to make sure that the customer is able to differentiate our filters from the parallel market filters, the unorganized filters. Towards that, we have launched a different-looking filter. We have also got QR codes on the filters to allow customers to authenticate. We have also invested in advertising to create awareness. So that is one part of it.
The second part of it is the distribution and the access to these genuine filters, on which, as I mentioned earlier, there is a lot of work happening in strengthening our distribution and on a go-to-market and our availability, and this would require talking to the officials outside the system as well. There is a lot of work that has been kicked off and is ongoing in that area. So between a greater focus on AMCs and a greater focus on driving filter sales, we believe that our service revenues, going forward, will be encouraging, and we target the large installed base we have got, which offers a great opportunity.
Excellent. We have done a lot of.
Sorry to interrupt, Rishabh, but we need to end the question and answer session at this point. Thank you.
That is the last.
Ladies and gentlemen, if you have any further questions, you may reach out to the Eureka Forbes Investor Relations team. We may now hand the conference over to Mr. Pratik Pota for closing comments. Over to you, sir.
Thank you, everyone. Thank you for joining the call today. We really appreciate the questions that were asked, and the effort that you took to think through and ask these questions. I hope, and I trust that we were able to answer the questions effectively. However, in case there are any follow-up queries, feel free to reach out to us, and we will be more than happy to respond. Thank you, everyone. Have a good day, and have a great weekend ahead. Thank you.
Thank you. On behalf of Eureka Forbes, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.