Ladies and gentlemen, good day and welcome to Eureka Forbes Limited Q4 and FY 2024 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. 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 then zero on your telephone. 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 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. The floor is yours, sir.
Good afternoon, and I welcome you all to the Q4 earnings call of Eureka Forbes Limited. As we complete the first full financial year of our transformation program, Udaan, I will start by sharing my reflections on the ground we have covered during the year gone by. I am pleased to report that we made considerable progress on several vectors of our strategy. Let me start with volume growth. For a business which has had a long-term trajectory of declining or low volume, we have now had four successive quarters of volume growth. This growth has been broad-based across both water purifiers and vacuum cleaners. It has reinforced the belief that our categories are indeed amenable to growth with the right mix of pricing, products, and consumer propositions. This brings me to the next big vector, which is on product innovation. For the past several years, we were followers on innovation.
As part of our transformation efforts, we consciously made several upfront investments in our R&D and marketing capabilities, and the results of that are now being reflected in several innovations that we have rolled out in the second half of last year. From the Aspire range and the Blaze instant hot product in water to the Zero Bend series and robotics in vacuum cleaners, it has been a busy innovation calendar with indeed many more to come in the period ahead. Through our innovations and our focus on category-creating communication, we have started the process of reclaiming our role of creating categories. We launched several new campaigns during the year. Our Nal Se Kapda campaign was directed at driving category penetration, and our research showed that indeed, more than 70% of our customers that we acquired were first-time category entrants.
Similarly, our campaign on robotics also helped drive significant growth in the segment. Another area of priority for us is customer service. The service expectations of today's customers are higher, and the benchmarks are category-agnostic. We have launched several initiatives to improve our customer experience. We have created an industry-first agenda of one-hour service under our Project Gatimaan, and today, more than 70% of complaints get resolved in an hour. We have upgraded our digital assets to make them more customer-friendly, and 75% of our customer engagement now happens through our app and our website, a big step up from less than 30% last year. The other dimension of service transformation is driving service revenues. Towards that, our interventions are aimed at addressing affordability, access, authentication, and awareness.
We improved affordability by launching tiered and segmented AMCs, which reduced the AMP value for a customer by offering AMCs at prices as low as INR 599. On access, we upgraded our app and the UI/UX, and this is making it easier and more convenient for our customers to buy AMCs online. We have seen a significant increase in our online B2C AMC purchases. As you are aware, the service market is plagued by several parallel market operators who provide spurious filters, thereby putting customer health at risk. We believe that the solution lies in empowering customers and creating awareness. Hence, for the first time ever, we have launched a campaign on genuine Eureka Forbes service aimed at educating and thereby protecting our customers from fake filters and fake AMC sellers.
Our new filters that have been recently launched have a distinctive design and a QR code that allow customers to self-authenticate the filters. The above initiatives are leading to an encouraging change in the trajectory of our service revenues. This however, as you can imagine, does not reflect fully in the reported financials as the AMC revenue recognition is staggered while the costs are upfront. These are but a few examples of where we made significant progress, and this is evident in our overall performance. More noticeably in H2 of last year. FY 2024, therefore, was in many ways a story of two parts. The early part of the year was focused on putting in place the right enablers and the right investment to kickstart the growth engine, and the impact of that has been quite visible in H2.
Growth in our continuing business moved from 2.5% in H1 to 14% in H2, leading to a full year growth of 7.9%. As I look back on the first full year of the transformation, I see us as a business exiting the year on a strong footing on multiple fronts. Credit is due to our team, the Hero Champions we call them, and our trade partners for embracing the change and delivering early results. This gives us immense energy and conviction for the path ahead. I am confident that with disciplined execution of our strategic agenda, FY 2025 will see a further step-up in our performance. On that note, let me switch gears and cover our Q4 performance. During the quarter, we reported a revenue growth of 8.8% over last year. Excluding the impact of discontinued operations, our Q4 revenue grew by 11.4% year-on-year.
The growth was broad-based both in terms of portfolio and in terms of channels. Water purifiers and vacuum cleaners continued the trend of volume growth for the fourth successive quarter and registered strong volume growth, indeed double-digit volume growth in quarter four. In water purifiers, we saw growth in both our RO and our UV ranges, with strong growth especially in our stainless steel portfolio. In vacuum cleaners, our robotics and upright range grew by more than 100% year-on-year. The entire range also convenient cleaning. On the profitability side, adjusted EBITDA margins continued to expand on a year-on-year basis and reached an all-time high of 11.2%, up 186 basis points from last year. This improvement was due to operating leverage as also a structured cost optimization program.
On a full-year basis, adjusted EBITDA margins increased to 10.3%, the first time we've crossed the 10% threshold, an increase of 401 basis points versus FY 2023. We continue to strengthen our balance sheet with a net surplus of INR 108 crores as compared to a net debt of INR 50 crores in FY 2023. Finally, before I end and hand over to Gaurav, I would like to invite you all to our first Investor Day event on the 26th of June in Mumbai. We look forward to hosting you and sharing more color on our strategy and the way ahead. With that, Gaurav, over to you.
Yeah. Thank you, Pratik. Good afternoon, everyone, and thank you for joining us. Starting off with the full year performance. Revenue for the year ended at INR 2,189.2 crores, with a growth of 7.9% for the continuing businesses. Underlying the full year growth numbers has been a sustained improvement in trajectory. We started the year with a flat growth in Q1 and low single-digit growth in Q2. We were able to exit the year with two successive quarters of double-digit growth. A key feature has been that growth has been enabled not just by volumes, but winning users in the category and also having strong growth in the premium segments of stainless steel in water purifiers and uprights and robotics in vacuum cleaners. The impact of the above has been reflected in our gross margins.
While we have pursued a volume-led strategy to drive growth, the range of our portfolio has also enabled that gross margins have remained range-bound. Full year margins at 58.8%, were down 50 basis points, and have remained stable during the course of the year. Cost control measures and operating leverage ensure that operating expenses as a percentage to revenue were down 453 basis points year-on-year. Full year financial results incorporate non-cash subcharges of INR 34.5 crores. Our adjusted EBITDA increased to 71.9% for the year to INR 226.3 crores and our margins expanded 41 basis points to end at 10.3. Most importantly, we have been able to decisively change the margin table of the business. Our business, which for years was operating with a low single-digit margin profile, a double-digit margin profile and with a sustained year-on-year improvement in all quarters, is an important milestone.
This enhanced margin profile gives us the headroom to step up our growth investments as we go ahead. Strong cash flow generation of INR 194 crores enabled a 51% reduction in our interest costs, leading to an adjusted EBITDA of INR 172 crores, an increase of 157% year-on-year. Adjusted EBITDA margins for the year ended at 7.9%, up 464 basis points. Moving on to the Q4 performance now. Quarter four revenues ended at INR 553.1 crores with a reported revenue growth of 8.8% and 11.4% for continuing businesses. Growth was there in both our portfolio and also in service AMC business. Within the product portfolio, growth in EWPs was volume-led, while for VCs it was driven by a combination of volume and ASPs.
More specifically, as the impact of innovation plays out in the coming quarters, we expect ASPs to be a source of growth. Gross margin at 59% continued to be stable both on a year-on-year and sequential basis. We are beginning to see initial commodity headwinds, and the focus will be on accelerating our cost reduction program in this area. Operating costs grew 3.1% year-on-year and reduced to 166 basis points as a percentage to revenue. Cost rents remained largely stable. Q4 employee costs include a non-cash ESOP charge of INR 9.2 crore, and we expect these ESOP charges to remain stable at these levels in the coming quarters. Strong cash flow generation, specifically in H2, led to an exit cash surplus position of INR 180 crore. This was reflected in our finance cost reduction of 33% year-on-year.
Results for the quarter were impacted by a one-off charge of INR 16 crore related to fire at the company's Delhi warehouse. There was no major operational disruption, and necessary insurance-related processes are underway. The combined effect of the above has led to an adjusted EBITDA growth of 30.6%, an adjusted PBT growth of 38.9%, and a reported PAT increase of 31.1% on a year-on-year basis. To conclude from a financial standpoint, the past four quarters were focused on driving operational efficiencies and building the necessary building blocks. As we step into the second year of the transformation, we will set up selective investments to drive growth and specific transformation initiatives. On that note, thank you so much and look forward to engaging with you all at our Investor Day.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, press star and one on the touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. I request you to please unmute while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. The first question is from the line of Siddhartha Bera from Nomura. Please go ahead.
Yeah. Thank you for the opportunity. First my question is on the growth side, like how we have seen now three years of transformation, and you have done much distribution as well on the side. Just wanted your thoughts on the growth which we are seeing in the current quarter. Is it more representative of all the initiatives which we have done and which will keep coming, or do you see a more step-up from where we are currently as we go, and what will be the key drivers for that? More let's have travel segment or replacement.
Thank you, Siddhartha . Thank you for that question. Let me respond to it in two parts. One, as I talk about performance that we just delivered in quarter four, and then respond to your broader question of the growth outlook and the growth drivers in the future. I think, as we spoke in opening remarks as well, that quarter four was the second consecutive quarter where we delivered double-digit growth. This was on the back of very healthy double-digit volume growth as well, and volume growth across both our key segments of water and of vacuum cleaners. If I talk about the growth profile in terms of channels, I think our retail business again did very well. The direct business did well. However, we saw some slowdown in the ecommerce space, post festive period, in quarter four, and both platforms reported that slight slowdown.
Notwithstanding that, and as we mentioned earlier, our H2 performance in aggregate was well ahead of the H1 trend. If I look at the growth outlook for the future, I think we need to step back and keep in mind that the categories that we operate in, whether it's water purifiers or vacuum cleaners or air, all these segments have very low penetration. Therefore, there is a significant headroom for growth in all of them. We also have, as you know, a large base of existing users, both in water and in cleaning. Many of these customers have devices which are old, which are due for replacement. So we also have a ready market for driving replacement upgrades. If I look at key drivers of growth, I think the first one would be, as you can imagine, driving penetration.
We continue to stay invested in making our products and our services more affordable, driving distribution expansion, making sure we invest in category-creating communication like we did last year. So that'll be one important area for us to focus on and one very key growth driver. I think equally, we intend to create differentiated products. We intend to invest in driving innovations to make sure we offer relevant and differentiated products to our existing customers. Therefore, premiumizing our portfolio can also be one big area for us to focus on to drive growth. As I mentioned earlier that in FY 2024, we saw very healthy growth in our industry portfolio as also in many of our other new products. You would have seen our innovations that we launched in quarter four.
All of them were premium in that nature, whether it was a SlimTech range of water purifiers or it was an Aquaguard Blaze Instant Hot product. All these are premium products. The third vector of growth and third area for us to focus on in driving growth is going to be in cleaning, and specifically within that, convenient cleaning. We spoke about the fact that our portfolio of robotics and upright vacuum cleaners, the cordless one, grew by more than 100%. We intend to stay invested in driving these segments, and that we believe will help us drive significant growth. Equally, some of the other more recent categories like air purifiers or indeed water softeners, are areas that we focus on. We had good growth in quarter four and in FY 2024, so we intend to accelerate that in the year ahead.
I would say the other area of focus for us in driving growth is the entire space of B2C, and the investments we made in digital are now beginning to bear fruit, starting with B2C AMC revenues that are showing healthy growth. Let us pull back and summarize all of this. I think we are well placed to continue to drive growth in FY 2025, both in our product business and indeed in our service business as well.
Great. Thanks for the detailed answer. Sir, this service business, just to be more clear, what is the growth if I look at the entire year in FY 2022? If you can share, what will be the percentage of AMCs which is coming directly to us now, and going ahead, like you mentioned that we are yet to see more benefits here, what does it mean for the service charges? As a percentage of sales, this should come down going ahead or if you can share some thoughts.
Yes. What I'll do is I'll respond to the first part on service and how it's done. I'll request Gaurav to chip in afterward and talk about the service charge. On service, I think it's a very important question that you've asked. If I take a step back and talk about, I think service is an area where we've had tremendous focus and a lot of interventions being made, and I touched upon some of them in my opening remarks as well. If I look at the two vectors and two areas and two directions, the first one was aimed at improving our customer experience, elevating our customer experience, and to meet the demands and meet the requirements and expectations of customers. People like all of us who got used to quick commerce levels of service.
A lot of work that has happened in terms of increasing our service capacity and our service network and service infrastructure, getting more technicians, getting more partners on the ground. We have also done a lot of work around securing our customer data and ensuring data privacy through number masking, customer number masking. We have also put in place a digital platform, and we spoke about it last year as well. All our technicians come centrally on one platform. We are able to monitor them, supervise them, and indeed able to allocate calls and make sure that they are deployed efficiently. We also moved to doing digital invoices so that our customer is sure that this is actually a genuine Eureka Forbes AMC that he is buying. These were the initial efforts that we made. These are more, as you can imagine, back-of-house efforts.
Then we followed that up with significant changes in customer-facing areas. We talked about the tiered and segmented AMCs that we launched, and this has been a big driver of making service more accessible, more affordable. We also made investments in improving our UI/UX. Really, if you look at our app now and you go to the flow for buying an AMC, it is a friction-free, very intuitive UI/UX that I think drives improved conversions in our entire funnel on the app. The other thing that we have done, as you know, is we put QR codes, and our customers struggled with how to authenticate and how to tell apart a genuine filter from a fake one. QR code makes it very simple. They scan the QR code, and it is reported instantly whether it is a genuine or a fake. That is helping us, and of course, we have invested behind communication as well.
These put together are helping drive customer awareness and the sensitivity towards ensuring that they are going for a genuine filter or genuine service. The encouraging part is that we are now beginning to see the meaningful impact of all these interventions. Customer acquisitions through service and for our AMCs and for our filters is increasing. We are seeing significant growth there. We also are seeing, therefore, service revenues show a very healthy growth. Now like I said, just now in my opening remark, it does not necessarily translate linearly into what the numbers that you see in the reported financials, because these are AMC revenues which are staggered and decode over time. But we are seeing a healthy uptick in AMC volume and AMC revenue.
Back to your question about how to become directly, short of sharing numbers, I think we are seeing a significant increase in the proportion of our revenues, our AMC revenues, coming from our own online B2C channel. The even more encouraging part, Siddhartha, is that a significant number of these AMCs come from customers who have lapsed some time ago, who are out of warranty, out of our AMC contract, and therefore, these are completely incremental and additive to what we would get from our existing legacy business partner network, which is there on the ground. So we are actually getting incrementality through our B2C interventions. If I had to hazard a guess for the future, given all that we are doing on service, we expect that our service business and service revenues will continue to deliver healthy growth in the period ahead.
Vikram, do you want to add?
Yes. Service charge, first I will just draw attention to what comes within service charge. This has got two components. One part of that is completely linked to revenue. As service AMCs grow, this part of the service charge will increase. The second part which is there is related to call volumes.
There are mandatory service visits that is something which is independent of revenue, and it runs on both axes. At a principle level, I will just draw attention to two or three things. First is around the fact that the cost related to call volumes, et cetera, is immensely amenable to technology interventions. If you were to look at the number of complaints that were getting addressed through our non-digital assets, that has gone up exponentially. Roughly 12 months back, that number was 30%, that is now gone up to 75% of our complaints being addressed through an app. That is one big lever as far as driving efficiency in that area is concerned.
The second area that is there when I look at service charge is that as we keep scaling up our D2C revenue streams, revenue which comes directly via consumer buying it either online or on the app, that will also give us a cost advantage, because those channels of acquisition are cheaper than going through the offline route. That is the way, at a direction level, we are not expecting our service charge to outstrip the increase in our service revenue. Having said that, I just want to call out one thing, that purely from an accounting standpoint, the AMC revenue is something that is staggered over the life of the AMC, while all the charges that we speak about in terms of cost of acquisition, that is something which is recognized on day one.
There is that element of timing difference, but at a gross level, we do not expect our service charges to outstrip our service revenue growth.
Great. Thanks a lot. I have a few. I will come back in the queue.
Thank you.
Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Sir, thanks for the opportunity. We, at MediaNews Group, see the acquisition of Hindustan Unilever may hit the category also. How do we see the opportunities for Eureka Forbes? One obviously can be an inorganic opportunity or secondly, in general, a third player not investing much in the category. So there can be potential to save of ATL or BTL spends to us. So just wanted to understand on this front you. That is question number one.
And then secondly, question number two in terms of all investments or the changes to the products or innovation that you are thinking about is more in terms of the utility, improving the utility of the product. We have see historically, more generally the lifestyles or [inaudible] So the margins can be netter over there. [inaudible] as it possible also in this? So these are the two questions from my side.
Aniruddha, thank you for the questions. I think on your first question, it was in two parts. We are aware of the media speculation, as well, that you referred to, and I think it would be unfair and wrong for us to comment on what is really speculative and out there in the media space. More broadly, if I may say, we are very, very growth obsessed, and we remain open to any opportunities, organic or inorganic, provided they come at the right value, and we believe they add value to our business and to our shareholders. That's the broader answer.
I don't want to comment on the specific question you asked because that is, like you said, what we read in the media as well. Look, the other part of your question about impact on competitive intensity, et cetera. I think we value and we welcome all competition, whether it is from legacy players or new entrants. I think competition is vital to create more excitement in the category, more new news, to drive innovation, and to therefore get more and more customers to be interested and to come and evaluate and hopefully enter the category. Having said that, our focus is on the consumer. It's on navigating by what the consumer's needs are and what she expects from a water purifier. And we continue to be focused on that regardless of what happens in the competitive environment. Which leads me to the second part of your question about innovation.
I think that's a really good observation you made, Aniruddha, about different kinds of innovations and what are we focused on. I think our innovations that you've seen already in the market are in two broad areas. One is, like you said, utilitarian. For example, the instant hot water product we've launched, or indeed earlier, we've had success with seamless steel portfolio. These are more functional and very relevant differentiators that add a customer's value. And we've seen good success and good feedback and good response to our instant hot product as well. But the other vector is on, like you said, I think you used the word vanity, and more premium and more lifestyle innovations. And I would like you to look at our SlimTech range of water purifiers.
These are a glass design, upfront glass A completely flush glass look, and they look unlike any water purifier that you would have seen in the market. They are, by far, the most premium-looking water purifiers. And we've already launched the glass range, Zenith range in UV, and that comes at a significant price premium to the rest of the UV range, more than 60% price premium. So I think you are spot on. The fact that with lifestyle quotient and with great design, you can actually command a premium, and customers really value that these days. Think about it. If you have a nice modular kitchen with your other devices looking absolutely contemporary, what you would expect and what you should expect and you would get from Eureka Forbes is a similarly classy-looking water purifier.
That's the other area of focus for us, which is even as we innovate and drive functional differentiators, we also have a very strong emphasis on design and on aesthetics. That already is something that's going out in the market. What was your question, Aniruddha?
Yes, sir. That is very helpful. Just one specific question. We see the year doing a portfolio restructuring, and the continuing business growth is always higher than the revenue growth. Just wanted to check now FY 2024 is over. Do you see further restructuring to continue in FY 2025 or largely the restructuring of portfolio is over?
Yeah, Aniruddha, no, the portfolio restructuring is over. We do not plan to do any further restructuring to the portfolio. What you've seen in FY 2024 are essentially remnants of the previous portfolio which has carried forward. This gap that you see will be there for half one of the coming year, but after that it will taper down. Even within half one of the year, the range will be roughly 1.5%. It's not going to be the gap that you see today. Half one, roughly 1.5%, half two of the year, this will taper away completely.
Okay. Sure, sir. Understood. Very helpful.
Yeah. Thank you.
Thank you.
We have the next question from the line of Nandita from Marcellus Investment Managers. Please go ahead.
Thank you. Is now audible?
Yes, I am sorry. Can you hear me clearly?
Okay. Thank you so much for the opportunity. I had a couple of accounting-related queries, specifically for us. The first one is that in the consolidated cash flow statement, there is a FY 2024 capital outflow of INR 30 cores-INR 40 crores. But when I compare it with the balance sheet, there is a working capital reduction from INR 39 crores. So where is this coming from? And related to this, in the balance sheet you can see that the inventory movement around INR 30 crore, the same with the cash flow statement under it shows a INR 30 crore reduction. If you could just help clarify this for us. The second question is that it seems that even after excluding the ESOP charges, employee costs have gone up from around INR 62 crores in Q4 FY 2023 to around INR 76 crores in Q4 FY 2024.
If you can also help me understand this increase in employee costs through the years.
Yeah. Let me take on the employee charges first. The data that you see is largely a combination of two or three things. First, we started the process of building our capabilities across various teams, which was R&D, digital product management, data science, marketing. And what we see now is a full year impact playing out because that process teams have come in at different points in time. So that has been one driver. The second driver has been the impact of annual increments. And the third is due to higher revenue growth, the incentive payouts have been higher. And that is the one which has led to a year-on-year increase. Having said that, if you look at during the course of this year, our employee costs have been in the range of INR 72 crore- INR 75 crore.
That is something which has been range-bound, and that is something we believe that this is one area where it is an opportunity to drive operating leverage, and we expect to keep this cost range bound as we go ahead. As far as the comment on inventory is concerned, the INR 33 crore increase that you see is largely a function of innovation build-up that has happened. There are a bunch of innovations that happened towards the half two of the year, and that is something which has led to the inventory increase. The data in inventory is a function of the loss that we had in a Delhi warehouse. There was a INR 15 crore loss that happened, inventory loss that happened due to the warehouse fire, and that is the reason for the delta.
All right. You are saying essentially that this innovation build-up that you have in Q2, it will get commercialized sometime in the next FY or it is already in the data?
Commercialized you mean? Just for clarity, since innovations have come in quarter three and quarter four, there is a build-up that has happened because when an innovation comes in it is relatively more difficult to project the demand. We did not want to be in a situation where coming out with industry-first innovations you run out of inventory and hence there is a build-up that has happened. This will normalize as we go ahead.
Okay. Thank you.
Thank you. The next question is from the line of Renu Baid from IIFL Securities. Please go ahead.
Yeah. Hi. Good afternoon, team, and thanks for the opportunity. My first question is, now that we've seen almost whole quarter of this strong double-digit volume growth, but still we continue to see the gap between volume and value growth. In your view, by when do you see this gap narrowing out and value growth finally outpacing volume?
No, thanks, Renu, for the question. You're right, I think our first objective was to ensure that we fire the growth engine in terms of volumes. Therefore, we were pleased to see double-digit growth come. Like you said, for a large part of last year, we had strong double-digit growth. In the early part of last year, we saw a significant investment being made in the economy portfolio, and that led to an ASP dilution in the early part of the year. However, as the year progressed, with the innovations in the premium space kicking in, we could see the ASP dilution come down significantly and the volume of the value gap too, to have narrowed significantly from Q1 to Q4.
Going forward, we don't expect to see, given the balance between driving penetration and driving premium product purifiers and the premium range more generally, we don't expect to have a gap between the volume and the value growth. I think in the early part of the year, we were very keen to drive the growth. Innovations had still not fired, and therefore, there was some dispersion. But that gap has reduced significantly, so going forward, we don't expect to have a gap at all.
Okay. If you look at the overall mix today, how would be the proportion of premium products in the overall mix product today?
Renu, if I separate volume value, volume, of course, our mix is a lot more biased towards economy than towards the mid-price segment. If I look at the value contribution, I think we have a very healthy mix of premium portfolio, which is substantive and meaningful. Therefore, the portfolio is not biased towards economy. It is much more balanced.
Sure. Certainly, if you look at the last quarter also, while we closed it, the initial part of the quarter, overall demand sentiments across consumer categories were pretty slow, probably would have been for the water purifiers and the vacuum cleaner category. So how are we looking at the end market demand? Have you seen some respite and pick-up in volume of takes from consumers more on the expected lines, or do you still feel markets are still underplaying in terms of the actual uptake?
Yeah, Renu, that is a really good question, and that is in many ways, I guess, the question that we have all sort of agonized over in the last one year. We are seeing some green shoots kick in during the third quarter, during the festive season, where we could see an improved consumer sentiment, and we could see demand acquisitions get better. However, in quarter four, we saw a perceptible slowdown, especially in the online, in the e-commerce space. Therefore, the consumer sentiment, which was looking to improve in Q3 or looking like improving in Q3, again looked and became a lot more tepid in quarter four. So to answer your question, I think the demand still remains a bit of a challenge. Towards the end of quarter four, what also happened was, and I think we are all living that reality even now.
I think because of the heat and the impending summer, we could see consumers prioritize cooling products, air conditioners, fans, and all of that, coolers, over other durables. We could see that demand, the spend move towards some of these categories from the broader suite of durables. I am sure that will correct over time. That is something we saw in the month of March, specifically for last quarter.
Okay.
And that even I think-
Over April, May, as we head towards monsoon, you think some of that spend correction is actually at the favor of one category or still is being relatively unplayed?
Look, I do not want to sort of talk about the future so much. But certainly, going forward, where the monsoon comes by, we expect that the equation will get more balanced. But in the summer months, more generally, there is a preference, as you can imagine, for products that provide relief from the heat, from the extreme heat. That continues through the summer. But, yeah, going forward beyond summer, it will equalize. There will be much more balance restored in the demands across the different durables. Certainly, we saw that in the month of March. As we went during the summer months, you could see people prioritize air conditioners, especially so over other categories.
Got it. Lastly, just out of the bookkeeping questions, broadly, what was the kind of adjustment and sales promotion spend for FY 2024? Given that we have had a pretty good pipeline of new products being launched last year and planned for FY 2025, should one expect this trend to continue improving in the coming years?
I will let you start with the, I think, broader point, and then you can respond to the numbers, Gaurav. Renu, I think, let me respond first to the broader level in terms of our strategy. We have talked about this in the past as well, that one of the reasons we have seen, I think, challenge growth in the past has been the fact that we have not invested and we have not leaned in on advertising and on sales promotion expenditure, especially in advertising. Over the course of FY 2024, we invested in two kinds of campaigns. One was to drive penetration and to drive category creation. The other, towards the second half of the year, was to invest in driving our premium products, the SlimTech range, the robotics range, et cetera, but also to drive service, which has service category.
That has led to what you talked about earlier, strong double-digit growth, volume growth, and now we are seeing that growth continue in quarter four as well. Gaurav will talk about the.
Coming to the question on the advertisement spends. On advertisement spends, we have increased them by double digits in FY 2024, and that has been done, as you mentioned, to support our innovation. Equally, as we pivot towards more category-creating communication, it is also being done to support that. The Nal Se Kapda campaign was one attempt. Of course, there for the last two, three months, we have had a campaign on genuine service. We are repivoting our spends more towards the consumer pool, which is advertisement, and those spends have seen a double-digit growth. Having said that, we are equally finding opportunities in other spend lines to make sure that the overall bucket of advertisement and sales promotion and overall OpEx in general is kept in check.
Is it possible to quantify it or should we wait for the annual report?
We'll have to wait out for the annual report, where you'll get the breakup.
Just to add to that, Renu, just the other dimension I want to call out is that even within the advertising spends, within the aggregate advertising spends that Gaurav spoke about, we have choice more productive kinds of investments and spends in advertising, and we have sort of pulled back from spends which were a little bit less effective and less working. The working A&M part has been prioritized, and that again, translated directly into greater consumer-facing visibility and therefore growth.
Shortly, I think your efforts of scaling up the services awareness and penetration is fairly visible, both for investors and for consumers as well, as well as in the numbers. Thanks much, team, and we'll get back with other questions if any. Thank you.
Thank you, Renu. Thank you for your questions.
Thank you. Next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Yeah. Hi. Thanks, Sri. Good afternoon, and congrats on a good year. Just a few quick checks from my side. One is, after the strong margin expansion we've seen already thus far, do you think most of the scope for expense cuts is already exhausted, or is there meaningful scope of further expansion going forward? That's number one. Number two, on the cash generation, which was almost INR 200 crores for the year, as it hopefully continues to ramp up, what might be your plans for the use of the free cash flow be? And the last one was just any sort of update you could share on the actual plan rollout and sort of timeline that you could sort of anticipate from that. Thank you.
Thank you, Abhijit, for the questions and for your compliments. I request Gaurav to answer the first two questions. I'll come back on the rental part.
Yes. Abhijit, on the expense part, we see it as something as an ongoing program. There are continuous opportunities that are there, and where more efficiencies can be extracted. So that is something which remains a continuous priority. We do not believe that we have reached the end of efficiencies. If I were to give you a specific example, while for FY 2024, a lot of the focus was on items which are low gross margin. As we have got volume growth, we also see opportunities coming in our COGS line. So that is something that there are specific programs in place to drive those efficiencies. We will continue to work in extracting those efficiencies.
Also, I think keeping in mind the fact that after having reached a particular threshold of margins, and making a decisive break from the past tables, as we get into year two of the transformation, we will be stepping up our growth investments and in certain specific areas, if there are transformation investments needed, those will also require funding, and hence our cost program is something which will continue. Coming to the second part on cash generation. Yes, I think it has been a second successive year of strong cash flow generation. See, from our perspective, there are multiple ways in which cash could be deployed. If there are any opportunities and if they add value to shareholders, that could be one area. If it means rewarding the shareholders in some form, subject to board approval, et cetera, that could be the other areas.
So at this point in time, all avenues are open. And obviously, there are the intrinsic growth investments that are needed for the business. So all options are there on the table and we will take a decision as the year goes.
Abhijit, just to add to that and your question on rental. As you are aware, we have had a rental pilot operational in Chennai. Even as we speak, the pilot is operational in Chennai, and we are looking at it closely and looking to see the learning that we can extract from this pilot. Given the multiple priorities that we have got already on our plate, this is something that we do not intend to scale up in the first half of the year. As we exit FY 2025, we will be evaluating the extension of the rental project into other markets, starting with other proximate markets in the south, and then looking at a scale-up more broadly in FY 2026. I think we are convinced about the potential of a rental model, and in a market which is extremely economy conscious and price conscious.
We believe the sachet model for water purifiers, as in the rental business, has tremendous potential and will be a source of growth for us in the future. But given the priorities on our plate right now, it is something we have chosen to do only towards the end of this year.
Understood. Thank you so much, and wish you all the best.
Thank you, Abhijit.
Thank you. Ladies and gentlemen, to ask a question, you may press star and one. Next question is from the line of Parikshit Kabra from Pkeday Advisors. Please go ahead.
Hi. Thank you for the opportunity, and congratulations on your results. I want to understand in the water purifier market, how is our market share trending? That is my first question.
Okay. Let me answer your first question first. I think you are aware that for many years, we have had market leadership position in water purifiers. In FY 2024 specifically, we invested in our driving category growth through a penetration campaign. Also, as we mentioned, in the second half of the year, we focused on the premium portfolio to drive the top end of the market. I think the context also, Parikshit, is that in the years preceding FY 2023-2024, we have had many consecutive years of market share decline. However, given all the work that we have done in FY 2024, happy to report that we will be seeing green shoots on market share in FY 2024 in this year. As we exited quarter four, when all the premium innovations came into play, we were pleased to see a clear increase in year-on-year market share for water.
You did not ask this question, but we also saw encouraging market share increase in vacuum cleaners as well. We expect to see market share improve in FY 2025 as our portfolio gets stronger and as our strategy gets into execution more and more.
Great. Thank you for that. The second question that I had was that in your presentation, you have shown that the water purifier market, the organized part, should grow at a 13% CAGR over the next five years and services at about 16%. With a penetration of only 6% and a clear motivation to increase this market, the 13% number looks a little bit low.
Parikshit, just to clarify, these are estimates by a third party, and these are set by Technopak, as we mentioned in the investor report presentation as well, and these are their estimates. I think the context for these projections also is the fact that there have been many, many years of very little or no growth in the segment. However, like you rightly said, given the real universal need of pure water and given the penetration in other comparable markets that we mentioned again in the investor presentation, we expect to see water purifiers as a category show very, very strong growth in two years ahead. Whether the growth is 12%, 13%, 15%, will be a function of also what people like us do as market leaders and as category creators.
Whether the number is 12, 13, 14, I think that may be not as meaningful a point as a larger point that we have a strong runway to grow, and it is up to us as market leaders to grow this category.
Great. Thank you. If you don't mind, can I switch to my last question?
Yes, please. Please go ahead.
Thank you. The fact that there was a consumer slowdown and a pivot towards cooling products, could you help explain why that would have happened only through the e-commerce channel and not through the other channels? Shouldn't it have affected all the channels equally?
Parikshit, I'm sorry. I think maybe I misspoke. What I meant to say was these were two independent tracks. One was a more broad slowdown in e-commerce in quarter four as compared to quarter three. This, by the way, impacted all categories, and it was nothing to do with the cooling segment. This was a broad channel-specific trend. Separately, in the month of March, we saw the preference for cooling products, air conditioners, fans, coolers, et cetera. Again, this was channel agnostic. These are two independent points I made. Maybe I miscommunicated, but they are two separate points. Thank you for asking that question.
Got it. Perfect. Thank you so much.
Thank you, Parikshit.
Thank you. The next question is from the line of Rishabh Gang from Sacheti Family Office. Go ahead.
Thank you for the opportunity. A follow-up question on the rental trend that you have in semi-air. I want to understand why are we going so slow on it? Livpure has been doing pretty good on that front. What results are you expecting from this rental trend, which will actually lead to that effect on a larger scale? Secondly, I wanted to ask on the maintenance fee products which are coming from players like Urban Company and Livpure. You know customers in past have not liked the journey of taking the product service as well as associated costs, right? So maintenance fee products are a specific idea with respect to the life of the water purifier. What are your thoughts on it? Why don't you start a similar product, and what do you think about the margin play of such products?
Rishabh, thank you for both the questions. They're both very fair questions. Let me start with responding to the first question on rental and why we are taking time. I think it goes back to what I was mentioning earlier in my response to Abhijit. Which is that we remain believers in the potential of the rental business model. Indeed, you talked about some other players who are making progress there. All our consumer work that we do tells us that this model is relevant and will have potential. However, for us as an organization, it's also important that we prioritize and sequence our efforts.
For the first half of this year, the first two to three quarters of this year, we will remain focused on doing everything that we've put forward in our strategy, driving water purifier penetration, driving premiumization, having a larger cleaning and air portfolio, growing our service business, et cetera. Towards the end of this year, we will make sure that we turn back and evaluate the scale-up and extension of our rental pilot that's currently in Chennai. To your point on learnings, there are several learnings that we continue to extract. That's not the reason why we are not scaling up right now. Now, I want to put one caveat here, which is that, having said what I've just said, if we believe that we need to change course and scale up rental faster, we have all the capabilities of doing that.
We have India's largest service network for installing new water purifiers, for service demands. We have got a large sales team. We have got a very strong B2C backbone. There are all the enablers required to scale up rental are capabilities that we already have with us. There is no barrier to rapid scale-up should we decide to do it sooner. That's the first part. The second part, you spoke about some of the competing products, and you referred to the long-life products, et cetera. Look, there are different consumers and different customers who look for different things. Some customers insist on purifiers and on propositions where they need a service, and they would like a service touched frequently, twice a year, thrice a year, et cetera. Some customers are looking for a light touch service model.
As the market leader, we will make sure that we have a portfolio of products that cater to all different consumer needs. We have, as you are seeing already in the market, a very strong innovation pipeline. You will see that, if anything, increasing and coming down, and you are seeing the launches increase in the periods to come. We are fully equipped to cater to all customer requirements, and whether it's long-life products, long-life filters, or high-touch service, we will have the right products for all of these different segments. On your question about impact on profitability, we don't expect to see any impact on profitability or on margins because the lifetime value of customers and the cost return equation for these customers is symmetric, and therefore there will be no dilutive impact on our P&L.
All right. Also, I wanted to understand about the unique product innovation that we see. This instant hot water thing, even other competitors are doing it. What actually prevents when you say unique, it should be something which is only to Eureka. It prevents other competitors from also having it. Do you have any intellectual property protection with options like alkaline or stainless steel, anything like that, or it's just an innovation that can be copied by everyone else?
Yeah. In some cases, it's a good question. It's a more globally question about innovations, Rishabh. In some cases, there is IP, and there is therefore, in those cases, an entry barrier for competition. More generally, given that technology is becoming more and more accessible and more and more ubiquitous, those barriers are hard to come by. Therefore, innovation is about anticipating and preempting evolving customer needs and being there in the market for them first, knowing that somebody else will follow you if you do well. That's the lot of the innovator. It's like a treadmill. You have to keep running, you have to keep innovating, making sure you are first to market. I will give you an example, and the two things that I talked about earlier as well. Our SlimTech range of products. We launched the UV range in market already.
It's doing very well, great response. These are sleek design water purifiers. You can be sure that given the consumer response, everybody sat up and taken notice of it. You will see innovations of this nature from other products, players as well come by. Number one. Number two, our instant hot product, Aquaguard Blaze Instant Hot. It doesn't have customers who wait for water to heat up. Today, as the consumption of green tea, et cetera, is increasing, that's a very useful feature to have. We are India's first brand with an instant hot feature. You can be sure that when the feature picks up and gains traction, somebody else will follow. But when they follow, we should have then, by then, moved on to the next big innovation. Innovating is like being on a treadmill. You have to keep running.
I think that's how you drive value and drive differentiation.
All right. Just last question on my draft. You always emphasize on the focus on service income, right? We can observe that it was around 30% of revenue last year. But in one of the few last calls you mentioned that you won't mention the service income as a separate quarter basis, but mention it annually. First is I think why should we not disclose it on a quarterly basis? Also, this is question four. Even if you are disclosing this in the investor presentation, why should someone just wait for such a basic number from the annual report? 30% of revenue. I think I should be able to see. Similar thing for advertising spend. In the previous quarter, Gaurav had mentioned about why should someone wait for advertisements as a percentage of revenue till the annual report gets released?
Because on the AMC contract, I understand that it is a staggered revenue recognition because of the nature of the AMC. But you can always tell what the number of AMC contracts as a comparison to the number of water purifiers that you have done in the last years. So why don't you give such a ratio so that I can actually analyze how much good are you doing on the AMC end?
No, thanks, Rishabh. I will let Gaurav respond.
Yeah. No, thank you for your question. I think, see, you can imagine that the kind of service revenue streams that we have, that is something which is relatively unique to us within the industry and even outside of it. And obviously, hence it is a source of competitive scrutiny and advantage. That is the sole reason why we are conscious of what disclosure we give. Having said that, on larger bases, I think we have started giving more color on what is happening on the service side. That is something that we will keep doing as we go ahead. Whether we change the disclosure from an annual to a quarter, to be honest, would largely be driven by how we see this from a competitive standpoint. So that is as far as service income is concerned. Advertisements, again, is something which we are providing color through our community directionally.
As we have mentioned in the past, we should expect that we will step up our growth investment. That is something that you will see when you see the annual report. But again, we will keep your feedback in mind and see how it can be incorporated as we go ahead.
I just have one last question, sorry. I want to know more about the on-ground support team and the sales team that you have on ground, and how you are unique in terms of the competitors in this particular thing. I read that you have around 8,500 field service technicians. I wanted to ask, is it all in-house? And what has been the strength of employees for the on-ground support and the sales team in FY 2024 and FY 2023? Do we actually expect to reduce that or change it? Any guidance on that?
No, I call out first to your question in terms of the model, the on-ground team that you are referring to, the service team. That is something which is an off-role team. That is not on our payroll, it is on the payroll of the business partner. There is an economics between us and the business partner. The business partner pays for the technicians that are there. Coming to the first part of your question, in terms of what is unique about us, I think two things I will call out. One, we have the capability where while these people are on the roles of the business partner, they are onboarded on a digital platform and hence we are able to performance manage them. So we know what is the productivity for each technician, how many calls are being handled, what is the redressal status, et cetera.
That is one key part which is there. The second is that this in itself is a source of competitive advantage. This is a business where the first sale is not the end of the relationship with the customer. This is something which extends over the lifetime of the customer. I think we as a player with a 100-year-old legacy have built a very competitive network spread across 19,000 PIN codes, and that is something we believe is unique to us and a very competitive model.
Okay. On the strength of employees.
We have reached the end of the question and answer session at this point, sir. We will need to close the question and answer session.
Sure. Thank you.
Thank you.
I would now like to hand the conference over to Mr. Pratik Pota for closing comments. Over to you, sir.
Thank you everyone for joining the call today. I hope that we were able to address the questions that you asked to your satisfaction. In case any queries remain unanswered, please feel free to reach out to us and we will be happy to respond. Thank you once again, and we look forward to hosting you at Investor Day on 26th June in Mumbai. Thank you. Have a good day.
Thank you. On behalf of Eureka Forbes, this concludes the conference. Thank you all for joining us. You may now disconnect your lines.