Ladies and gentlemen, good day and welcome to Eureka Forbes Limited Q2 FY 2024 earnings conference call. We have Pratik Pota, Managing Director and CEO, and Gaurav Khandelwal, CFO, Eureka Forbes. 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. Should you need assistance during the conference call, 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 Pratik Pota, please note the disclaimer. Certain statements made by the management in today's call will 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 current expectations based on a number of factors affecting the business.
I'll now hand the conference over to Pratik Pota. Thank you, and over to you, sir.
Good morning, and I welcome you all to the Q2 earnings call of Eureka Forbes Limited. I wish you all a very happy Diwali and hope that you had a good break. Q2 was in many ways a landmark quarter for EFL, with all three critical markers, margins, net debt, and growth, showing healthy improvement. Our net revenues stood at INR 592.3 crores, a growth of 3% over last year. Without the impact of the discontinued businesses, our Q2 revenues grew by 4.8%. This performance was driven on the back of volume growth, both in electric water purifiers and in vacuum cleaners, and in the face of a continued soft demand environment.
The impact of operating leverage was visible in our margins, which grew for the fourth successive quarter with our adjusted EBITDA margin expanding to 10.5%, compared to flat same time last year, Q2 last year, and 9.8% in quarter one of FY 2024. We also reached an important milestone in our transformation journey by turning net debt-free. As against a net debt of INR 199 crores in September 2022, we ended last quarter with a net surplus of INR 9 crores. Stepping back, we believe that the Q2 performance offers us evidence and underlines the conviction that Project Udaan, our strategy for transformation and growth that we spoke about earlier in the year, is beginning to deliver real impact on the ground. Our transformation-linked interventions in the areas of driving growth through entry-level products, radically creating communication and go-to-market infrastructure are beginning to get reflected in our growth numbers.
Our growth was broad-based. We saw the second successive quarter of volume growth in both water and in vacuum cleaners. Within vacuum cleaners, our premium portfolio of robotics especially saw strong growth. Quarter two also had two important revenue-related interventions. The first one was the launch of tiered AMC, aimed at improving service affordability and getting non-users of service into the fold. We understood that an AMC at a price point of INR 4,500- INR 5,000 was an entry barrier, and therefore reworked our AMC offerings into different tiers for different customer segments, and that will start from INR 6,999 onwards. Excuse me. The second was the launch of a new water purifier called the Slim UV Bar. It is an exciting innovation which marries form and technology and is our first step in reclaiming our role to being innovators and pioneers.
The profitability improvement was driven by operating leverage. Driving efficiencies is a key priority in unlocking value and generating headroom for growth investments, and we will stay focused on that. Looking ahead, we will strive to build on the quarter two momentum and drive further growth and innovations, enhance customer experience, and also continue on our digitization journey. Coming up, our quarter two numbers reflect a clear step-up in growth, along with continuing improvements in margins and debt. In the quarters ahead, we expect to see the impact of innovations, customer service initiatives, and of our digital interventions to play out, which will lead to a further improvement in business trajectory and help us along towards the goal of transforming Eureka Forbes into a B2C health and hygiene powerhouse.
On that note, I will now hand you over to Gaurav Khandelwal, the CFO, who will provide more details on the financial performance. Over to you, Gaurav.
Thank you, Pratik. Happy Diwali, everyone, and thank you for joining us. In the backdrop of a continuing soft demand environment, our revenue at INR 592.3 crores grew by 3% on a year-on-year basis. Adjusted for discontinued businesses, revenues grew 4.8%, the highest growth seen in the last five quarters. This represents a continuing improvement in our growth trajectory over previous quarters. Given the nature of this category, where today's product volume is tomorrow's service revenue, continuing volume growth for the second successive quarter in both water purifiers and VCs bodes well for the future. Our Q2 gross margins were at 57.4% versus 58.5% for the previous year, and were impacted by product and channel mix. We expect gross margins to remain range-bound around these levels and do not expect a structural shift in the gross margin profile of the business.
Our expenses as a percentage to revenue, excluding ESOP charges, were lower by 1,150 basis points versus previous year and 370 basis points sequentially. Our focus on cost programs will continue to drive further efficiencies. Our non-cash ESOP charges at INR 10.7 crore reflects the full quarter impact of ESOP charges, and we expect ESOP charges to be at these levels in the coming quarters. This quarter witnessed an important milestone in our financial journey. As against a net debt of INR 199 crore in September 2022 and a peak of INR 216 crore in June 2022, we exited the quarter with a net surplus of INR 9 crore. Our improved profitability, combined with improvements in working capital over the last one year have been the key sources of this improvement.
The impact of this is visible in our finance costs, which reduced year-on-year by 49% from INR 5.7 crore to INR 2.9 crore in quarter two. Fueled by operating leverage and lower finance costs, we witnessed year-on-year and quarter-on-quarter improvements in our adjusted EBITDA, in PBT and PAT. Adjusted EBITDA margins expanded for the fourth successive quarter to 10.5% and pre-adjusted PBT margins crossed 8% for the first time and at 8.1%. To summarize, the trends on both top line and bottom line show an improving trajectory. We should continue to remain focused on executing the transformation agenda under Project Udaan and intend to build on the improved trajectory and make steady progress on other transformation fronts. On that note, I would now like to open the floor for Q and A.
Excuse me, sir. Can we open the floor for the Q and A session now?
Yes, please.
Thank you very much. We will now start the question and answer session. Anyone who wishes to ask a question may please press star followed by one on your touchtone phone. If you wish to withdraw yourself from the question queue, you may press star followed by two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may please press star followed by one. The first question is from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go ahead.
Yeah. Thank you so much for the opportunity. Festive greetings to everyone. My question is basically on how should we look at first, while as you highlighted, 4% odd growth on year-over-year terms, it is clearly an improvement. Should we look at this improvement as a reflection of demand bottoming out and improvements of growth thereof, or should we look at it as a clear result of far-reaching interventions? How should we look at that? Secondly, on growth versus margins. As you highlighted, there won't be a meaningful shift in the gross margin profile of the company. In terms of EBITDA margin, should we say that we are probably looking at EBITDA margins from these levels? How should we look at the margins as well, also when you look at the acceleration of growth? Thanks.
Thank you, Vimal, for that question. I think our performance in quarter two and the growth that we delivered of 4.6% on continuing business came, like I said, on the back of strong volume growth. This volume was an outcome of all the work that we've done as part of Project Udaan for driving category penetration and category growth through value SKU pricing, through category-leading communication, through distribution expansion efforts. As also the work that we've done across other price points, both mid-price and premium. That work that we've done reflected not just in the growth that we talked about, but also in terms of market share gain. Both in water purifiers and in vacuum cleaners, we were encouraged to see market share gain, both sequentially and year-over-year.
That said, to your question about category momentum, we don't quite see the categories gaining strong momentum yet. They likely have bottomed out, but we don't see the strong tailwinds to the category. Our numbers were more a reflection of our own interventions and the fact that our strategy of what it's around is beginning to land and beginning to lead to outcomes, meaningful growth. On your second question about growth versus margins, Gaurav, you want to chip in here?
Yes. There are two or three important points to call out. From our perspective, the way we see margins is from a lens that there are two bookends. One is what you would typically see in durable companies, where the margin profile is maturity to 11%, and then the other end of the spectrum are margins in the water purifier space. Keeping that in mind, we expect our margins to be somewhere in the middle. That is what we would be aiming for. Because from our perspective, a very important thing that we have set out for is to ensure that we get both growth and margins. We would not want to be in a situation where we end up with high margins but not adequate growth. Keeping that in mind, we do not expect our current margins to be the peak.
When you marry to the fact that we also have a service business, that also gives us additional tailwinds. We do not see these current levels to be the peak margin for the business. Obviously, from our perspective, we are looking at structural improvements, and you have margins play out over a longer period of time, and that is what our approach is going to be.
Thank you, gentlemen, for the clarification. Gaurav, just one more thing I wanted to clarify was on ESOP cost. You mentioned INR 10 crore per quarter, so about INR 60 crore of ESOP cost for the full-year, right? Am I reading that correct?
That is right. This will be for—
This will continue?
The only column I would have is that typically in ESOP accounting, the initial years have a higher charges, then it starts tapering off. It will not be a uniform INR 10 crore every quarter. It will start tapering off. But for the foreseeable few quarters, you can assume this to be the benchmark.
Right. When do you see this tapering off? End of FY 2025 maybe, or any suggestions?
This is done keeping the current accounting models which are there for ESOP accounting. So it factors in various scenarios. We kept all those considerations in mind, and it will play out over a period beyond FY 2025.
Understood. Fair enough, gentlemen. Thank you so much and all the best.
We will take the next question from the line of Abhijit Akella from Kotak Securities. Please go ahead.
Good morning, gentlemen. Thank you so much for taking my questions. The first one I had was with regard to the revenues. So fairly sharp jump on a sequential basis as well. Just sort of wondering if there is a seasonality aspect to the business that we need to understand, and so therefore when we model out the second half of this year, is this a good level to trend off of or is there a seasonal dip in the second half of the year? Also I noticed from the disclosures that the gap between reported revenues and revenues for continuing business has narrowed quite sharply this quarter. Does it mean that we are sort of approaching the anniversary date of the discontinuation of those businesses? How should we think about that? Thank you.
Thank you. I just wanted to apologize for that slight disruption. Abhijit, going back to your question, I do not know how much was audible, but I was responding by saying that there has been a strong growth sequentially of 17% +. Of course, the growth of almost 5% year-on-year for continuing business. quarter two tends to be our strongest quarter sequentially. So some amount of what you saw as growth sequentially improvement is a reflection of that. Notwithstanding that, the sequential improvement was higher than what we have seen historically in the previous years, which was a reflection of our growth interventions beginning to bear fruit. On the second part of the question about the continuing business and the gap that is between that and our overall reported revenue, Gaurav, do you want to comment please?
Yes. I think just to first lay out what really constitutes the discontinued operations. This is largely previous business lines like security division, Coronaguard, cleaning services business, et cetera. Those are the ones which we have exited over the course of last one year. We do expect this gap to be there for the next three, four quarters. The reason for that being that while we have exited these, if there are any residual customer orders which come in because the nature of this business is such that certain customers may come back asking for replacements, et cetera. So whatever is the organic liquidation that happens, or if there are any customer requests which come in proactively, that is something we entertain. It also helps in kind of liquidating whatever inventory is there and releasing cash.
So to that extent, there will be some residual revenue which will keep coming. Depending on each quarter, it will be somewhere in the range of 1%-2% and not more.
Understood. Thank you so much. That is helpful. The second question I just had was with regard to couple of newer initiatives which you have been working on. First, on the digital side maybe in terms of the app development, et cetera, and improving the user experience. So what sort of initial feedback you have on these initiatives and has this already been rolled out on a wide basis across the country? The second thing is also a little bit about the rental model that lately is a pilot study in a couple of the southern cities. So what sort of initial response have you seen there and any early learnings that you could share on that front? Thank you.
Thank you, Abhijit. On your first question on digital, our intervention on digital and our digital strategy is aimed at across multiple areas. The first one is to improve the customer experience, to provide our customers convenience, the access to seamless service that they expect. That's one big area of work. And towards that, we've already rolled out a number of initiatives by which customers can schedule their service appointments, and they can choose even the technician of their choice. That's one thing that has already happened. The second thing that has happened is that to enable a much better service experience for our customers, we've also onboarded all our service technicians nationally onto one central digital platform. And we will now be moving to allocate calls centrally, based on proximity, based on prior experience, based on skill levels of technicians, nature of the complaints, et cetera.
We'll allocate the complaints intelligently and algorithmically to technicians very soon. Happy to report that our early interventions are leading to meaningful improvements in customer satisfaction levels, as reflected in our significant improvement in our net promoter scores. We're also seeing improvement in our turnaround times on service. The other area that we are working on is to also improve our product commerce experience, and that work is WIP, and you will see that play out on our digital platforms over the next few periods. That was on your first question. Also, just to add to that story before I come to your second question. We've also begun to enable our digital play to build organic capabilities in the organization. We've built a small team which is looking at product management, engineering, UI, UX. We also have got a small team which looks at data science and analytics.
All of these teams, when we pull together, will help us improve our customer experience and the quality of our digital assets. On your second question on the rental model, going back to the strategic logic of rental and why we are piloting it, we're aware that our category has a very low penetration. Almost universal need, but a very low penetration. And one big barrier to category adoption has been high cost of ownership. We believe that our rental model is one way of addressing this barrier, amongst others. And towards that, we've begun piloting our rental model down south in Chennai. The rental model and its success requires very strong logistics capabilities, making sure both the forward and the reverse logistics are well built, well tuned. Number one.
Number two, ensuring the customer experience of installation, of being able to renew, and upgrade on rentals, also smooth and seamless. And that's the work we are doing right now. Our initial response and feedback in Chennai has been encouraging. We still intend to fine-tune and debug the model before we scale up. Rental will be an important part of our play as we go forward, along with our initiatives that we've already taken on making products more affordable per se. I hope that addresses your questions.
Yes. Thank you so much. That's very helpful. If I have more, I will get in the queue. Thank you so much.
Thank you, Abhijit.
Thank you. Before we take the next question, a reminder to all participants, anyone who wishes to ask questions, may please press star followed by one. We take the next question from the line of Devika Sethi from Ratnabali Investment Private Limited. Please go ahead.
Hi, sir. Good morning. Am I audible?
Yes, Devika. We hear you.
So, sir, I have two questions. One would be, we have been talking about the potential that lies in capturing the service market, especially among our current customers themselves. I assume that we have successfully removed a great portion of the previous market and unorganized distributors of spare parts and AMC service tools. We have even made our services affordable through our new tiered AMC plan. So what kind of growth are we expecting in the services segment through this new model? This new model will help us gain market share, penetration, and revenue in this segment, but will this affect our service margins? And has any other brand come up with this concept before?
Devika, thank you for that question. I think that let me go back and recap the rationale for doing segmented AMC. You are aware that we have installed base of more than 8 million customers, only a small proportion of whom are part of our organized service offering. One barrier in expanding the size of our own service offering is the fact that there is a large and a parallel gray market which exists. Number one. Number two, customers also very sensitive about pricing, especially if they have a lower priced economy products that they have purchased in the first place. So our launch of the tiered AMC and the segmented AMC addresses this barrier and is looking to make our service a lot more affordable and a lot more accessible. The initial feedback that we have got both in the pilot markets and after scale-up has been encouraging.
It allows customers with differing levels of service needs to tap into the different segments it offers and go for one which meets their requirements. We expect that as tiered AMC scales up, our service revenues will expand. We expect to get a lot more of our installed base into our own service offering, and we are very optimistic about how this will play out. In addition, you talked also about the fact that there is a large market of spurious products, spurious sellers, and we also are going after that opportunity in that market in a very focused way. One way of doing that, of course, is to look at segmented and tiered AMC offers. The other way is also to increase customer awareness about what it takes to differentiate between a genuine and a fake Aquaguard filter.
There's also been taking legal action to come down hard on these several operators. All of these work streams are going on. We'll also be doing some consumer awareness campaigns in the period going forward to inform customers both about a segmented AMC offer. It is also what it takes to differentiate between a genuine Aquaguard filter and the fake ones, and you will see that play out very soon in the market.
I think to build on the second part of the question on the impact on margins. As you can imagine, service business will be at a higher margin profile than a product business, and that is the same thing which would play out here as well. I just want to draw attention to the fact that different price points come with different compositions and the associated cost structure. It's not that a lower price point offering is something which will come at a lower margin necessarily because the offerings also change depending on the price point. And the way we've structured it is to make sure that there is a certain minimum threshold margin that each of the price point offers. So that's our approach.
I think I'll just again at the cost of repetition, draw attention to the fact that the sheer number of people who are not in the Eureka Forbes is far bigger than those who are with us, and therein lies the opportunity, which through a combination of lowering the entry barrier, awareness, and access, all of these three coming together along with gray market operations is intended to help unlock this value.
Okay. Thank you for this detailed response. One last question, sir. Can you please talk about this new product that you've launched? I have been noticing that the world is moving towards hiding their water purifiers either inside the cabinet, on top of the sink, or under the counter. What was the thought behind this new launch which makes water purifiers visible and attractive to look at as well?
Devika, this is a great point that you make. Actually, we are seeing a lot of trends play out when it comes to kitchen appliances and devices, and when it comes to our own category. Certainly, one trend is what you spoke about, which is under the counter products. Equally, there is a trend towards having devices and kitchen appliances which are sleek, which fit in with modular kitchens, which fit in with all the new age devices that kitchens are now beginning to carry. Therefore, this innovation that we have done, the glass bar range that you are speaking about, is to talk to that consumer and to address this opportunity. The consumer who has got a kitchen that is sleek, that is contemporary, possibly all glass and brushed steel, and she is looking to have a device which fits in right there, which belongs right there.
This marries very strong functional advantages, instant water dispensing through a UV LED lamp, display of input and output TDS. Those are very strong functional benefits. Along with the form factor, along with the design that is modern, that is contemporary, that is sleek, and that fits in with all the kitchen appliances that she possibly may have in her kitchen. This seeks to address that opportunity. There are other opportunities that we will also address in the months to come, which are more in the areas that you spoke about.
Okay. Thank you so much, that is it to my end.
We will take the next question from the line of Siddhartha Bera from Nomura. Please go ahead.
Thanks for the opportunity, and best regards to you as well. My first question is on the revenue side. We have done multiple interventions like stainless steel tanks, four-stage filters over the past few months. Just give me a first clear picture on what will be the contribution of revenues coming from all these newer products which have got launched in the last one year. If I look at the growth in the coming years, how should we think about will it be some of these products which will be driving that? Or you see further acceleration possible from these or your specialized business or some thoughts on that.
Thank you, Siddhartha. Thank you for your question, and greetings to you as well. You are absolutely right. Over the last couple of quarters, we have done a number of interventions spanning a large part of our water purifier range, starting with the economy product, supported by advertising, supported by distribution intervention. We have also done innovations around stainless steel and the premium products as well. Encouraged to see that our growth in quarter two in water purifiers was strong, double-digit growth. That growth came not just from the economy range, but from across our price points. We expect this to continue, and maybe to even gain momentum as we roll out more and more innovations. I spoke earlier in the call about the glass bar innovation that we have just launched.
We will expect to see more innovations in the periods to come as we tap into emerging consumer opportunities and plug some of the gaps in our portfolio. To answer your question, you will see growth both from our existing range of products, but also from our innovations, both the ones that we have already done and those are the ones that are in the pipeline. Interestingly, that answer holds true not just for water, but also for our vacuum cleaners. We have seen strong growth come, as I said in my opening remarks also, from the robotics range of vacuum cleaners, and we expect that to continue. We have just rolled out three new vacuum cleaners in the premium upright segment. We have also rolled out a pet grooming kit that happened this quarter in October, not last quarter.
That just continues our trend of driving premium innovations and offering our customers differentiated propositions. We expect this to drive growth for us in cleaning as well, in vacuum cleaners as well.
Got it. Sir, just to follow up on the service revenue part of the business, will the growth trajectory on that point be similar or better? With the new segmentation being launched now, do you expect any further acceleration in the service part of the business as well? Second, on the cost side, sir, we continue to do these digital initiatives to improve customer experience and drive down costs. Shall we expect in terms of the service charges as a percentage of revenues, which are there, that also to sort of come down from the current levels with these initiatives you have done or are considering?
Sir, I'll just respond to your first question on service revenue. I think that's Gaurav coming on the question on service charges. On service revenue, you're absolutely right. The whole logic of doing segmented and tiered AMC was to expand the size of our service offering to drive much better penetration of our own AMC and our own service amongst our installed base. There, as Gaurav mentioned earlier, there is a lot of headroom for growth. We will also be driving, as I said earlier, awareness around genuine Aquaguard filters and to address the large number of out-of-warranty, out-of-contract customers who sometimes resort to and buy filters from the parallel market, not knowing often whether what they're buying is genuine or fake. Both of these will lead to growth in our service business, and you see that reflect in the quarters to come.
Like I said, our early feedback and our early experience of the segmented AMC is encouraging, but as you can imagine, this requires a fundamental behavior change from consumers. It will take time to build up. We are optimistic and will remain on this path. Gaurav for the service charge.
Yes. On the cost side, I think just to lay out our approach, our focus on cost initiatives will be across all lines, starting from procurement efficiencies all the way to indirects, overheads, everything. Service charge would be part of it. That's one. Specific areas that we're looking at is, for example, our warehousing logistics cost, our IT cost, our procurement cost because of volume benefits that come in. Those are specific areas that we're looking at. Coming to your question on service charge. Yes, amongst the larger initiatives, we would also be looking at service charge. But again, service charge is in some nature a bit of a semi-variable cost because part of that cost is attributable to service revenue. Hence to that extent there will be an entity of how revenue moves.
Our overall approach would be to keep looking at every single cost line and extract opportunities and efficiencies.
Got it, sir. Thanks a lot. I will submit it back to you.
Thank you. Investors who wish to ask questions may please press star followed by one. The next question is from the line of Harshad Gadekar from Elara Capital. Please go ahead.
Yeah. Hi. Thank you. Wishing you festivity greetings to both Pratik and Gaurav. And congrats for seeing our revenue growth for the second consecutive quarter. Few questions from my side. Just wanted to check with you, as you mentioned, water purifiers we have seen a double-digit volume growth. Should we also see in the vacuum cleaner as well, a double-digit volume growth?
Thank you, Harshad. Thank you for the greetings and wish you the same. I think to your question, we were enthused to see strong growth across the board, especially in water purifiers, where we saw strong double-digit volume growth. In vacuum cleaners, we saw growth as well, and that growth was encouraging. Specific sub-segments within vacuum cleaners delivered a very strong growth. And we are seeing this as a pattern playing out in the vacuum cleaners category, where there is a move towards segments of convenient cleaning, the segments of robotic vacuum cleaners, the segments of upright vacuum cleaners, handheld. So these cordless, more convenient vacuum cleaning options are growing much faster as it did for us last quarter.
Fair enough. Second question is on the mix of your channel, which you have been trying to reach your direct to home network and trying to get towards the other channels. So how has been the growth within these channels? Was it led by e-commerce or any other channel that you can highlight?
So, yes. Look, I think the larger point, Harshad, is that we are very fortunate to have an omni-channel mosaic between retail, e-commerce, and direct sales, which allows us to drive multiple GTM interventions. It allows us to drive distribution, drive access, also allows us the ability of being able to create categories and sell premium propositions in a one-on-one selling environment. In quarter two, specifically, we were encouraged to see strong growth in e-commerce. We were encouraged to see strong growth also in our retail business. And we were also encouraged to see a strong growth in our direct sales productivity. Therefore the growth actually was really cross-channel and across the board.
Understood. So what has been your ad spend and promotion expenses in this particular quarter, since this is the largest quarter for you? And secondly, the service charges cost has also increased in this quarter, which you have been trying to reduce. So anything to read out of it, and do you think that is going to continue going forward?
Harshad, we don't give out a separate cap on advertisement and sales promotion expenses. But what I can say is that our spends in quarter two have increased versus the previous quarter, and directionally we intend to keep investing in this area. I think from our perspective, a very clear learning has been that the campaign that we came out with had a very good impact on the volume growth that we are seeing for the second successive quarter. This will, for us, remain an area of focus. As far as service charge is concerned, on a sequential basis, it has remained flat. On a year-on-year basis, there is a slight increase wherein it is a semi-variable cost. There are elements which are driven by revenue and there are others which are non-revenue linked.
Our focus would be to keep driving efficiencies in that area as well without having an impact on the revenue part of it.
This last question is just a clarification. On the filter side, are the control filters manufactured in-house by you or is it outsourced? Since we are increasing more on service side, are we increasing any CapEx on manufacturing these filters or increasing on that front would be helpful.
Yeah. See, on the CapEx side, as we've mentioned that we expect a step-up from the CapEx levels of previous years. That is something that will play out during the course of this year. As you see in half one, we've almost spent an amount of CapEx which we would typically spend in a full-year. The CapEx, having said that, on the manufacturing side, we do not see any major requirement at this point in time. We believe we have adequate capacities. Wherever investments are needed, and many of it may be required more at the vendor end and at our end, those investments will happen cater to the increasing volume growth. That is something that we will continue looking at on a continuous basis.
On your first question, I am not sure I got it correctly or not, but we do manufacture our filters in-house, Harshad, if that was your question.
Yeah. That was the question. Are you ramping up the spare capacity since you are already reducing the charges on filter? There could be, as you expect more customers to come and take service from you, which would be larger share. Are we prepared for those kind of increase which will come?
Yes, Harshad. It is a good question. We are anticipating a growth in volumes, and therefore we are executing all the necessary actions required to support that volume growth, both in terms of having a higher capacity in the technician service efficient network as also having a higher capacity to manufacture and supply filters. So from both fronts, we are building the back end to support what we believe will be this growth in service volumes.
Sorry, just last question. I think what we have seen across many parts of India, the air pollution levels have increased significantly. Are we looking to launch anything on the air purifier front? Or if you can give any color on how do you expect this particular product to grow, any color for—
Harshad, you are right. Absolutely. I think this time of the year, I think all of us, whether we live in Delhi or in Bombay or in Bangalore, I think it is a very current topic. Increasingly, we are seeing that poor air quality is a challenge that will manifest itself across the country and across career. We have a very small air purifier business. We just launched two new products in this quarter three. It has gone to the market more recently, which is aimed at addressing this opportunity. That said, while we will have some play therefore and some growth coming from air purifier, I think we are spending this year much more in building our capabilities, building the consumer insighting, building the playbook, and to allow us to drive a much larger play on air purifiers starting next year.
We have no doubt that air and air purifiers will be a big opportunity for us in the years to come. It will not just be a north play, and it will not just be a seasonal play. We intend to create all the capabilities and strengthen the foundations to allow us to play this much more strongly next year. While we do have a small portfolio, which will do well, but materially and substantively, it will be a play that will manifest itself next year.
Fair enough, sir. Thanks for answering all the questions, and wishing you all the best.
Thank you, Harshad.
Thank you. We will take the next question from the line of Kevin Gandhi from CapGrow Capital. Please go ahead.
Hello. Sir, I just had one question on the tiered AMC. I just wanted to understand how much of the installed base, like how much percentage of the installed base, the tier two or three cities as we are doing for the AMC services, is serviced by our own company versus the other panel operators which you just mentioned. Just some idea.
No, thanks, Kevin. Look, I think that is the key question, right? Therein lies the opportunity. Like I said earlier, we have an installed base of about 8 million customers. So within that, there is a much larger and a substantively larger segment of consumers who are not in our service offering as compared to customers who are on our service offering. That gap is huge. It is to address that gap and to address that opportunity that we have launched this tiered or integrated AMC offer. By launching this offer and by supporting that through communication, digital communication, one-on-one communication, we intend to bridge the gap which exists right now, which is allowing our customers to avail of official high-quality Aquaguard service at a much more affordable cost.
That is the gap which we are trying to bridge, and we are very optimistic about how this is going to play out.
Okay, understood. Sir, just to understand one more thing. How much of the service revenue growth do you expect by this initiative in coming two years or three years? Just some color on it can help.
Kevin, look, we can think about it in two ways. One way, one tailwind that we see and which will help us in our service revenue potentially is exactly what you said, which is a tiered AMC and a larger attempt to expand our official service pie. It will play out gradually over time because it requires behavior change. It requires people to come to us as the current service contract expires. It will take time to play out, but it will play out, and that is clearly a tailwind. All the work which we've done, all that we have seen gives us a lot of encouragement that will be a good tailwind for us. The other tailwind to our service revenues potentially is the strong volume growth that we spoke about in water.
Knowing that our new unit sold today is a potential service offer that we open up ourselves to three years from now. Strong volume growth and continuing volume growth in water purifiers is also going to be one tailwind for us in the times to come for our service revenue. Overall put together, while we do not give a revenue guidance, the reality is that we are extremely optimistic about the way this will play out in the periods to come.
Okay, sir. Good assurance. Thanks and all the best for the future. Thank you very much.
Thank you, Kevin.
Thank you. Next question comes from the line of Sagar from Financial Research Technologies. Please go ahead.
No, thanks. I think most of the questions have been answered. Just one question. Could you give an indication of what will be the size of the parallel market for products and AMC service replacement size?
Sagar, thank you for that question. The size of the parallel market and product is not very large. About 75%-80% of the market is organized on product. In the case of service, the largest share of the market is unorganized, not just for us, but for the larger category as well. So I would say that the larger service market is unorganized, and therein lies the opportunity for us to tap into.
And I believe the service market, the unorganized market is bigger than the organized, right?
It would be, yes, absolutely.
And any indication what will be the size of the market in terms of value?
Sagar, it's a good question, and it's a question that we often debate and discuss internally as well. It's very hard for us to put a number to it because of the very nature of this unstructured market and unorganized market. It is fragmented. It is very local. It is hard to quantify and hard to trace. Very difficult to put a number to it. The larger point being that, as you said, the unorganized segment is larger than the organized segment of service, and in many cases, customers don't even know that they're availing of a travel operator service. They think it's the organized brand giving them service. Giving visibility on that, giving our customers easy access, digital access, convenient access, creating awareness, providing distribution, providing the right price points is a way of driving service revenues much higher and making the market a lot more organized.
Okay. Thank you. Thank you very much. All the best.
Thank you. Thanks, Sagar.
Thank you very much. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Pratik Pota for his closing remarks. Over to you, sir.
Thank you, and thank you everyone for joining the call and asking the questions. I know that this call has happened a week after our earnings being put out, and that was also because of the Diwali festival in between. We will go back to doing follow-up calls straight after the board meeting from next quarter onwards. I hope we have answered the questions that you posed to us. In case you have any follow-up questions, please feel free to reach out to us and we will be happy to respond. Thank you so much, and once again, festive greetings to all of you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Eureka Forbes, that concludes the conference. We thank you for joining us, and you may now disconnect your lines.