FY25 was a stellar year for Eureka Forbes (EFL), visible from a) step-up in product business sales growth (+17%) with significant acceleration in electric water purifier sales (+18.1%), b) service business starting to see green shoots with efforts on AMC unit sales and improving customer experience yielding results, c) margin expansion, despite stepped-up brand investments (+25.5%), led by better efficiencies/leverage benefit in staff cost, service charges, freight and IT expenses. We like EFL’s growth story – execution so far has been impressive; a debt-free balance sheet, negative working capital and strong FCF generation provide comfort. With product business momentum sustaining, likely uptick in service business revenue over the next few quarters can lead to a further rerating. Maintain BUY with unchanged TP of INR 715 (40x Sep 27E EPS).
Strong momentum in product business led by acceleration in electric water purifiers, robotics and air purifiers: Eureka Forbes delivered a strong performance in its products business in FY25, with growth accelerating to 17% YoY (vs. 12.7% in FY24), led by both volume and favourable price/mix. In terms of segments, electric water purifiers saw a sharp step-up in sales growth (up 18.1% vs. 10.6% in FY24), supported by focus on driving penetration sustained innovation and premiumisation. While overall growth in vacuum cleaners moderated on a high base (grew 12.8% vs. 18.9% in FY24), the robotics sub-segment continued to witness strong traction, led by innovation (3x increase in range) and rising adoption of convenient cleaning solutions.
Green shoots visible in service business, revenue flow-through expected from 4QFY26E: The service business (1/3rd of FY25 sales) grew c.3% (vs. flat sales in FY24). While FY24 was about improving affordability through launch of tiered AMCs, the focus in FY25 was on enhancing customer experience (strengthened customer app/rolled out new service technician app), scaling up AMC unit sales (with personalised AMC recommendations, targeted campaigns to win back lapsed customers) and filter sales (through filter innovations and a separate go-to-market strategy). The outcome has been positive – the share of digitally booked complaints rose sharply to 80% in FY25 (vs. 33% in May’23), the active app installed base expanded to over 1.6mn (vs. 140k in May’23) and 64% of AMC bookings were digital in FY25 (vs. 28% in May’23), with dominant share from churned users. Increase in AMC units sales (double-digit booking seen in 1QFY26) points to green shoots and acceleration in service revenue should be visible from 4QFY26/FY27E.
Costs optimisation/scale benefits drives profitability: Despite GM contracting by c.80bps (due to buyback, promotions), EBITDA margin expanded 182bps YoY (+116bps YoY exESOP) in FY25 through rigorous cost optimisation, even as the company stepped up brand investments to drive growth. Savings in service charges (down 150bps as % to sales), staff costs (down 146bps as % to sales), and productivity improvements provided headroom for higher A&P spends (+124bps YoY as % to sales) while supporting overall margin expansion. We believe benefits of digital-led efficiencies & disciplined cost control will enable EFL to sustain transformation journey with enhanced growth and profitability.
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