Eureka Forbes plans 3%-4% hike as Q3 margins face near-term lag

Eureka Forbes Limited plans a 3%-4% price increase after Diwali following a 138-basis-point year-on-year decline in Q2 FY27 gross margin to 55.1%. Management said the mid-November action will not fully offset prior commodity-cost inflation until Q4 FY27, leaving Q3 FY27 with a transitionary margin impact.

How much will Eureka Forbes raise prices after Diwali?

Eureka Forbes is planning a 3%-4% price increase to be rolled out after Diwali. Management described the action as calibrated and said it had deliberately avoided raising prices during the festive season to protect growth, customer acquisition and category expansion amid peak demand.

The planned increase follows price actions in April. Eureka Forbes said its water-purifier prices rose about 5%-6% then, while annual maintenance contract (AMC) prices increased by roughly 3%-10%. Management did not give a product-level split for the proposed 3%-4% increase, saying it must balance the need to address inflation with the objective of retaining growth momentum.

Why did Eureka Forbes' gross margin decline in Q2 FY27?

Eureka Forbes' Q2 FY27 gross margin fell 138 basis points year on year to 55.1% because commodity inflation affected several input categories. A basis point is one-hundredth of a percentage point. Management said inflation had persisted and, in some cases, worsened, although the quarterly gross-margin result was broadly within its expectations.

The gross-margin decline differed from the adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) result because operating leverage offset the product-cost pressure. Revenue increased 15% year on year to Rs 890 crore, while total operating expenditure rose 10.2%, reducing the operating-expense ratio by 181 basis points to 41.6% of revenue.

How did Eureka Forbes expand EBITDA margin despite inflation?

Eureka Forbes expanded its Q2 FY27 adjusted EBITDA margin by 43 basis points year on year to 13.6%, with adjusted EBITDA rising 18.8% to Rs 120.7 crore. Management attributed the expansion entirely to operating leverage rather than gross-margin improvement and called the 13.6% quarterly margin a lifetime high.

The company increased advertising and sales-promotion spending in Q2 FY27 while containing the overall operating-cost ratio. Its spending included branded fixtures in large retail stores, new-product launches and campaigns for robotic vacuum cleaners, water softeners and filters. These upfront investments supported growth during the festive period even as the 55.1% gross margin reflected higher commodity costs.

The H1 FY27 outcome was less margin-expansive than Q2 because investments were front-loaded. H1 revenue rose 15.1% to Rs 1,590 crore, compared with 12.7% growth in H1 FY26, while adjusted EBITDA increased 15.5% to Rs 195 crore and the adjusted EBITDA margin stayed flat year on year at 12.2%.

Why did Eureka Forbes avoid raising prices during the festive season?

Eureka Forbes avoided a festive-season price increase because water purifiers and emerging categories were delivering broad-based growth. Water-purifier revenue grew in the high teens in Q2 FY27, and management said volume contributed significantly more to growth than pricing. Water purifiers also recorded sequential growth of more than 30% over Q1 FY27.

The company linked the decision to its product-led category-expansion strategy. Eureka Forbes launched a four-year product range in Q2 FY27 across modern trade and e-commerce, with an unconditional warranty on parts and filters. Management said this proposition provides greater certainty over ownership costs, while its two-year filter-life products, introduced during the prior 15 months, had become a large and growing part of sales mix.

Growth was spread across price points and categories rather than concentrated in one segment. Eureka Forbes said the economy water-purifier segment had particularly strong momentum, while mid-tier and premium products also performed well. Robotic vacuum cleaners, water softeners and air purifiers grew faster than company average, and the company launched six Aeroguard air-purifier stock-keeping units before second-half seasonal demand.

When will Eureka Forbes' price increase support margins?

Eureka Forbes expects the full margin benefit from its mid-November price action only in Q4 FY27, while Q3 FY27 will carry a transitionary impact. Management cited the lag between commodity-cost increases already absorbed and the time required for revised prices to flow through sales.

Management continues to aim for flat margins for the full FY27 year, using selective pricing alongside productivity initiatives and cost optimisation. That target depends on the duration of commodity inflation, the implementation of the planned 3%-4% price increase and continued operating leverage as revenue grows.

Cash conversion is also expected to be weighted to H2 FY27. Eureka Forbes ended Q2 with a net cash surplus of Rs 304 crore after building inventory for festive demand and ahead of Bureau of Indian Standards norms. Management said H1 cash from operations was negative in FY26 and the entire year's operating cash flow was generated in H2, a pattern it expects to recur in FY27.

What is happening in Eureka Forbes' service business?

Eureka Forbes' service business remained broadly in line with Q1 FY27 in Q2 FY27, partly because earlier AMC price increases continued to affect customer behaviour. Filter-sales growth accelerated in the quarter, while AMC performance remained steady, and management said its near-term focus is on growing filters and introducing newer AMC propositions.

The company has launched a nationwide pre-filter check campaign and added a customer contact point six months after an AMC, including a free device service intended to create filter or AMC conversion opportunities. Its Aquaguard Express Care proposition offers same-day service, including four-hour service in some cases, to customers outside warranty or AMC coverage.

Management said the two-year and four-year products should not necessarily reduce the long-term service opportunity. It said two-year filters have no parallel local-market replacement option, increasing the chance of conversion to an official filter or AMC. Contract renewals and out-of-warranty AMC customers contribute more to AMC revenue than customers moving directly from warranty into a contract, according to management.

Conclusion

Eureka Forbes is accepting a near-term Q3 FY27 margin lag to protect festive demand before implementing a 3%-4% post-Diwali price increase. The Q2 FY27 trade-off was evident in a 138-basis-point fall in gross margin to 55.1%, alongside 15% revenue growth to Rs 890 crore and a 43-basis-point increase in adjusted EBITDA margin to 13.6%.

The next disclosures to watch are the mid-November price rollout, the expected Q4 FY27 margin recovery and management's aim for flat full-year FY27 margins. Management also plans to scale promising service pilots over the next three to six months, while the four-year product launch and accelerated filter sales will indicate whether product and recurring-revenue initiatives support the 15.1% H1 FY27 growth rate.