Eureka Forbes shapes up for future, focuses on domestic operations

Data shows firm's net sales have remained stagnant in the past four years

Eureka Forbes, the country’s largest player in water purifiers and vacuum cleaners, is reorganising itself and bringing its focus back on domestic operations as it seeks to unlock value.

Last week, Forbes & Company, part of the Shapoor Pallonji group, had said its board of directors had authorised its management to evaluate all options for Eureka Forbes, its subsidiary, including an equity dilution, stake sale or combination of both. 

The announcement came amid debt concerns involving another group firm — Sterling & Wilson Solar — where promoters had written to the management seeking a revised schedule for repayment of its loans to the tune of Rs 2,314 crore.

According to industry sources, Eureka Forbes has begun talks with private equity players and other investors for a controlling stake in the company. The reorganisation acquires importance because the firm has been struggling to increase its top line even as operating expenditure has grown.

Data from the Registrar of Companies (RoC) and Capitaline shows that net sales have remained stagnant in the past four years (FY16 to FY19) at Rs 1,800 crore, while total expenditure has grown from Rs 1,800 crore to Rs 2,000 crore in the same period.

As a result, net loss has widened in the past two years, touching nearly Rs 304 crore in FY19 versus Rs 135 crore in the previous year.

A Eureka Forbes spokesperson said the losses were due to impairments in the company’s books, with regard to its international operations. 

“The last couple of years have seen systematic write downs in our books pertaining to our international units. In 2018, the company wrote down Rs 171 crore on account of Lux International (in Europe). In 2019, the write down was for Rs 341 crore due to ASEAN operations of the firm,” the spokesperson said.

According to experts, in a competitive market, it is increasingly becoming difficult for players such as Eureka Forbes to increase prices. 

“The stagnancy in top line is partly because of the inability of the company to derive pricing power. Both vacuum cleaners and water purifiers as well as other durable categories where it operates have seen a spurt in the number of brands over the past few years,” said G Chokkalingam, founder, Equinomics Research and Advisory.

“To protect market share, the company has had to keep prices very competitive even as operating expenses to run the business have grown,” he said.

Eureka Forbes controls nearly 50 per cent of the organised water purifier market and 89 per cent of the vacuum cleaner segment in India.  

While raw material, employee, and selling and distribution expenditure have been traditionally high for Eureka Forbes, as its business model hovers around selling products manufactured by it directly to consumers, in the last two years, the company’s miscellaneous expenses have also grown. 

From Rs 186 crore in FY18, miscellaneous expenditure in FY19 touched nearly Rs 348 crore, regulatory filings show. The company's spokesperson said this was on account of an increase in spending on research and development, information technology, and customer relationship management, required to stay ahead of the curve.

The company, the spokesperson said, was also tapping the e-commerce channel aggressively to reach more consumers across the country.