Eureka Forbes shapes up for future with domestic operations

Eureka Forbes the biggest player in the water purifier and vacuum cleaner is planning to focus on domestic operation to unlock value. Forbes and company, part of the Shapoor Pallonji group authorized its management to evaluate Eureka Forbes and its subsidiaries for an equity dilution, stake sale or both. This came between death concerns to another group Sterling Wilson Solar whose promoters wrote to the management seeking an extension for the repayment of its loans amounting to Rs.2314cr. Eureka Forbes plan to acquire this firm and as began talks with private equity players and others investors for a controlling stake. This is important because the firm find it difficult to increase its top line even though operating expenses have grown.

 The bottom line of the company in the past four years, from FY16-FY19 has stagnated at Rs.1800cr. Even though the total expenditure as grown to Rs.2000cr in the same period. This has resulted in net loss of Rs.439cr in the last two years. Spokesperson for the company said that losses were due to impairment in the company’s book on its international operations. There have been systematic write downs in our book pertaining to our international units. In 2018 the company wrote down Rs171cr in account of lux international. In 2019 the write down was Rs341cr due to ASEAN operations of the firm, the spokesperson said. Experts say that Eureka Forbs will find it difficult to increase prices. The stagnancy in the top line is partly because of the inability of the company to derive pricing power. Both vacuum cleaner and water purifiers as well as other durable categories have seen a spurt in the number of brands over the past few years. To protect market share the company has add to keep prices very competitive even as operating expenses to run the business have grown” said G Chokkalingam, founder Equinomics Research and Advisory.

 The company’s spokesperson said the losses were on account of increased spending in research and development, information technology and customer relationship management. These are important to stay ahead of the competitive curve. They were also aggressively tapping the e-commerce channel to gain access to more consumers across the country.