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SP Group looks to cut debt burden in other firms after Eureka Forbes sale

SP Group looks to cut debt burden in other firms after Eureka Forbes sale

Eureka Forbes had been looking to exit the business for at least a year with interest largely having come from the private equity players, with Electrolux being the only consumer durable player

As Eureka Forbes moves into the hands of PE major Advent International, it marks the departure of the SP Group As Eureka Forbes moves into the hands of PE major Advent International, it marks the departure of the SP Group

To Eureka Forbes goes the credit of having brought in the vacuum cleaner and the water purifier into many Indian homes. While many brands joined the bandwagon, it was this company that first set up a unique door-to-door distribution model and in many ways, inculcated a modern concept of hygiene. As Eureka Forbes (EFL), a wholly owned subsidiary of Forbes & Company, moves into the hands of private equity major Advent International, it marks the departure of the Shapoorji Pallonji Group. The decision is to reduce the burden on what is already an overleveraged situation.

Consider the following facts. Aquaguard, a well-known water purifier brand from EFL and now has the likes of Kent, Livpure, among others. Manoj Gour Chintaluri, an old consumer durable and small appliances hand, who now teaches marketing at MDI, Murshidabad, points out that the acquisition gives Advent an entry into the underpenetrated water purifier category "seemingly in single digits."

With a scenario like that, why would EFL, with an established brand name, hand over the business virtually on a platter? The decision to sell EFL, a company with FY21 revenues of Rs 1,857 crore with a net profit of Rs 52 crore (corresponding revenue for FY20 was Rs 1,922 crore and a net loss of almost Rs 400 crore, with the company being in the red for FY19 as well), comes on the back of commitment to its lenders as a part of a one-time restructuring of a Rs 10,900 crore debt under the Covid-19 relief framework.

This was cleared by the banks this March of the total debt of over Rs 22,000 crore. It has been widely reported that the group is also looking to sell a part or their complete holding in Afcons Infrastructure and Sterling & Wilson Solar, other group companies. Most importantly, the debt story has left the group very little to invest on building businesses such as EFL and that has reflected in the financials.  

EFL had been looking to exit the business for at least a year with interest largely having come from the private equity players, with Electrolux, according to media reports, being the only consumer durable player. Advent has already made over a 3x return on a complete exit from Crompton Greaves Consumer Electricals and as Chintaluri puts it, "likes the flavour of the Indian durable industry."

According to him, though EFL was an early entrant, expansion of the category was driven by the likes of Kent and Livpure. "They invested in ATL (above the line or marketing with a broad reach with advertising being a big part) and more importantly, used the distribution channel to reach out to consumers and markets that remained unknown," he adds.

Over 70 per cent of EFL's revenue comes from water purifiers, with growth in vacuum cleaners still not a big story in India. Without a doubt, EFL was sitting on a huge opportunity until debt has done it in. It is a story that might have looked very different otherwise. How the Shapoorji Pallonji group manages to extricate itself will be worth a watch.

(CORRECTION: The report erroneously stated that a deal with Avendus Capital will fetch the group Rs 3,100 crore. It has since been removed)

Also read: PE firm Advent to acquire majority stake in Eureka Forbes from Shapoorji Pallonji Group