Havells in race to buy Eureka Forbes

Havells—the ₹10,428 crore consumer electrical goods maker—is in the race to buy Eureka Forbes, the loss-making subsidiary put on the block by Shapoorji Pallonji group-owned Forbes & Company, sources told Fortune India.

For Havells, the buyout would mean a dominant presence in a business it entered back in 2017 but failed to make a mark. It had plans to corner a 10% market share in four years. “The buyout will help it gain heft overnight since it currently has a negligible market share in the water purifier business,” said a banker who is privy to the ongoing deal.

Currently, a subsidiary of the listed entity, Forbes & Co has initiated the process of demerging Eureka Forbes and is seeking approval from the National Company Law Tribunal. The SP group has hired bankers to unlock value within its group companies in a bid to reduce the group’s debt burden.

“Havells is also among the contenders, but at this point, it is not clear if the company is interested in the entire portfolio of Eureka Forbes or just the water purifier business,” added the banker. According to sources, Swedish home appliance maker Electrolux, Advent International, and Warburg Pincus are the other suitors in the fray.

Havells did not respond to emails sent by Fortune India. While there was no official response from Forbes & Company, a source at SP group said they were in talks with several bidders.

In FY21, Eureka Forbes’ revenues from the health, hygiene, safety products and its services business stood at ₹2,151 crore, that is, 75% of its total revenue of ₹2,857 crore. On a consolidated basis, the company incurred a loss of ₹27.86 crore in FY21.

The company’s annual report does not provide a break-up of the contribution of water purifier and vacuum cleaner segments that come under the health and hygiene segment. Engineering, real estate, ITES, shipping and logistics comprise the balance of 25% of revenue. It’s unlikely that these businesses would offer any synergy to Havells or for any other suitors. The company’s three businesses, ITES, shipping and logistics, are loss-making.

While the bankers on behalf of the SP group are seeking a multiple of 2.5x-3x sales, the suitors would be more interested in the water and air purifier business. Net of debt (₹484 crore), the cash on books of Havells as of June 2021 is ₹1,278 crore. The company—which has a market cap of ₹90,000 crore—has the financial wherewithal to fund the deal. During the analyst call post Q1 FY22 results, Rajiv Goel, executive director, had commented, "We see strong traction organically. However again, there are opportunities that fit into our portfolio at the right pricing, which again is a very difficult thing in India. I think that is something we will always remain open to.”

The total market size of water purifiers is estimated to be around ₹6,000 crore, of which ₹4,500 crore is cornered by organised players as Eureka Forbes and Kent RO. Eureka Forbes is the most widely distributed water purifier with the brand available in 21,000+ stores across the country. The company has three manufacturing units across Bengaluru, Dehradun and Baddi with a capacity of produce around 15 lakh units per annum.

Havells has a half-a-million unit plant in Haridwar to build water purifiers and has entered into technological alliances with Globexi Japan and Ionic Water Solutions Canada. At present, the company's water purifier business is served by over 350 personnel across 375 cities and towns with a countrywide network of 8500 retail points and over 300 distributors. Eureka Forbes claims to have a base of 20 million customers and a reach of over 450 cities and towns in India with over 18,000.

Overall, Havells has 14,500 distributors across India in all product categories with a base of about 185,000 retailers, including about 25,000 outlets registered in rural channels. An acquisition would only help Havells further consolidate its reach in the water purifier business.

If the deal fructifies, this will be the second acquisition for Havells after it bought out the consumer business of Lloyd Electrical and Engineering for ₹1,600 crore in 2017.

Incidentally, Eureka Forbes was set up in 1982 as a joint venture between Forbes & Co & Electrolux—one of the suitors in the race today. Post the sale of Forbes & Co to the SP Group in 2001, the latter bought out Electrolux’s 40% stake in the JV.