Troubled Eureka Forbes merges manufacturing arm Aquamall

Shapoorji Pallonji group has merged the manufacturing arm of Eureka Forbes, a market leader in water purifier and vacuum cleaning business, with the latter to improve the weak financial health of the business.

With brands like Aquaguard and Euroclean, Eureka Forbes is a marketing and sales company, which has manufacturing operations housed in its subsidiary Aquamall Water Solutions.

To improve the financial health of both these businesses marked by poor profitability and leveraged capital structure, the Pallonji family has merged the two companies, filing with the Registrar of Companies disclosed.

Despite controlling an estimated market share of 65% and 75% in water purifying and household vacuum cleaner businesses, Eureka Fobes has been suffering losses and its weakening financial parameters has forced rating agency ICRA to downgrade the parent firm Forbes and Co's long-term rating to A+ with a negative outlook from AA- last week.

Eureka Forbes, an unlisted entity is a wholly owned subsidiary of Forbes and Co, one of the oldest companies of the world, having set up in 1767, now held by Shapoorji Pallonji group.

"Given that the transferor company has manufacturing units and supplies very substantial portion to the transferee company which markets the same, it would be advantageous to combine the activities and operation of both companies into a single company for synergistic linkages and benefits of combined financial resources. This would be reflected in the profitability of the transferee company," the rationale behind the scheme of merger between Eureka Forbes and AquaMall filed with the ROC earlier this year said.

Rising competition, demonetisation after-effects coupled with high employee costs, being a direct selling company, has been taking a toll on the performance of Eureka Forbes, which suffered losses of Rs 7.40 crore in fiscal 2016, which jumped to Rs 22.42 crore in fiscal 2017.

"The long-term rating downgrade takes into account the continued weak consolidated operating performance of Forbes & Co in the last two fiscal years, driven largely by its key subsidiary – Eureka Forbes. The subdued performance of EFL's domestic health and hygiene business (operating margins of 4% in FY18) and adverse operating performance of its international business under Forbes Lux Int AG, subsidiary of EFL has weakened the overall consolidated risk profile," the rating agency said while downgrading Forbes & Co.

NOT IN PINK OF HEALTH

65% – Market share in water purifiers is controlled by Eureka Fobes