India’s failure to provide clean air and water is an opportunity for US private equity

Making the mark.
Making the mark.
Image: REUTERS/Alisha Jucevic
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One person’s adversity can be another person’s investment opportunity.

More than 50% of India’s population has no access to clean water. While for many that means a struggle to fetch water, urban families who can afford to are investing in home water purifiers. As air quality deteriorates, they’re buying air purifiers too. And US equity firm Advent International has just swooped in on a long-term investment opportunity that addresses those problems.

The American buyout firm announced on Sunday (Sept. 19) it has agreed to buy a nearly 73% stake in Eureka Forbes, a household name in the water purifier segment in India with its Aquaguard brand, from a unit under the Shapoorji Pallonji real estate group in a transaction that gives the appliance firm an equity value of about $575 million. Eureka Forbes will be spun out and listed, after which Advent will acquire its stake.

Market analysts believe that the deal will not only strengthen Advent’s existing portfolio in the country but in the long run will provide it with a strong foothold in India’s retail and consumer sector. The Eureka Forbes buyout is the fifth such deal by the US equity giant in India after electrical goods firm Crompton Greaves, Dixcy Textiles, DFM Foods, and Enamor.

“There could be two strategic thought processes behind this deal. Firstly remote work culture is expected to be the new normal in the post-pandemic world with greater emphasis on making the home productive and comfortable. This has forced leading home appliance makers to spend actively on the same,” suggested Sandeep Matta, founder of the financial advisor firm TRADEIT Investment Advisor. “And secondly, there’s been a massive push to improve cleanliness, sanitation, and waste management in the country especially with the government’s Swachh Bharat Mission.”

Why did Advent buy Eureka Forbes?

Growing industrialisation is making the existing problem of the lack of clean drinking water in India worse. Even families who do get piped water at home are wary of drinking it as is. As a result, Indians who can afford will invest in clean water, say experts.

“The demand for clean water will give rise to the demand for purified water appliances in the country, which is estimated to reach a market size of almost $4 billion in India by the end of 2024,” said Manoj Dalmia, founder and director of Proficient Group, a Kolkata-based equity firm. In 2020, the industry was worth nearly $890 million, according to a report by market research firm imarc group

At present, the top companies in India’s water purifier industry compete on a level playing field, with at least four players including Eureka Forbes owning a 15% market share. “But with a new owner and existing market share in other segments such as air conditioners and purifiers, vacuum cleaners, and security solutions, it will now have an upper hand over its competition,” said Dalmia.

A win-win situation for Eureka’s former parent

The Eureka Forbes buyout isn’t just Advent’s gain.

“The deal will create a win-win situation for Eureka’s parent firm Shapoorji Pallonji Group group too for reducing its debt,” said Jyoti Prakash Gadia, chairman of the banking committee at PHD Chamber of Commerce and Industry, a trade industry body in the state of Rajasthan.

Currently, the 150-year old Shapoorji Pallonji Group is burdened with debt of Rs20,000 crore. Out of that Rs10,900 crore is under a restructuring package under the central bank’s Covid-19 relief framework regulations that buys it time to raise funds by selling assets. Other businesses it could put up for sale include renewable energy engineering firm Sterling and Wilson Solar and construction company Afcons Infrastructure.