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Bath And Bed To Realty

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Very few people know this. Wadia Group company and majority shareholder of Britannia Industries, the Bombay Burmah Trading Company (BBTC), triggered the third Anglo-Burmese War in 1885 — a war that had led to the British annexing Burma and turning it into a province of India.

Bombay Burmah was floated in 1863 by tea traders Wallace Brothers who went on to become big suppliers of Burmese teak. By the 1880s, the British cast a nervous eye at the increasing bonhomie between the French and Burmese king Thibaw Min. A fine imposed on Bombay Burmah for under-reporting its teak logging and for not paying employees became a convenient excuse.

The British demanded the Burmese accept a British arbitrator to settle the dispute. When the Burmese refused, a flotilla of ships and sepoys under Major General Harry North Dalrymple Prendergast was dispatched down the Irrawaddy river to subdue the Burmese. Mandalay (the royal capital) fell on 28 November 1885, and on 1 January 1886, Burma (now Myanmar) became a British colony.

The Wadias took over BBTC around 1913 and went on to bring 7,000 acres under tea cultivation in south India; they had 1,500 acres of coffee estates in Coorg and rubber plantations in Indonesia. BBTC, India’s second oldest publicly quoted firm after the East India Company, is  part of corporate India’s history.

But there is more to the Wadia pedigree. About 276 years ago, in 1736, Loeji Nusserwanjee Wadia founded a company of master shipbuilders. The group’s website boasts of the 355 ships the Wadia ancestors built, including the HMS Trincomalee — the second oldest ship in the world still afloat at Hartlepool, the UK.

Close on the heels of BBTC, Nowrojee Nusserwanjee Wadia in 1879 saw an opportunity in weaving cloth in Mumbai, then the world’s cotton trading capital, and launched the Bombay Dyeing & Manufacturing Company from “a humble red-brick shed”. Bombay Dyeing rose to become the Wadias’ biggest brand.

Despite all this history to show, the Wadia Group today is a modest Rs 10,000 crore ($2 billion) operation. Founded in 1966, Reliance Industries (RIL), which group chairman Nusli Wadia took on unsuccessfully in the 1980s, is today 34 times larger with an annual turnover of $69 billion (Rs 3.4 lakh crore). Most of the 19th and 20th century entrepreneurs grew business after liberalisation. In 1991, the country’s leading family business houses — the Tatas, the Aditya Birla group and the Ambanis — had a group turnover of Rs 14,000 crore, Rs 3,100 crore and Rs 2,300 crore, respectively. By March 2012, the Tatas scaled up to Rs 4.8 lakh crore and Aditya Birla to Rs 2.1 lakh crore.

But for Ness Wadia, Nusli’s elder son and corporate head of various Wadia companies, size is not a big deal. “The more you own, the more you cannot control. We are happy with what we have. It is not only about billing; it is about what you give back to society; about serving the country,” he says, pointing to the work the group is doing in setting up colleges and hospitals.

In corporate circles, though, the Wadia legend is much larger than its size. Some of it has to do with celebrity status. Ness — as co-owner of IPL cricket team Kings XI Punjab with actor Preity Zinta — and Nusli’s wife Maureen — as editor-publisher of fashion magazine Gladrags and coordinator of beauty pageants — have added glitz to the family. But more of the Wadia legend is related to Nusli’s ability to fight and win corporate battles against larger adversaries.

Fighter By Choice
‘Corporate Samurai’ is just one of the many epithets worn by Nusli. His first steps in business tempered him to the view: never back off. Just 26 in 1971, he rejected the announcement of his father Neville to sell Bombay Dyeing to R.P. Goenka. Wadia Junior struck back with everything he could garner. He used his 11 per cent shareholding, his mother Dina Mehta and J.R.D. Tata’s support; he even got unions to back him. Finally, Bombay Dyeing stayed in Wadia hands.

But later, he lost the well-documented textile war with Dhirubhai Ambani. Both were in textile production and went for backward integration for polyester fabric with competing products. Reliance set up its Patalganga unit and went for manufacturing purified terephthalic acid, the base for polyester filament yarn (PFY). Bombay Dyeing took the di-methyl terephthalate route. In the battle for licences, Wadia was worsted and PFY won the marketplace.
 
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Nusli’s subsequent battle with ‘biscuit king’ Rajan Pillai for control of Britannia Industries, however, ended in his victory. He tried to buy the biscuit maker from its owner US giant RJR Nabisco in the 1980s. But his mediator and then close buddy Pillai was anointed chairman of Britannia in 1983 — a decision that turned the two into lifelong foes. Pillai consolidated his position by roping in Groupe Danone of France as an equity partner. But he underestimated Nusli. By 1993, Danone accused Pillai of fraud and ousted him in alliance with Nusli. Pillai, arrested for fraud, ultimately died in Tihar jail.

Danone must have rued the day it decided to team up with Nusli. Sixteen years later, the latter realised his dream and took complete control of Britannia. No small feat, considering the $25.5 billion food giant is 12 times Wadia’s size. Danone’s sell-off was preceded by a bitter four-year war. It started in 2006 with Wadia dragging Danone to court for allegedly violating a non-compete clause by taking a stake in biotech firm Avesthagen. This was followed by a prolonged intellectual property rights dispute over the Tiger brand of biscuits. Fed up with the wrangling, Danone exited by April 2009, selling its 26 per cent stake for around Rs 800 crore. BBTC now holds the controlling 50.96 per cent stake in the biscuit maker.

Nusli proved himself to be a good defensive fighter too, against aggressive legal raiders. In October 2000, jute baron Arun Bajoria said he was making a hostile bid for Bombay Dyeing. He had cornered 15 per cent of company equity from the market, triggering regulator Sebi’s takeover guidelines. A no-holds-barred public battle followed, which Wadia won and Bajoria exited, selling his shares. Vinita Bali, managing director of Britannia Industries, describes Nusli Wadia as one with a “sharp commercial and legal mind”, while an estranged former Wadia CEO describes him as a “great legal strategist”.

As for the man himself, he did not meet BW despite repeated requests. 

Debilitating Battles
Corporate battles in recent months have, however, not been going the Wadia way. Nusli, as sole administrator of the estates of E.F. Dinshaw and as caretaker of F.E. Dinshaw Trust properties, controls a huge swathe of 800 acres of Mumbai suburban land stretching from Goregaon to Kandivili. In 1995, Wadia reached a development agreement with the K. Raheja Group’s Ferani Hotels for 460 acres. The deal required the Rahejas to pay Wadia 12 per cent of all revenues, but the Wadias said the Rahejas short-changed them by selling flats and commercial space to front companies at a discount, and then illegally reselling them again at a huge undisclosed premium. There is some truth in these charges considering the Wadias were able to recover just Rs 270 crore in 17 years for an estimated Rs 20,000 crore in development.

Nusli thus terminated his agreement with the Rahejas in 2008, sought damages of Rs 1,370 crore and secured a stay against any further development. But a July 2012 order by a Bombay High Court bench vacated the stay and allowed Ferani Hotels to resume construction and sales without reference to the Wadias. In a parallel proceeding though, attempts by the Rahejas to unseat Nusli as administrator of the Dinshaw estates and muscle in as caretakers have been rejected by the high court.

Nusli has won more legal battles than he has lost. But the flip side is that nearly four decades of litigation and boardroom battles have debilitated the group, and slowed growth and expansion. Sample this: Bombay Dyeing, as part of its redevelopment plans for its two mills in Mumbai, is required to surrender one-third of the non-built area for workers’ housing and another one-third for developing gardens, a phenomenal 65,000 sq. m. Instead of bowing to the court-approved arrangement, the company said it would surrender the land at the end of the development process. A ‘Stop Work’ notice was slapped on Bombay Dyeing, followed by a long battle in court. The Supreme Court in August directed the company to surrender the land in six months. It was a futile skirmish that cost the company dear.

Jewel In The Crown
In the list of corporate battles, the one acquisition the Wadias made — Britannia Industries — has been a winner. In recent years, the company has steadily grown at 19-20 per cent with sales up to Rs 5,033 crore in 2012 from Rs 4,256 crore in 2011. Net profit rose sharply in two years — from Rs 116 crore in 2010 to Rs 187 crore in 2012. It has managed to garner a steady 31-33 per cent share of the biscuit market against increasing competition, and as much as 72 per cent of the cookies market with its Good Day range. Britannia is the second largest biscuit maker after Parle, producing 20 million packets a day.

Describing her strategy for success, Bali says it rests on the support for the company’s six ‘power brands’. “In the past six years, we added only one brand, Nutrichoice, a high-fibre biscuit marketed as a health food. For the other brands — Marie, Tiger, Milk Bikis and 50:50 — we have focused on investing on building brands for specific target groups and have broadened what each brand offers.”

Analysts are bullish about Britannia, but warn it faces serious competition. Writes P.V.S. Sreekanth of Motilal Oswal in a report: “With increased competition from Parle, Kraft and ITC, topline growth, both in terms of volume and value, will remain under check... Britannia will have to sustain increased level of ad spends.”

The one big issue that has raised investor eyebrows is the promoters’ decision to impose a 0.35 per cent charge on sales of Britannia and other Wadia firms as royalty for using the Wadia brand name. “Britannia pays 0.25 per cent of annual sales to Nowrojee Wadia & Sons for shared services such as legal and audit fees; and 0.1 per cent as royalty for the brand,” says Bali.

In recent months, this was raised by various investor forums. Anil Singhvi, founder of the Institutional Investors Advisory Services, wrote to the independent directors of Britannia questioning the decision. “What is ‘Wadia’ bringing to one of the most trusted brands ‘Britannia’? There is no recall value in ‘Wadia’. The royalty charge should, perhaps, be the other way round,” says Singhvi. “It is distressing that independent directors have not intervened on behalf of ordinary shareholders.”

Significantly, Wadia’s control over Britannia is exercised through BBTC’s majority stake in the company. But take away Britannia’s turnover from BBTC’s books, and one is left with businesses worth a little more than Rs 440 crore. BBTC’s initial range included tea and coffee plantations, dental products, orthopaedic and ophthalmic equipment and even auto parts. It also launched the highly successful laminate brand Sunmica in 1964, but has sold the laminates and auto parts business.
 
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Ness, who heads BBTC, agrees the group has to scale up. “We will move tea and coffee upstream to create more niche, value-added products. We intend to be a high-end player,” he says. “We also intend to use our land assets to develop agriculture.” He says plans are afoot to expand in the traditional areas of education and health. The group owns many colleges and hospitals. “It will be a combination of business and philanthropy,” says Ness. Interestingly, BBTC is a curious mix of a landlord, holding company and an investment vehicle. When asked to describe BBTC, Ness says: “It is like a private equity fund.”

Realty Play
Jeh Wadia, in his impeccably cut suit and polished mahogany office in the Bombay Dyeing Building at Lower Parel, beams confidence. Seven years ago, working 16 hours a day, he launched GoAir. He is still the managing director of the airline, but a little over a year ago in April 2011, he swapped roles with Ness, taking over as the managing director of Bombay Dyeing. Ness now heads BBTC, while Jeh continues as the managing director of GoAir too. He is now working 16 hours a day to rebuild Bombay Dyeing. Analysts speculate the swap represented chairman Nusli passing on the reins and the beginning of a family division between the brothers. Ness is quick to scotch the suggestion. “The change was so we could get experience in all our businesses.”

Jeh outlines his plans: “Bombay Dyeing is a 135-year old bed-and-bath brand. As the consumer begins his day, we grab a large share of his space; but we want more. We are going to grow to branded accessories, casual attire, home solutions and, finally, to ‘You’ — the entire range of personal needs of a consumer from curtains to furniture.”

It is not easy. In profitability, Bombay Dyeing has been trailing. With sales of Rs 2,348 crore in FY12, the firm has been growing 10-15 per cent a year. After an exceptionally bad year in FY09, when it had a loss of Rs 195 crore, it has turned around, but shown marginal profits of Rs 18, 21 and 60 crore for the subsequent fiscals. Clearly, bed-and-bath is not working.

Together with the family restructuring  comes the shift in focus to realty development — an asset the group is rich in but has been late to tap. Jeh asserts the group has assets in “excess of 10,000 acres” and predicts “70 per cent of Bombay Dyeing’s earnings in the future will be from realty”. He has christened his property foray Bombay Realty. At the core of the company’s real estate development is its two Mumbai mills — the Spring Mills unit at Dadar and the Lower Parel unit that borders Century Mills. Together they account for 67 acres in the heart of the city.

The 42-acre Spring Mills, being developed as the Island City Centre (ICC) since 2006, is a mixed-use project with three residential towers, a mall and a five-star hotel. The Lower Parel unit has been named Wadia International Centre (WIC) and is a mix of commercial buildings, a high-street plaza for top-end brands and a luxury residential tower. Besides a commercial building that houses company offices and leased areas to Tata Sky, Hard Rock Café and others, Bombay Dyeing has developed and sold another building of 400,000 sq. ft to Axis Bank for Rs 780 crore. “Today, BKC (Bandra-Kurla Complex) — for its proximity to the airport — has become Mumbai’s first port of call. When the main airport shifts to Navi Mumbai, and when the island is connected to the new airport via a sea link, the ICC and WIC will become the city’s first ports of call. We have linked our plans to Mumbai’s future,” says Jeh pointing to a spread of maps before him.

What about other Wadia Group properties in and around Mumbai? The city is believed to account for 1,000 acres (including the Dinshaw estates) while plantation and other non-urban land could take the Wadia property figure to over 10,000 acres. Immediately on the anvil for development in and around Mumbai is a 97-acre parcel in Thane belonging to the Wadia-owned Bothanium & Co. and a three-acre plot at Kanjurmarg; besides, there is the 300 acres of the Dinshaw estates that have not been handed over to the Rahejas. Bombay Dyeing is also locked in a dispute with neighbour Century Mills, seeking the return of 10 acres of mill land it had leased to the B.K. Birla Group many decades ago.

Not As Good As It Looks
Bombay Realty’s role is still unclear in respect of the non-mill properties. “We are focusing on the two mills now. For the other family and group properties, Bombay Realty will take an ‘arms-length’ position and bid for their development along with others,” says Jeh. Meanwhile, he is grappling with mill development snarls — some of them of the company’s own making.

While other mill developers in Mumbai have completed and sold projects, Bombay Dyeing has been excruciatingly slow because of repeatedly changed plans and bungles. Initially, Architects 61 of Singapore had been contracted, but it was replaced by another Singapore group, DP Architects. Again, Ross Botham of Amsterdam had been drafted to plan the retail areas, but shunted out after 2009.

Finally, architect Hafeez Contractor has been drafted, but it is anybody’s guess how long he will last, a former Bombay Dyeing executive told BW. “Over Rs 30 crore was spent by teams going to Europe and elsewhere to study malls and retail formats,” he added. The company is also unable to solve a dispute with 648 chawl or single-room tenants that occupy the prime frontage of the Spring Mills property.

BBTC’s plantation and other holdings are both diverse and massive. But can these be exploited? The tea plantations in Tamil Nadu and coffee estates in Coorg account for 8,500 acres. The company is under pressure to return some of the tea estates in the Kalakkad Mundanthurai Tiger Reserve on lease till 2028. It is difficult for BBTC to exploit these plantation lands for real estate, considering most of it is leased property on which ‘change of use’ involves regulatory issues. However, non-plantation land could come into the real estate pipeline.

“Most of these assets have been kept at book value by BBTC. When they are sold or developed, they will bring a huge windfall to the company,” says Janak Jethmalani, a chartered accountant who handled Wadias’ international businesses. A former senior executive of Bombay Dyeing says the group is also looking at exploiting Britannia’s land assets. “With 47 locations where factory units are closed, the company has about Rs 3,000 crore in land assets waiting to be exploited,” he claimed. This was supported by market speculation that Britannia is close to selling 6 acres of prime land housing its office complex and residential quarters in Bangalore for a consideration of Rs 550 crore. Bali, however, denied these reports.

Brain Drain
As Bombay Dyeing struggles to find its feet and take the growth path, Jeh is handicapped by inheriting a company that has lost focus. Says Kavil Ramachandran, Thomas Schmidheiny chair professor of family business at ISB, Hyderabad: “I suspect they (the Wadias) do not have a clear vision and strategy. Lack of cohesion combined with substantial wealth allows members to pull the family business in different directions.” Over the years, professional management too has taken a knock with constant churn and a string of sackings.

An early fall guy was D.S. Alva, managing director of the company in the mid-1990s and Wadia’s close confidant who helped him retain the company against his father’s wishes. Sidelined and ignored, Alva finally resigned in 1997. Where differences were sharp with his chief executives, Nusli developed a reputation of not only forcing their exits but going after them. Sunil Alagh is a case in point. The former Britannia managing director and CEO, who was credited for spurring growth, developed differences with Nusli in 2002. Alagh indicated he would not renew his contract in February 2004, but Wadia did not allow a smooth exit and had the board sack him in June 2003. To take matters further, audit firm C.C. Choksi & Co. was appointed to investigate Alagh’s alleged financial irregularities. The report pinned down Alagh for questionable expenses like throwing parties and going on foreign jaunts at company expense; and estimated he owed the company Rs 1.02 crore, less than Alagh’s annual salary.

Then it was Mehar Karan Singh’s turn. Singh served as CEO of Bombay Dyeing Realty during 2005-08 and was the force behind the mill owners’ legal battle to redevelop their Mumbai land. After he fell out with the Wadias in 2008, Singh was not only terminated from the company, but civil and criminal cases were filed against him for leaking company plans to competitors and for moonlighting for a rival firm. Singh is still fighting these cases in court.

 
THE AGE OF FLYING LOW
A futuristic film on catastrophic climate changes, made in 2009 by UK producer Franny Armstrong, features Jeh Wadia in his real life role as GoAir founder. In the movie, The Age Of Stupid, Jeh outlines the vision for his airline: making air travel accessible to all. Started in 2005, GoAir has been a plodder, expanding from a 5 per cent market share to 8.5 per cent. But “we are not into market share, we are into profitability,” says Jeh. The airline has a small fleet of 13 Airbus aircraft and largely flies on the Delhi-Mumbai and North-east routes. GoAir made a profit of Rs 30 crore in the June quarter ahead of Jet Airways’ Rs 24 crore. Jeh says FY11 was a profitable year, too, but conceded the airline, hit by high ATF prices, was in the red in FY12, but on a fairly impressive turnover of Rs 2,500 crore.

Jeh says his business plan is like running a ‘marathon’. Even after seven years of operation, GoAir has not gone for rapid expansion unlike IndiGo and Jet which cashed in on the crash of Air India and Kingfisher. He expects the scene to change from 2015. “If we expand now, we would have to take the old Airbus classic aircraft. Instead, we have ordered 72 Airbus A320 planes (for $7.2 billion) that are fuel efficient. They will join our fleet starting 2016.” Saving on fuel will improve his margins. But the airline is struggling with a Rs 900 crore debt in addition to accumulated losses — numbers Jeh can hardly ignore.

A former senior HR functionary at Bombay Dyeing estimates around 50 senior personnel had left the company after one or two years. These included S.K. Gupta, executive director of the textiles division, as well as Adiraj Sarin who served as managing director of the textiles division. “The brain drain has cost the company crores of rupees,” says the HR functionary.

Many of the disputes with these professional heads were over business plans. One, for example, related to the sale of a Bombay Dyeing commercial building to Axis Bank. Commercial property is not normally sold, as these can be leveraged to earn high rental income. One business plan that was abandoned targeted an annual income of Rs 1,200 crore from commercial rentals. The scramble for the sale, a former Bombay Dyeing senior executive disclosed, was to raise funds for paying for the Danone stake in Britannia. Jeh skirts the issue: “That was all before my time.”

The Wadias are not oblivious to these problems. “We have got too involved in operations,” concedes Ness. “As promoters, we must come out of day-to-day operations. The question is: how do we optimise? We have a huge knowledge bank in each of our companies. We are looking for synergy across the group. We are looking to consolidate operations, to professionalise leadership,” he adds. Good thoughts. But how much of it will see the light of day?

gurbir(dot)singh(at)abp(dot)in

(This story was published in Businessworld Issue Dated 05-11-2012)