Kolkata: All Wadia Group firms, or those controlled by Nusli Neville Wadia and his family, are to pay from the current financial year up to 0.25% of their consolidated revenue as royalty to Nowrosjee Wadia and Sons Ltd—one of the key holding companies of the founders—for the goodwill they enjoy for being part of the group with “investors and the media”.
The key listed firms of the group are biscuit maker Britannia Industries Ltd, plantations company Bombay Burmah Trading Corp. Ltd, textile manufacturer Bombay Dyeing and Manufacturing Co. and chemical producer National Peroxide Ltd, which together earned Rs 13,772 crore in revenue in fiscal 2012.
Brand equity: Nusli Wadia, Wadia group chairman. In the current year, Wadia group firms pay only 0.1% of revenue as royalty. Photo: Indranil Bhoumik/Mint
The group has substantial interests in real estate, airlines and healthcare through unlisted firms.
In the current year, though, Britannia and all other group companies are to pay only 0.1% of their revenue as royalty for goodwill, according to Vinita Bali, the biscuit maker’s managing director. Under the agreement—Wadia brand equity and business promotion and shared services agreement—the royalty could be scaled up to 0.25%, according to group chairman Nusli Wadia.
Had the arrangement been in force last year, Nowrosjee Wadia and Sons would have received at least Rs 13.8 crore in royalty. At 0.25% of revenue, this would have been Rs 34.5 crore. This does not, however, take into account the royalty that would have been paid by the unlisted firms—their latest financial reports aren’t immediately available.
The arrangement is similar to ones in force at other leading corporate groups, according to Bali. However, she admitted that the brand equity of Nowrosjee Wadia and Sons was of little relevance to large sections of consumers. For instance, in rural markets, she said, consumers wouldn’t even relate Tiger, a key biscuit brand, with Britannia, let alone with the holding company of the group named after one of its founders.
V. Srinivasan, an analyst at Angel Broking Ltd, agreed. “I don’t think this arrangement is in the best interest of Britannia or the other group companies,” Srinivasan said. Britannia, for instance, doesn’t need the goodwill of its promoter group to sell biscuits—it is on its own a very strong brand, he added.
Nowrosjee Wadia and Sons’ brand equity is well appreciated by “investors and the media”, which refer to firms such as Britannia and Bombay Dyeing as Wadia group companies, Bali said. Besides, these firms are also going to pay up to 0.25% of their revenue, based on usage, for shared services received from the group in various areas of common interest such as legal, finance, information technology, risk and treasury management, according to Nusli Wadia.
The arrangement will result in substantial savings for the firms, according to Bali, because it caps the amount that they could pay to the group’s holding arms. Firms such as Britannia receive services from the promoters’ holding companies even now, paying a “significantly higher” fee. “We have only formalized the practice of using shared services by making it more transparent,” she said.
Meanwhile, Britannia reported a 4% rise in profit for the June quarter, even as sales rose 11%, as the company spent more money on advertising and promoting its products. Net profit rose to Rs 43.5 crore from Rs 41.8 crore, a year ago. Net sales increased to Rs 1,221.6 crore from Rs 1,103 crore. Advertising and sales promotion expenses jumped as much as 20% to Rs 98.7 crore in the first quarter.
“Their ad spend went up sharply because they did these product launches. It’s in line with the industry really. Parle is spending huge amounts, ITC also spent big (on promotions),” Anand Rathi Securities analyst Shirish Pardeshi said.
The company’s shares fell 3% to close at Rs 459.70 on Monday on BSE. The benchmark Sensex rose 1.3% to 17412.96 points.
Mihir Dalal in Bangalore contributed to this story.