The Wadia Group has embarked on a complex restructuring exercise in an attempt to separate its real estate and retail businesses and, later, attract a foreign partner for the retail business.
A spokesperson for Bombay Dyeing & Manufacturing Co. Ltd confirmed that the company would focus on its existing businesses of textiles and polyester, and the new businesses of real estate, including the development of shopping centres. A new unlisted company, headed by Ness Wadia, will look after the Wadia Group’s foray into organized retail.
According to analysts who did not wish to be identified, the move is prompted by two reasons: to prevent an apparent conflict of interest because Bombay Dyeing plans to develop retail spaces and had it stuck to its original plan, the company would have ended up competing with the very retailers to whom it was leasing or selling space; and to make it easy for the company to rope in a foreign partner for its organized retail business.
The analysts said a partner might not like the idea of taking a stake in Bombay Dyeing whose fortunes are primarily dependent on textiles retailing (through 600 stores across India) and the sale of dimethyl terepthalate, a key raw material used in the manufacture of polyester.
The retail division that employs a core team of 20 is currently part of the real estate strategic business unit. Apart from being spun off into a new company, the division is being split into two: a luxury division that has a core team of 10 employees in addition to the organized retail team.
A senior executive at the group, who did not wish to be identified, said that licensing agreements for launching several luxury brands in India had already been signed and would be made public at an appropriate time.
Earlier, the Aditya Birla Group, too, had announced that an unlisted entity, Aditya Birla Retail would spearhead its retail business.
After the restructuring of Bombay Dyeing, the company will focus its efforts on three businesses: textiles, polyester (yarn manufacturing) and real estate. The real estate strategic business unit (SBU), currently headed by Ness Wadia, joint managing director of Bombay Dyeing, has also spawned a new SBU focusing on development of shopping centres.
This will focus on development of prime retail estate that will be used partly by the Wadia Group’s retail business as well as other retailers.
The real estate division owns 4.3 million sq. ft of land, spread over two mills in central Mumbai, which will be used to develop apartments, hotels, shopping centres and convention centres. The company had earlier decided that it would develop this land and lease out the developments rather than sell it.
Motilal Oswal Securities, a Mumbai-based brokerage, estimates that the leasing option will benefit the company through healthy yields (a stream of regular lease income) and potential appreciation of its prime real estate.
The Wadia Group is also looking to develop properties outside its mills. Along with Larsen & Toubro Ltd, it has won a bid to develop housing societies for the middle-income group in the prime suburb of Bandra (east) in Mumbai.
Any effort by the group to develop land outside its mills will require significant investment in land acquisition, and competition with established builders such as Hiranandani Constructions and the K. Raheja Group in western India. DLF Ltd and Emaar MGF have also entered this region, and the Tata Group and Godrej Properties are also foraying into real estate.