Mumbai: Biscuit maker Britannia Industries Ltd, Go Airlines (India) Ltd and other Wadia Group companies plan to pay their 276-year-old parent a royalty to use its name in an arrangement modelled on the one that the house of Tatas has in place.
The plan was outlined in the annual report of Britannia Industries released on Monday that said a formal structure has been created under Nowrosjee Wadia and Sons (NWS) to serve the common interests of all group firms and enable them to share their resources.
The Wadia Group’s presence is spread across sectors, including food (Britannia), garments and furnishings (Bombay Dyeing and Manufacturing Co. Ltd), plantations (Bombay Burmah Trading Corp. Ltd), chemicals (Citurgia Biochemicals Ltd and National Peroxide Ltd), realty (Bombay Realty) and aviation (Go Air).
It would be the first time the diverse businesses would be tapping common resources and using the Wadia name. Paying a royalty in return is rare in India.
“It is a common practice for a group of companies under one umbrella to use common services and have the costs defrayed and paid by the various group companies,” said Sunil K. Alagh, founder and chairman of SKA Advisors, a consultancy firm for consumer goods, and a former chief executive of Britannia Industries.
“However for royalty agreements, good corporate governance practices should allow for flexibility of using the name. Chief executives should be allowed to decide whether using a particular name brings value to the company, and accordingly use it and agree to pay for it,” Alagh said
The Wadia Group, with Nusli Wadia as chairman, traces its roots back to 1736, when Loeji Nusserwanjee Wadia set up a marine construction company that built ships for the British. In 1879, it set up Bombay Dyeing and diversified into other businesses over the subsequent decades.
The units of the Wadia Group employ people in such specialized areas as law, finance, information technology, treasury, taxation, human resources, procurement and risk management.
“With a view to maximizing the efficiency and effectiveness of these specialized resources, a formal structure has been created under Nowrosjee Wadia and Sons,” said the Britannia Industries annual report. “The combined skills, knowledge and expertise of this structure will benefit all the group companies availing of this arrangement.”
To formalize the structure, the Britannia board approved an agreement between the company and NWS for a “Wadia Brand Equity and Business Promotion and Shared Services Scheme”, it said.
Britannia’s public relations company Madison Public Relations did not respond to queries sent by Mint.
Some analysts are sceptical about the benefits that the group companies will derive from using the Wadia name, given that brand equity is difficult to measure and that most Wadia Group companies are corporate entities in their own right and not associated with the promoter family.
“There needs to be a stakeholder discussion on what the underlying business benefit will be from use of the group name,” said Avinash Gupta, leader (financial advisory) at Deloitte Touche Tohmatsu India Pvt. Ltd.
To the average customer, it may not matter. A customer buying a pack of Good Day biscuits outside the Dadar railway station in Mumbai said she wasn’t aware that Britannia was a Wadia Group company or of the other businesses in which the family had a presence.
“I like these biscuits,” said Jyoti Sharma, who also likes other Britannia biscuits such as Bourbon, but which she didn’t associate with the promoter family.
The Tata group, which includes Tata Steel Ltd, India’s No. 1 software services company Tata Consultancy Services Ltd and the country’s largest auto maker Tata Motors Ltd, also charges group companies a royalty for use of the Tata brand name.
Other family-controlled businesses such as the Aditya Birla Group, whose companies include UltraTech Cement Ltd and Hindalco Industries Ltd, and the Mahindra Group that controls companies such as auto maker Mahindra and Mahindra Ltd and Mahindra Satyam, have no such royalty arrangement in place.
“This will set a precedent for other family-run businesses to follow,” said Anand Ramanathan, associate director at KPMG Advisory Services Pvt. Ltd.