The many shades of the Nusli Wadia Group

In the past five years, three of the four businesses—Bombay Dyeing, Bombay Burmah and National Peroxide—have averaged negative returns, of 10-22% a year, while the broad market has risen at an average 12%. Over a 10-year period, the share performance of these three companies is better, which points to things getting tougher in recent years. In the last five years, their revenue growth has been tepid, profits have evaporated and borrowings have increased. Like Go Airlines, these three companies are either helmed by a Wadia in an executive capacity or are seen to have their large presence associated with them.

 

The one sweet spot in the Wadia Group is food products company Britannia Industries. Wadia acquired Britannia via a hostile takeover in the early-1990s, in partnership with France’s Danone, with whom it subsequently parted ways. Britannia has been consistently helmed by strong industry professionals, notably Vinita Bali and Varun Berry. It stands out in many ways from other Wadia Group companies—from growth to governance, from optics to branding, from reputation to returns.

Food for Thought

In the Wadia Group’s listed bouquet, Britannia leads on growth in both revenues and profits, consistency and shareholder returns. In the last five years, Britannia has grown revenues at an average of 10.7% a year and net profit at 17.7%. In the past 10 years, the Britannia stock has even outperformed its leading multinational rivals, Hindustan Unilever and Nestle India. While HUL and Nestle have averaged shareholder returns of 18% per year in this period, Britannia has delivered a smashing 34%.

On a smaller revenue base, Britannia has grown faster, entered new product segments, burnished the mother brand and built sub-brands like Good Day and 50-50. Yet, it commands a lower valuation. For example, Britannia’s latest annual revenues almost match that of Nestle ( ₹15,839 crore versus ₹16,997 crore). Yet, its market capitalization is almost half that of Nestle ( ₹1.1 trillion versus ₹2.1 trillion). One reason is pedigree. In its construct, Britannia exhibits independence and professionalism, but remains tagged to the Wadia name.

The Wadia flagship Bombay Dyeing is an example of a company that was once a corporate leader, competing against Reliance Industries in polyester and textiles, and building a brand of repute. Bombay Dyeing persisted in those domains, but tapered. Subsequently, in the pursuit of growth, it branched out into real estate. In 2021-22, it drew about 77% of its revenues from polyester, 22% from real estate and 1% from retail and textiles. A considerable amount of debt on its books is secured by its land holdings. Go Airlines was the third big business, but today it lies grounded and awaits a rescue.

Debt Overhang

As of 5 May, the collective market capitalization of the four listed Wadia group companies was ₹1.2 trillion, 92% of it coming from Britannia.

Given the group owns a majority stake in all four companies, it had scope to dilute its shareholding, even offload assets from an asset-rich company like Bombay Dyeing, to funnel in additional capital into Go Airlines. But going by their record of majority shareholding, that’s something they are likely to be loath to do.

The Wadias say they have invested ₹6,500 crore into the beleaguered airline since inception.

By admitting Go Airlines to a bankruptcy forum, the Wadias are essentially saying they won’t invest more in the current scheme of things and want concessions from lenders to keep the airline going. Go Air reportedly owes lenders ₹6,500 crore, a significant increase from its borrowings of ₹1,794 crore in March 2018.

It’s not just Go Air. Even the other four companies have seen their debt levels increase by significant levels. Take flagship Bombay Dyeing, whose borrowings as of March 2022 stood at ₹4,442 crore—nearly double that from five years ago. The Wadias had filed for a ₹940 crore rights issue on 13 October 2022, of which, ₹850 crore was earmarked to repay debt. That issue is yet to materialize.

On 22 October 2022, the capital market regulator banned Nusli Wadia, his sons and Bombay Dyeing, among others, from the capital market on charges of misrepresenting financials of Bombay Dyeing, though without incurring a monetary gain. That charge was stayed by an appellate tribunal.

As Nusli Wadia manoeuvres with Go Airlines, these are histories that will be remembered.

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