Monday, March 24, 2008

How Far Can Bombay Dyeing & Wadias GO...

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To some, the Wadia Group may appear to be a Johnny-come-lately, thanks to their delayed entry in sunrise sectors like aviation & retail. But high on its 200 year old heritage, here’s a group that believes: “What’s the point of being pioneers, if you are not around to taste success.”

It had Tough challenges & bigger responsibilitiesbeen pouring relentlessly that entire morning. As we weaved through the traffic and rain-drenched roads on our way to Paperbox House in a western suburb of Mumbai, the rain had reduced to a mere trickle, leaving behind its sticky and sultry after effects. So, the crisp air conditioned environs of his office came as a relief to us; the sweat sliding off our backs. The man seated across the table wore a trendy black T-shirt, projecting his fair skin and handsome features to perfection. Even as he flicked his IBM notepad shut; stubbed his Davidoff in the already overflowing ashtray and swiveled in his chair to face us, he caught sight of a copy of Business & Economy magazine lying on his table. The cover titled ‘360 Degrees of Separation’ had a visual of the two Ambani siblings in a faceoff. Sniggering, he leaned back on his chair. “That will never happen to us Wadias,” he said derisively, his self-satisfied smirk barely lacing his contempt.

Jeh Wadia, Bombay Dyeing vs. Sensex34, Managing Director of Go Air and on the Board of other Wadia Group companies, indeed is only carrying on the legacy of his father Nusli Wadia’s bitter corporate feud with Dhirubhai Ambani, as those who’ve seen the 2007 Bollywood blockbuster Guru will readily testify to. Some would call it the born confidence that only old money can provide. Yet, the fact is that parvenus or not, the Ambanis have raced miles ahead of the Wadias in the corporate Sweepstakes in just one generation. Sample this:

• There was a time when Nusli Wadia controlled Bombay Dyeing sported a prized license to manufacture DMT, a raw material for polyester. That was in the late 1970s and early 1980s. Now, the son of his bitter rival Dhirubhai Ambani, Mukesh controls the second largest petrochemicals operations in the world.

• Once, Bombay Dyeing was a huge textile brand. It is still popular, but fresher and foreign competition has not enabled it to capitalise on the brand value that it once built up.

• Flagship Wadia Company, Britannia, although still boasting the largest market share in its genre, is facing fierce and relentless competition from close rival Parle, as also from ITC (Sunfeast) and Surya Agro (Priya Gold).

• GoAir controls just a minuscule percentage of the booming aviation market, where among private carriers; only Jet and Kingfisher seem to be making all the headlines of late.

Connect the dots and you realize that there’s clearly something strangely laid back about this more than 200 year old business house. Especially the 1990s and the turn of the millennium saw this mini-conglomerate of yesteryears struggling with archaic wisdom in a fast-transforming entrepreneurship led India. But Jeh arguably does not think that way. “We don’t chase paper valuations like market cap and market share. We have heritage and have been around for almost 200 years, and will be around 200 years hence when the upstarts have faded away,” he counters with a smug smile. Confidence or over-confidence, we don’t know, but such is the in-bred confidence of the business house that much to the chagrin of market watchers, the group companies (except Britannia) do not even regularly share information with equity analysts.

The Britannia vs the crème de la crèmebusiness house traces its roots to a family of shipbuilders in Surat in the 1700s; from where the group diversified into a series of businesses to emerge as $738 million entity (only taking into account the turnovers of its listed entities, Bombay Burmah, Bombay Dyeing NPL and Britannia Industries Limited) today. But despite that, it’s undeniable that winds of change that breezed across India Inc. post-liberalisation left the Wadias mostly untouched. “Though they’re are one of the oldest groups of India Inc yet Wadias have been lacking definite strategy for a long time,” argues Jigar Shah, Head (Research) at KR Choksey Securities.

Today, while the fate of its flagship brand Britannia hangs in balance between the Kraft Foods-Danone tug-of-wars (see box), their eminently visible brand Bombay Dyeing (BD) retains only a shadow of its past glory. BD’s core business of DMT (dimethyl terephthalate), an intermediary used for manufacturing petrochemicals, is losing out to substitutes; while the textiles biz is floundering in the face of competition.

Of course, consumers are still using towels, bed sheets and pillow covers made by Bombay Dyeing, and market estimates suggest that the brand still commands a market share of over 36%. But the oomph factor has clearly declined. Gone are those days when the light-eyed Lisa Ray & Karan Kapoor wrapped in BD linen, caused a flutter. Instead, rivals like Welspun, Pantaloon Retail’s MeLa and Home Town, et al, are benefiting via enhanced visibility from their made-formall culture vis-à-vis Bombay Dyeing shops. Not that the attempts to win back the old BD brand recall is non-existent. Advertising budgets have seen a gradual rise over the last few years, new product launches are plenty and plans are afoot for an enhanced retail portfolio. “Competitors are fast capturing the market at the cost of BD, which has been comparatively complacent in its approach,” agrees Siddharth Roy, Executive Director of Response Media.

A look at the financials of Bombay Dyeing tell a similar story. The product- wise revenue/profit break-up of Bombay Dyeing is testimony that the group is losing to other players, which were quick to identify new emerging trends in the sector. Textile, which gave profits of Rs.422 crore in 2004, could manage just Rs. 368 crore in FY07; same was the case with DMT whose revenues fell from Rs.514 crore to a measly Rs.29.62 crore for the same period.

Yet, Chairman Nusli Wadia has all reasons to be smiling arrogantly. His sons have risen to the challenge at an opportune time; and the fasttransforming face of the Wadia Group is manifest in the spring in the gaits of the new-generation Wadia siblings, Ness and Jeh. The entry of young blood into the organization has begun the task of rejuvenating the ailing tiger, prompting a deafening roar to mark its mightiness.

Thanks to the duo, Competition is always there... but the Wadias have been there for too long to be afraid of these thingsa new wave of reorganisation and restructuring has gripped the Wadia Group, notably during the last year and a half. Impressed with Temasek’s ownership and management patterns, Jeh and Ness have gone about systematically implementing a sustainable model to drive future growth of the Wadia Group. “We have put into place processes for corporate development and capital management; and have completely separated ownership from management. The family should focus on running the money, while the professionals should focus on running the business,” affirms Jeh. The change is visibly manifest in the group’s remarkable evolution over the last couple of years. Resolutely stuck to routine old economy businesses like chemicals, petro-chemicals, textiles, plantations, laminates, et al, for years, the Wadias have, of late, exited some non-lucrative businesses, as also begun their tryst with sunshine sectors like aviation and retail. “The junior Wadias are modern businessmen and will have a good future,” observes a market watcher. While Jeh is leading the group’s aviation foray with GoAir, Ness Wadia is giving direction to the group’s proposed retail foray. Both the brothers portend new strategies for the otherwise conservative group.

Like Bombay Dyeing: Break up of ‘Revenue from Operations’his younger brother Jeh, Ness too is a regular in the Page 3 party circuit, and in between partying and dating the Bollywood actor Preity Zinta, he is effectively shouldering the responsibility of utilising the hidden potential of Bombay Dyeing viz. the virtual gold mine of land bank that the Wadia Group is sitting on – about 40 acres in Mumbai’s Dadar district alone – with the total property value assigned between Rs.8,000-10,000 crore. The plan is to develop this real estate for commercial, retail and residential purposes based on the own, develop and operate model (see box).

According to Anukrat Jain of Indus View Advisors, “With Ness and Jeh, the group has got a new strategic intent. Their foray in real estate and retail clearly shows that the earlier vision of an old economy structure is out and the new vision is in. Ness Wadia says that we will move from a close knit family business to an open ended professionally run business. We hope to see that happen.”

The Britannia vs Sensexaviation foray, however, is littered with problems, at least for now. Our observation of the sustainability of the aviation venture, given the killing losses being made by most airliners, brings forth a smug smile from Jeh. “Yeah, I know. And that’s why we’ve restricted our expansion plans (to 35 aircraft by 2011). All my friends and foes (competitors) in the sector are busy buying more planes, while I’ve deferred my growth plans linking them to changes in taxation and policy. What’s the point of being aggressive in growth, if you’re not around till the end?” he asks. He similarly shrugs off the wave of consolidation in the sector, saying that was only for those wishing to strengthen their international routes, unlike GoAir, which is keenly focused on the high-potential domestic market.

Praveen Vetrivel, aviation analyst with the IBA Group believes that GoAir’s wait and see approach to market expansion might be a good thing. “The best case scenario is that the airline will build up a solid experience and brand. And as and when policy changes make expansion favourable, they can further grow their market share without affecting profitability,” he explains. Yet, the downside is that if large airlines survive the next few years of intense competition, they will give tough competition to GoAir. But the worst case scenario for GoAir then would be to pack-up their 4 aircraft fleet operation, which will be no skin off the back of its cash rich promoters.

For now, members of the Wadia clan are aggressively focused on identifying new business areas to take the group to the next level. In the same spirit, they are looking to offload GoAir’s day to day operations to a CEO who would continue reporting to MD, while Jeh himself, has already moved on to the next frontier viz. outsourcing services in the aviation sector with Go Ground, Go Cargo and Go Engineering. For now, airlines cater to most allied services in-house (including ground & cargo services, security, engineering), adding to the airlines’ burden of already heavy costs. “Because government policy does not allow outsourcing of these services, there are no service providers yet. But I’m moving now and once outsourcing is allowed, I will be king,” says the junior Wadia.

“Competition “We are not a headline group. For us, ethics and credibility are more important...” says Jeh Wadiais always there in every sector but Wadias have been there for too long to be afraid of these things,” avers analyst Amir Ullah Khan. An entrepreneurial gusto; pushing for professionalism; dynamic leadership that demands accountability; unemotional severance of ties with non-performing businesses; and daring strides into new commerce avenues, combined with the centuries old business heritage of the Group, give the Wadias lethal ammunition to deal with all problems, real or imaginary. And while they remain a regular family run business like the Tatas, Birlas and Ambanis, fact is that flowing with the tidal changes sweeping the economy, the new generation at Wadias helm is pushing for a cataclysmic change at all levels. The legendry Nusli Wadia may or may not be advising his heir apparents at every level, yet through them, the senior Wadia is finally rekindling the fire in his group that had perhaps lost its way in the labyrinth of liberalisation.

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Source :
IIPM Editorial, 2008

IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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