Sunil Alagh, MD, Britannia Industries: A strange exit

Britannia industries without Sunil Alagh at the helm is a bit like the Britannia range of biscuits without flagship brand Tiger. Contributing 40 per cent to the Bangalore-based company's revenues (biscuits make up 85 per cent of Britannia's sales), the Tiger range of course is still very visible in the marketplace, but you won't find Britannia's CEO of 10 years at the company's headquarters for too long. After a 30-year-stint-Alagh joined Britannia in 1974 as Group Product Manager-the public face of the company that Forbes once ranked amongst the 300 best small companies in the world has called it a day. A terse notification to the stock exchanges says it all: "Britannia Industries Ltd has informed BSE that the company has been notified by Mr Sunil Alagh, the Managing Director of the company, that he is not seeking to extend this current contract as Managing Director when it expires on February 2004. The matter would be considered by the Board of Directors at its next meeting to be held in early June 2003."

What Made Alagh Quit

Why would Alagh want to let go of India's most trusted food brand-a brand that he's played a major role in building and growing? After all, if anybody is responsible for Britannia being the undisputed market leader in biscuits, it's its marketing hotshot Alagh, who over the years has successfully repositioned the mother brand with several high-recall advertising campaigns. In recent years, Britannia has been able to show volume growth that's higher than the industry by foraying into the glucose category (with Tiger), and focusing on seven core brands including Good Day, 50-50 and the more recent success, Maska Chaska.

Alagh wasn't available for comment-he's on a month's vacation-but equity analysts tracking the stock point out that the decision hasn't exactly come like a bolt from the blue. "That all was not well within the company was evident from the decision to shift the dairy business into a joint venture with the $4-billion Fonterra of New Zealand. "After all, the $19-billion Danone, the principal promoter, is big in dairy and there is no reason to seek other alliances," reasons Sandeep Neema, an analyst with UTI Securities.

Nusli Wadia, Chairman, Britannia Industries: The controlling hand

If you're wondering what on earth the creation of a JV had to do with Alagh's departure, read on. Britannia watchers reveal that the dairy business was spun off at the behest of Nusli Wadia, who jointly with Danone controls the company. Whilst nobody from the Wadia-Danone group was available for comment (faxes to Wadia and Britannia's Company Secretary Gautam Sarkar remained unanswered), it is learnt that Alagh's functioning style had become a key bone of contention between the promoter and the CEO. Alagh, say observers, was spending a chunk of his time in Mumbai-with his presence adequately captured by the page three paparazzi-thereby giving the promoters the impression that Britannia wasn't getting enough of the Managing Director's attention. That's why Nikhil Sen was appointed coo last year, with a specific mandate to oversee the daily functioning of the company.

What also got Wadia disenchanted with Alagh's decision-making, say analysts, was his call to pay Rs 30 crore for the Kwality biscuit brand and a 49 per cent stake in its manufacturing enterprise. "The deal did give Britannia some leverage in the marketplace, but was hardly of any great significance for the clear leader in the biscuits business. The price may well have been a little too much," says Jigar Shah, FMCG analyst at broking firm K.R. Choksey.

Insiders say it was a deal Alagh pushed for, and neither Danone nor Wadia were too thrilled. In fact, there was plenty of unhappiness brewing all round: Danone didn't take too kindly to Wadia's decision to spin off the dairy business, and Wadia didn't approve of the Kwality deal.

Another reason being proffered for the exit of Alagh is the probable entry of Jeh Wadia, Nusli Wadia's younger son, into Britannia. But the company notice to the BSE has stoutly denied any such moves, although people in the know suggest that it is only a matter of time before Jeh enters the fray at the biscuit major. Elder son Ness has already been anointed Deputy Managing Director of Bombay Dyeing.

Clearly, Wadia has big plans for Britannia, which today for all practical purposes is his flagship company, with much better prospects than his textiles flagship. Last year in a rather curious move, Wadia and Danone decided to transfer their 45.34 holding in Britannia into a joint venture company, with both partners holding an equal stake. Now there's talk that the Wadia-Danone combine will ensure complete control of the company by going over 51 per cent via a share buyback. Alagh, meantime, is rumoured to be headed for Vijay Mallya's UB Group.

Whoever takes over from Alagh will have his task cut out. Indeed, there are a few uncertainties going forward. For one, what will Danone's contribution to Britannia be, considering it also has a 100 per cent subsidiary operating in India, which has a presence in biscuits, mineral water, and fresh dairy products. All new Danone launches could well be routed via this wholly-owned outfit. For another, Britannia has to now contend with increasing competition in biscuits and the bakery segment from FMCG majors like ITC, Nestle and HLL. Niche players like Bakemans and Priya Foods too are getting their act together. Also, one section of analysts isn't too comfortable with Wadia at the helm, particularly the valuation at which he hived off Britannia's dairy business; they feel it could have fetched much more.

Clearly, the Alagh era at Britannia is over, and it remains to be seen what Wadia has in store to ensure that Britannia continues to hold on to its numero uno position in the biscuits market.

-additional reporting by Venkatesha Babu