Nusli Wadia	Jeh Wadia	Ness Wadia

From shipping to aviation, from creating low-cost housing to real estate development as we know it today, the temptation to look for parallels between the contemporary Rs 6,157-crore Wadia group and the origins of the family, which history books trace back to a family of shipbuilders in Surat in the mid-1700s, is irresistible. Indeed, as far as contribution to community and country on the economic and industrial front go, the Wadias have been there, and done it all-shipbuilding, construction (of roads, dams, bridges and buildings), trading, textiles, healthcare and even a wireless service in the 1920s. As it currently stands, the Wadia group, with Nusli Wadia as Chairman, dabbles in a range of distinctly old-economy businesses like chemicals, petrochemicals, plantations and textiles, led by flagship Bombay Dyeing and five other listed companies. But even as this mini-conglomerate of yesteryears threatens to become an anachronism in today's entrepreneurial-led environment of consumer-led growth, a hushed but far-reaching transformation has begun, led in no small measure by the Chairman's sons, Ness (36) and Jeh (34) Wadia. The most visible manifestations of that metamorphosis are the launch of a low-cost airline and plans to develop around 35 acres of land for commercial, residential and retail use in Mumbai's Dadar area alone. But the transformation under way-which also includes forays into various retail formats and possibly an entry into financial services, possible exits from a few of the low-value creating traditional businesses and a spanking new corporate office over 26 acres in a 110 year-old mill compound-goes much beyond the business portfolio. The change is of mindsets, which today are driven less by emotion and more by opportunities at hand. As Ness, Joint Managing Director, Bombay Dyeing, puts it, the group is in consolidation mode. "We are evaluating our current businesses, reinvigorating some of them and there is an option of selling some of them. You will see a lot of this happening over the next three-five years." The chairman sums it up succinctly when he says: "This is a good time for the company."

It hasn't exactly been that way for almost a decade now. A look at the group's financials bears this out. Total income is virtually where it was in 1996-97, at Rs 1,144 crore, and net profits have crawled from Rs 35.7 crore to Rs 61.34 crore last year. Profit growth has been erratic, to say the least-Rs 26.56 crore in 2004-05, Rs 53.50 crore in 2003-04, Rs 32.31 crore in 2002-03, a loss of Rs 29 crore before that...not exactly a performance that would have shareholders raving. That the promoters didn't meet equity analysts and fund managers-they still don't-didn't inspire confidence amongst investors. Flagship Bombay Dyeing's primary business, DMT (di-methyl terephthalate), an intermediate used in the manufacure of petrochemicals, was fast losing out to more cost-effective substitutes like PTA (purified terephthalic acid), and the Bombay Dyeing brand itself was being steamrolled by newer competition. "Bombay Dyeing did reach a take-off stage but did not capitalise on that. Earlier, it was much easier to create a brand since there was not too much of brand clutter. Things are very different today and I think it will be a very tough battle for Bombay Dyeing to reinvent itself," thinks Harish Bijoor, CEO, Harish Bijoor Consults Inc.

BRITANNIA'S BAKING POWER

Say cheese: Britannia's Bali When Nusli Wadia bought into Britannia Industries in 1993- Associated Biscuits, a company jointly owned by Wadia and Group Danone of France, has a 50.96 per cent stake in the foods major-it marked the Wadia group's first major shift away from its traditional manufacturing-oriented portfolio. Wadia remains upbeat after all these years. At Britannia's recent shareholder meeting, he pointed out that biscuits-Britannia's main product-account for roughly 12 per cent of the Rs 60,000 crore fast-moving consumer goods (FMCG) industry. "It provides a vast opportunity for growth as its per capita consumption is less than 2.1 kg in India compared to 10 kg in the US, the UK and other European countries and over 4.25 kg in South East Asian countries," he told shareholders. "Over the last 10 years, the company has performed consistently. With the industry on an upswing, there are more opportunities," explains Vinita Bali, Managing Director. Britannia closed the year ended March 2006 with total revenues of Rs 1,817.9 crore against Rs 1,615.4 crore the previous year. The fact that Britannia exists in segments where the threat from the unorganised industry is large, has not gone unnoticed by its management. "The challenge for biscuits comes from rising costs and a localised industry," states Bali. The company has an overall share of 32 per cent in a market growing at 11-12 per cent annually. Britannia recently acquired a strategic stake in Daily Bread, a Bangalore-based specialty manufacturer and retailer of premium quality bakery products. According to Anagram Stock Broking's Head of Research, V.K. Sharma, the FMCG sector overall looks to be in good health. "The categories where Britannia exists will continue to grow given that overall levels of consumption in these categories has been on the increase. Besides, affordability in these segments is a big incentive," he says. Bali is optimistic about the dairy business. "It is growing nicely and we have introduced cheese variants like mozzarella and also a high-aroma ghee. These will be the building blocks in the business," she says. The next five years, according to Bali, will be about demonstrating acceleration in growth and managing costs. Wadia will approve.

Bijoor may be right, but that isn't stopping the Wadias from doing exactly that. The big difference, though, is that the group is reinventing itself, but not so much from the textiles brand point of view. Rather, it's the very land on which the mills that turned out those reams of cloth were built that spells a huge opportunity for Bombay Dyeing. And it's the sheer value of this land-estimated at Rs 6,000 crore at today's prices-that opens up possibilities. Not only can the land be developed for commercial and residential use, it allows for forays into retail. What's more, even though Bombay Dyeing's net worth is a none too impressive Rs 465 crore-down from Rs 684 crore in 1996-97-the Wadias can leverage their land holdings to raise funds for acquisition of aircraft for the low-cost airline business.

Astronomical Values

It's up to the two Wadia siblings to pull off the new ventures. Jeh heads GoAir and is also on the board of group company Britannia Industries, which entered the Wadia fold in 1993. Ness oversees real estate (which includes retail) as well as the traditional businesses of chemicals and textiles (Ness is reportedly tipped to take over as Managing Director of Bombay Dyeing). Among the most talked about businesses-thanks largely to the legal tangles surrounding it-has been real estate. Bombay Dyeing owns large tracts of mill land in central Mumbai. Following the directive by the courts, which in one stroke allowed mill owners to develop their lands, central Mumbai has been the buzz of activity with deals of astronomical values being struck apart from serious real estate activity waiting to unfold. Bombay Dyeing's property is split across two mills-Spring Mills in Dadar and the Textile Mills in Worli; the real estate in Dadar is the first one to be developed.

"The biggest challenge for all low-cost carriers is the rapid conversion of train and Volvo passengers to air" Raj Halve Chief Commercial Officer/GoAir

The Dadar property covers an area of a little over 40 acres. "Eventually, we will have about 30-35 acres at our disposal," says Ness. "When we say real estate, we are looking at covering three verticals-real estate, shopping centres and retail. Real estate, on its own, will consist of residential apartments, commercial establishments like offices, hotels and schools, to name a few." Shopping centres will in the first phase span an area of half-a-million square feet which, according to Ness, is scheduled for completion by mid-2008. "We will have another half-a-million square feet in the second phase," he adds. Bombay Dyeing, quite significantly, is not completely shut to the prospect of spinning off this potentially lucrative business into a separate company altogether. Analysts reveal that the 35-acre property, even by the most conservative estimates, has the potential to generate Rs 3,000 crore. The residential apartments in Spring Mills will be sold at a base price of Rs 10,000 per square foot. "The prices in that part of the city have almost doubled. It does look as if the boom in central Mumbai will last for a while," thinks Pranay Vakil, Chairman, Knight Frank, a Mumbai-based real estate consultancy.

Like most other big business houses in the country, the opportunity in retail has caught the fancy of the Wadia Group as well. Even by the most conservative estimates, organised retail in India accounts for barely 3 per cent of the total retail market. The size of that 3 per cent in value terms is barely Rs 30,000 crore. "We will look at formats like hypermarkets. We are also looking at tie-ups with big brands like Tommy Hilfiger and Gucci. While we may not cover the entire sector, we will look at covering very strategic parts of it," says Ness. Importantly, the Wadias aren't looking to just cash in on their real estate bounty-most of the developed land will be leased, not sold. "It only makes sense since we will have a steady flow of income through rent. Why should we give up this property altogether?" rationalises Chairman Nusli. He adds that an area like "mall management" is something that Bombay Dyeing is looking at closely. The Wadias also reveal their real estate development plans will not be restricted only to Mumbai, but will cover other cities as well, where land will be acquired, either in partnerships or consortia.

The Low-cost Gambit

The real estate foray may appear to appeal to just the cream of Mumbai society, but Ness insists that low-cost housing will also be the group's focus. And retail in any case is a business that is capable of appealing to the country's entire population-just like the other big-bang venture of the Wadias, low-cost aviation. Launched last November, GoAir, according to Managing Director Jeh Wadia, has a model that is a combination of Ryan Air, South West Airlines and EasyJet. "There is a huge market out there for low cost airlines. In 2004, for instance, six million people bought close to 15 million seats while in 2005, 8-9 million people bought close to 21 million seats. Compare this to the Railways, where there are 15 million people who travel every day, and you can gauge the huge potential," says Jeh.

NUSLI WADIA SLEEPS WELL AT NIGHT

On a roll: Nusli Wadia At 62, Nusli N. Wadia has had more than an eventful life. A lot of people who have known him at some level or the other might say he is quite different from what he was in the 80s and to some extent the 90s too. A large part of that period was characterised by the feud with Dhirubhai Ambani which came to be famously known as the "The Great Polyester War". Wadia's circle of close friends in the business community is small, and includes Tata Group Chairman, Ratan Tata, and Mahindra & Mahindra Chairman, Keshub Mahindra, both of whom sit on the board of the Wadia group flagship company, Bombay Dyeing. Wadia, in turn, is on the board of three Tata group companies-Tata Steel, Tata Motors and Tata Chemicals. "He has very few friends and in spite of his low profile nature is among the most well-connected businessmen in corporate India," says a corporate chieftain. Six years younger than Tata, Wadia, till recently, it is learnt, was "one of the few men" who could smoke inside Bombay House, the Tata Group's headquarters in Mumbai. Wadia has now given up smoking-Dunhill and Davidoff were his brands. When Wadia makes the news, it rarely has something to do with his businesses. For instance, when Rupert Murdoch's Media Content and Communication Services-the company that operates the Star News channel-was forced to reduce its shareholding in line with the government's directive, there were well-known names who were in the fray. Wadia was one of them. His political affiliations with the BJP are quite well-known and he is said to enjoy a close rapport with L.K. Advani. With his sons getting more comfortable running the group with every passing day, Wadia's level of involvement on a day-to-day basis has understandably reduced. That has not made him any less aware of where the group needs his presence, the mill land issue being a case in point. When this correspondent asked Wadia recently what business-related issue was a key challenge, he said it was the rising crude prices. On being asked if that was what kept him awake at night, he merely smiled and said, "Oh, not at all. I sleep very well at night."

Apart from GoAir, others jostling in the low-cost space include Air Deccan and SpiceJet. Worryingly, the low-cost model in India is a misnomer, as the costs are high, only fares are low. Result? Bleeding balance sheets. Jeh acknowledges the challenges, but he's focussed on the long-term opportunity. "The biggest challenge for all low-cost carriers is the rapid conversion of train and Volvo passengers to air. The time-economy and value for money offering are plus points and even a 5 per cent shift would lead to an explosion in demand," says GoAir's Chief Commercial Officer, Raj Halve. Jeh, himself, has some interesting targets for GoAir by the end of the first year of operations-early November 2006. "We are looking to clock a revenue of Rs 600 crore and having one million passengers at the end of the first year. We also want to be ebitda positive at the end of the first year and we should be a profitable operation by the end of the second or the third year," he states. What makes these targets achievable is the pace at which GoAir has been expanding. By October, GoAir will have eight aircraft (it has four now) which will be up to about 18 by the end of October 2007. "By October 2008, we will have 33 aircraft," says Jeh. G.R. Gopinath, Managing Director, Deccan Aviation, points out that the low-cost model may face a few difficulties initially, but has no doubt that the model is scalable. "It takes time for the change in the consumer's mindset. We need more players as that is the only way the market will grow. The question is one of getting the middle class to spend, which may take four-five years, but it will happen," he maintains.

Till then, some out-of-the-box thinking will help companies like GoAir stay afloat. "I have gone to a company in Europe (for leasing aircraft) whose high season is May-October, which is my low season. Again, my high season, which is October-May, is his low season. This means, I can flood the market with capacity in my high season and send my aircraft to Europe in my low season," points out Jeh. According to Halve, low-cost carriers have a cost structure that is 30-35 per cent lower than that of other legacy carriers. "Once the government allows outsourcing of ground handling, security and other services, this could increase to 60-65 per cent as it is worldwide," he adds. For now, GoAir is completely funded by the Wadia family, though a public offering can't be ruled out. Jeh thinks that over the next two-three years, GoAir will look at various equity and debt options. "An IPO is possible, but we will do it only when we think the time is right. We are in no hurry."

Even as the Wadia scions go about changing the face of the group with two new ventures-and blueprint entries into other sunrise businesses like financial services-they have to confront the baggage of the past. And take some hard decisions. A beginning was made when Citurgia, a maker of biochemicals, was closed down. Britannia's dairy-producing business too was hived off a few years ago. "We want to reduce the number of businesses since we need to have more synergies within our existing businesses," says Ness. Jigar Shah, Head (Research), K.R. Choksey Securities, is clear that if investors are looking closely at Bombay Dyeing, it's for just one reason. "It remains one of the largest property owners and anybody investing in Bombay Dyeing will be investing in a real estate story," he explains. Much of the rest may have to go. For a family that's been constantly reinventing itself since the 1700s, that may not be as difficult a task as it seems.