Fortune 500 India: The Godrej split

BE IT BIRTHDAYS, anniversaries or festivals, the vast Godrej family has always celebrated together. Patriarch Adi Godrej, younger brother Nadir and cousin Jamshyd get along like a house on fire. They have even cancelled important meetings for their lunch meet every Thursday. Even Smita Crishna (Jamshyd’s sister) and her husband, Vijay, rarely miss the lunch, which has been a family ritual for decades. The venue of the lunch (invariably a delectable Parsi meal) has always been the GILAC (Godrej Industries and Associated Companies) side of the group’s Vikhroli campus, as the Godrej & Boyce (G&B) side does not serve non-vegetarian food, says a close family associate. The growing differences among families never came in the way of meetings and celebrations. But now, the 124-year-old Godrej Group is on the verge of a split.

Though murmurs of the Adi Godrej faction (which owns GILAC) and the Jamshyd Godrej faction (which owns G&B) not seeing eye-to-eye have been doing the rounds for close to a decade, the family never made it apparent. The Adi Godrej faction includes his three children — Tanya, Nisaba and Pirojsha — apart from brother Nadir Godrej. The Jamshyd Godrej group includes Smita and Vijay Crishna, and their daughter Nyrika Holkar. So, what went wrong?

First signs of a rift came when next generation of Adi and Jamshyd families started missing the Thursday lunch meets frequently. Even if the cousins made it, there would be uncomfortable conversations among the members of the new generation. The bone of contention — the 3,400 acres land the family owns in Vikhroli. Of this, 3,000 acres, on books of Jamshyd’s G&B, has a development potential of over ₹1 lakh crore. The group can develop 1,000 acres here. About 1,750 acres is covered with mangroves and hosts rare plants and birds. About 300 acres has been encroached. The fight is evidently about who will own the ₹20,000-crore land parcel.

The senior-most Godrej tried his best to avoid the split for as long as he could. “Now, Adi himself wants an amicable separation,” says a close friend of the family. It is a tough task. Complex shareholding rules out easy solutions.

The Ownership Web

The separation will involve disentangling of cross-holdings. Five families in third generation — Adi, Nadir, Jamshyd, Smita and Rishad (son of Adi’s uncle Dosa) — hold roughly 20% each in holding company G&B and individual-listed companies in their names as well as through trusts. G&B has a wide manufacturing portfolio — from locks and cupboards to air-conditioners and rocket launchers — controlled by Jamshyd. Nyrika has been driving G&B ever since Jamshyd’s son Navroze moved out in 2018.

On the other side, Adi is at the helm of GILAC — it includes listed entities Godrej Industries Ltd. (GIL) as holding company, Godrej Consumer Prod- ucts (GCPL), Godrej Agrovet (GAL) and GPL. Nadir, aligned with his elder brother Adi, is in charge of GIL and GAL. Nisaba and Pirojsha chair boards of GCPL and GPL, respectively. GILAC companies — valued at ₹1.88 lakh crore in the stock market — are major assets of the group.

The five families have been transferring their shares into trusts part by part since 2019 to simplify separation. But the process is far from over. One reason is bitterness over ownership of the land parcel. But that is not the only reason.

Conflicting Priorities

While land is the obvious trigger for split, the next generation has a point of view on performance of the group at large. Adi’s heir apparent, son Pirojsha and daughter Nisaba, have always believed that they should have an upper hand as their businesses have created more value in the last decade, compared with Jamshyd’s side of the business, says a confidant of the Godrej family. The siblings, says the family associate, are on top of the separation process.

There is some truth to their reasoning. Nisaba, after all, has delivered exponential growth at GCPL, which has increased consolidated revenue and profit more than five times to ₹11,028 crore and ₹1,720 crore, respectively, in the last 11 years. Real estate major GPL has grown from ₹40 crore in 2004, when Pirojsha joined, to ₹764 crore. Though it made losses in last financial year, it had earned around ₹200 crore profits in previous three years. GCPL is valued at ₹94,500 crore in the stock market, while GPL is at ₹61,770 core. In comparison, G&B’s consolidated profit fell from ₹662.59 crore in FY2015 to ₹79.78 crore in FY2021. Jamshyd is grooming Nyrika as a successor. She heads mergers & acquisitions, legal, digital and brand & communications. “Nyrika is spearheading digital transformation and has a mind of her own,” says a G&B insider. Nyrika led two acquisitions of Yuba and Ecolair, a global supplier of highly engineered products and technologies.

However, these numbers do not tell the complete story. The GILAC side may have the most valuable businesses, but G&B has new-age consumer- facing businesses such as Interio and Godrej Security Solutions, which are doing well. The company has entered into interesting partnerships such as the one with Indian Railways to develop a universal coach assembly station. It recently partnered with DRDO to make oxygen generators. “Nyrika is taking a lead in these projects,” says the company insider.

The Godrej group, it now seems, will be divided into two. Adi and Nadir on one side, and Jamshyd and Smita on the other. According to sources, shares of Rishad will be inherited by others in equal proportion as he doesn’t have a family. “When new generation takes over, some spot new opportunities, which others may not agree with. That’s when the demand for autonomy comes up,” says Rohit Sarin, Founder, Client Associates — a family-business consulting firm.

But there are many issues that have to be settled before the two become separate legal entities. The biggest is the ambitions of the young generation.

Growth Aspirations

Aspiration drives the fourth-generation Godrejs. Thirteen years ago, Tanya, the third child of Adi Godrej, who is also the chief brand officer, came up with a rebranding initiative to change the conservative nature of the group. The design language of Godrej changed with a colourful and vibrant Godrej logo. In 2011, Adi’s children came up with a blueprint for the 10x10 strategy — to grow group turnover 10 times to ₹1.5 lakh crore by March 2021. Adi said they plan to grow faster in initial years at around 26% to build a base. They also planned inorganic expansion in last five years of the plan, especially for GCPL. However, Jamshyd was silent about the strategy; his lead men were not keen to pursue the target.

The outcome fell way short of the target. In March 2021, the turnover of the five companies was ₹37,534 crore, one-fourth the target. In FY2020, it was ₹42,045 crore. Group companies individually failed to achieve targets.

One reason could be absence of buy-in from the G&B side. A senior G&B executive says the plan was dropped three-four years after the announce-ment. Another executive had said earlier that 10x10 was a group-wide direction for businesses to determine investments and strategic focus for the coming decade. The G&B board had a view that a one-size-fits-all approach could not work for its diverse businesses. So, it pursued separate growth targets for each business, he said.

Parting Ways – Give & Take

Jamshyd has roped in investment banker Nimesh Kampani and Zia Mody of AZB & Partners to advise on the separation process. Uday Kotak and Cyril Shroff of legal firm Cyril Amarchand Mangaldas are helping Adi. The Godrejs want to conclude the split without noise. “The discussion about separation started seven-eight years back. Adi did not want it to be a dirty affair with court-room battles,” says a lawyer in the know.

Adi Godrej is a family man. He led the group to present levels but shared credit with others in the family, says a person close to him. The brothers and cousins in the third generation share a lot of love and respect. They are not greedy and even ready to bury their differences. “Both sides will leave a little here and there for an amicable settlement. The family is so professional and congenial,” says a senior executive.

Still, deciding who gets what will not be easy. At present, managements of G&B and GILAC are separate, with huge difference in level of aggression in value creation between the two. “More value creation has happened on the GILAC side in last 10-15 years. Since the ownership is joint, the benefit will be shared, though it was Adi’s children who drove the transformation,” says a lawyer.

A division at today’s valuations will be a big loss for Adi’s family. The joint market capitalisation of companies in GILAC is ₹1.88 lakh crore. G&B’s net worth is ₹10,169 crore. The 1,000 acres in Vikhroli in which the family’s five branches hold around 20% each is valued at ₹20,000 crore at present rates.

One saving grace is that Adi and Nadir will jointly own their businesses, says a source. Similarly, Smita is not expected to separate her businesses from Jamshyd’s. Rishad is expected to hold shares in both factions. If ownership of businesses is transferred to families which run them today, the division will be eventless. But in that case, Jamshyd will demand more from the Vikhroli land. It will affect future development plans for Pirojsha’s GPL, which has already built Adi’s corporate headquarters, ‘Godrej One’, on the land. Sources say Pirojsha has majorly benefited from the land parcel.

Next-gen Takes Over

Adi Godrej, who steered the Godrej business for six decades, doesn’t want to interfere in division discussions as it is against his ideal of family unity, says a source. It was because of his hesitation to talk about succession and separation that the Godrejs formed a family business board (FBB) in 2010 with independent directors Keki Dadiseth (ex-Unilever India chairman), Naushad Forbes (Forbes Marshall) and Pradip Shah (Co-founder of ratings agency Crisil).

FBB was short-lived. Today, Pirojsha represents the GILAC side in separa- tion discussions. The youngest sibling has the backing of sisters Tanya and Nisaba. Nadir and his children — Burjis (heads special projects at Godrej Agrovet) and Sohrab (GIL) — are siding with him.

Jamshyd is also not forthcoming in fighting for assets, says a lawyer. In the absence of his son, he is grooming his niece Nyrika Holkar, who is Executive Director of G&B, to take over. She is a qualified lawyer, who earlier worked with Zia Mody’s AZB & Partners. “Jamshyd would be consulting her on most separation issues as she is expected to get the mandate of leading G&B,” says a source.

A source says there will not be any role like Godrej group chairman. Adi Godrej has been often referred as group chairman. “There is no designa- tion as Godrej group chairman. There is no legal entity called the Godrej group,” says an executive with G&B.

Adi’s side will see the rise of Pirojsha, who is the final word in finance and acquisitions across GILAC group companies, post the split. “He has a strong financial sense of what helps in value creation,” says the insider.

But what about the Godrej brand, which many consider the most impor- tant asset?

Continuing the Godrej Legacy

The Godrej family is at a crossroad. While it works out the details of the split, it also needs to prevent erosion of the Godrej brand value. Since the major rift is over ownership of its land parcel, and not so much about conflicting ideas, Unni Krishnan, Founder, Longwealth, believes that the battle over land has taken the family’s focus away from purpose, philosophy, heritage and culture. “The family seems to have failed to unleash its scarce capital, heritage. Had they grasped the nuance of scarce capital, the Godrej Group would have been a $20-billion entity, half the size of the Tatas. Unfortunately, they are busy fighting over a piece of land and, as a result, the cake isn’t as big as it could have been.”

Krishnan believes that things such as culture and heritage cannot be divided like tangible assets and says while the senior-most Godrej under- stood the importance of scarce capital, others did not. “Adi has often said that their focus should be on their intangible bank rather than land. No wonder businesses where he was in the driver’s seat have done better.” Once the division is formalised, Krishnan expects Adi Godrej’s businesses to perform better. “He may pursue the group’s original values and legacy. The split will result in dilution of the Godrej brand and legacy in times to come.”

It is important to institute a robust central and shared brand governance system — a team of representatives from the divided factions — to retain the brand value. “The alleged ownership developments will surely pose challenges for the brand. Technically speaking, a brand’s valuation doesn’t directly get impacted by its ownership pattern, and that may be a saving grace for Godrej. There are examples of brands that have distributed ownership and do well. However, they run the risk of underperforming on factors such as internal direction, alignment and agility, as well as on external aspects of authenticity and coherence,” says Ashish Mishra, Managing Director, Interbrand India. But when business control and brand control are different, the brand may be interpreted differently by various factions, which may impact brand authenticity and coherence, he adds.

Indian family-run businesses, from Bajaj to Hero to Kirlorskar, have a his- tory of brand value depreciation due to absence of a central brand governance system, say brand valuation experts. “When brands are not centrally managed and ownership is splintered, different businesses begin to use it (brand) in their own way, leading to inconsistencies and incoherences. There is a question mark over what the brand stands for, its direction and alignment,” adds Mishra.

Godrej is the 10th most-valued brand (₹16,897 crore), according to Interbrand’s list of Best Indian Brands. The Tata group tops the list with a valuation of ₹78,722 crore. So, which faction of the Godrej family will be able to retain the core value(s) of brand Godrej and keep the flag flying high for time immemorial? Though industry stalwarts bat for the Adi Godrej faction, the Jamshyd Godrej faction, led by Nyrika Holkar, can’t be underestimated either. After all, it is G&B under which most new-age businesses of the Godrej Group are housed.