The nearly one- year-old simmering row between private equity major Actis and the original promoter Mudaliar family at the Nilgiri Dairy Farm has been resolved along expected lines.

As part of the truce, Actis will tweak Nilgiris' business model agreeing to "moral voice" from the founding family. The aim will be to "proliferate the brand in a profitable manner," said a source directly familiar with the matter.  

The family's current head Prabhu Ramachandran will play a more active role in the management committee, but there will be no change in the shareholding pattern with Actis holding 65% stake leaving the rest with the original promoters. Also, Actis will not oppose moves by the family members foraying into the food business.

In 2006, Actis bought controlling stake in Nilgiri Dairy Farm, which operates retail stores under Nilgiris brand, from the family.

Nilgiris' will return to its small store model with future expansion plans focused on stores that are less than 1,000 sqft in size. In the recent past, the installed professional management at Niligiris has embarked on developing a network of superstores that were anywhere between 2,000-3,000 sqft. A certain pruning of these loss-making stores are already happening.

Secondly, Nilgiris will bolster its private label play in bakery and dairy businesses, which has been its core strength. Again, in recent times, Nilgiris went after the superstore model of banking on FMCG industry discounts (levering on scale) to drive revenue and margins. Actis-led management had in between toyed with the option of divesting the bakery unit but did not make much progress on it.

Finally, Nilgiris may also kiss good bye to its high cost management style going forward in line with the philosophy that "capital is scarce and its judicious spent is needed for near-term value creation".

"Actis and the original promoters of Nilgiris have resolved their differences and have decided to invest together to grow the business. As both groups will invest further, no change is expected in

shareholding structure. Both shareholder groups are focused  on growing the Nilgiris  retail network further and in developing the much loved range of private label products," said JM Trivedi, Partner and Actis South Asia MD, in an emailed response to VCCircle's queries. 

In recent weeks, the family agreed to withdraw a petition before the CLB challenging the Actis sponsored Rs 35 crore rights issue. But the peace deal has been brewing for a while as reported by VCCircle in March. In a recent conversation Actis South Asia MD JM Trivedi told VCCircle that he was confident that the dispute will be resolved and the rights issue will go through. He had said that Actis was keen on getting along with its partner and was in communication.

The dispute resolution also reflects the fact that both Actis as well as the Mudaliar family were left with little option otherwise. The family's attempt to buyback Actis stake through high cost debt financing from serial investor C Sivasankaran did not materialise, as they were counselled against it.

Niligiris will continue with its expansion plans now, with the near-term target being 200 stores. One source said the network has over 90 stores after factoring the pruning of operations at present.

Nilgiri Dairy's net loss jumped to Rs 22.16 crore in FY09 compared to Rs 3.14 crore and Rs 31 lakh profit in the two immediately preceding fiscals. The total income for FY08 and FY07 was Rs 128 crore and Rs 105 crore, with net sales at Rs 119 crore and Rs 102 crore respectively. The net sales for FY09 stood at Rs 134 crore, but the total income increased to Rs 196 crore due to a sudden increase in other income.

In 2006, the family had sold a little above 65% stake to Actis for just under Rs 300 crore, and retained the remaining shares. Actis has been running the firm with a professional management, which incidentally has come under fire from some of the family members for widening losses.

The dispute between Actis and the Mudaliar family shareholders was going on a range of matters starting from the sale of company's hotel properties and a rights issue, which are now being heard by the CLB. The simmering trouble between Nilgiri shareholders boiled over when the company's board of directors approved a Rs 35 crore rights issue proposed by the management under Actis in November 2009.

While Actis planned to pump in more money for future expansion, some shareholders of the founding family opposed this issue. The shareholders of the original promoter group said the company cannot proceed with an issue without agreeing on a valuation. This issue was dragged on to the CLB of Chennai.

Another major issue between Actis and the original promoter group has been the sale of the company's hotel properties to Sabari Hotels. While the original promoter thinks this money should be distributed to shareholders in form of dividends, Actis intended to invest these further into the expansion of the retail business.

UK-based Actis, along with Singapore's GIC Special Investments, acquired the stake in Nilgiri Dairy Farm, the back-end firm of the retail operations, to circumvent the FDI restrictions. The Nilgiri owned stores were spun-off as franchisees before Actis took over the company in 2006.


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