The growing mismatch between Go First's losses and other group companies’ profits was making it tough for the group to fund the losses of the airline venture.
The mounting losses at Go Airlines (Go First) were financially unsustainable for the Mumbai-based Nusli Wadia group.
In 2021-2022, for the first time, the net loss of the air carrier exceeded the combined net profit of listed firms in the group.
Go First reported a net loss of Rs 1,804 crore (Rs 18.04 billion) in FY22.
In comparison, the group's four listed companies -- Britannia Industries, Bombay Dyeing, Bombay Burmah Trading Corporation and National Peroxide -- together reported a combined net profit of Rs 1,305 crore (Rs 13.05 billion).
As a result, the five key group firms together reported a net loss of Rs 499 crore (Rs 4.99 billion) in FY22, against a net profit of Rs 506 crore (Rs 5.06 billion) a year earlier.
In fact, the continued losses at Go Airlines had also started to hurt the balance sheets of group companies.
In FY22, accumulated losses at Go First exceeded the combined net worth of other group firms.
The airline's accumulated losses ballooned to Rs 4,416 crore (Rs 44.16 billion) by the end of FY22 and it reported a negative net worth of Rs 3,323 crore (Rs 33.23 billion) at the end of that financial year.
In comparison, the four listed companies of the group had a combined net worth of Rs 2,949 crore (Rs 29.49 billion) at the end of FY22.
According to analysts, the growing mismatch between Go First's losses and other group companies' profits was making it tough for the group to fund the losses of the airline venture.
The Go Airlines balance sheet suggests that the promoters infused fresh equity capital worth Rs 847 crore (Rs 8.47 billion) in the airline during FY22.
The promoters also pumped fresh equity capital worth Rs 97 crore (Rs 970 million) into the airline during FY20.
The growing losses at the air carrier and the deterioration in its balance sheet were making it tough for the Nusli Wadia group to sustain this cross-subsidy.
On Tuesday, May 2, 2023, Go First cancelled all its flights and stopped taking new flight bookings, citing a severe cash crunch.
The airline also filed an application for voluntary insolvency resolution proceeding before the National Company Law Tribunal.
Besides Go First, the Wadia group's financial position has been weakened by losses at Bombay Dyeing -- once the flagship company and one of the top textile manufacturers in the country.
The company reported a loss before taxes for the fourth consecutive year, including in the first nine months of FY23.
This pushed its net worth into negative territory for the first time in FY21 and its accumulated losses continue to mount.
The company reported a net loss of Rs 270.6 crore (Rs 2.706 billion) during the first nine months of FY23.
Similarly, Bombay Burmah Trading -- the group's main holding company -- also reported a net loss during the first nine months of FY23 both on consolidated and standalone bases.
The company holds a promoter stake in the group's listed and unlisted firms.
This has made the Wadia group highly dependent on profits and equity dividend from Britannia Industries to fund the group operations.
The company has paid large special equity dividends for three consecutive years, including in FY23, funded through a mix of fresh borrowings, liquidation of its cash & equivalents, and current profits.
The company paid a special interim dividend of Rs 1,734 crore (Rs 17.34 billion) for FY23 compared to a final equity dividend of Rs 1,361 crore (Rs 13.61 billion) in FY22.
In comparison, the company reported a net profit of Rs 1,763 crore (Rs 17.36 billion) in M9FY23.
It will be tough for Britannia to maintain such a high payout ratio without curtailing its own growth plans, which will be even worse for the financial future of the Wadia group.