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Indian tea companies in acquisition mode
Having recovered after a
prolonged period of recession,
the Indian tea industry
is now in the acquisition
mode. Most of the major companies
and even some of the
smaller ones think that this is
a good opportunity to acquire
a garden - within the country
or outside.
India is the largest producer
and consumer of black tea
in the world. However, now it
is becoming clear that neither
would it be possible to increase
the acreage under tea
cultivation nor bring any
quantum leap in the production
of this agro-commodity
which is among India's top
foreign exchange earner,
without a change in the ageold
technology and introduction
of mechanisation.
Labour shortage
Labour shortage is already
an acute problem in the South
and the estates in the North
too have begun to face shortage
of skilled hands with increased
migration of the
younger workforce. Thus, acquisition
of gardens assumes
importance.
According to McLeod Russel
India Ltd (MRIL), which is
billed as the largest producer
of bulk tea, with an output of
74.8 million kg in 2008-09,
the company is looking at not
only increasing the acreage of
the Phu Ben Tea company in
Vietnam which it bought
from a Belgian owner in
March 2009 but also at making
fresh buys. Phu Ben produces
around 4.5 million kg of
tea out of its three factories in
Vietnam. An MRIL board
member said that while at
present 2,000 hectares were
with the company, the government
had been moved
for an additional 1,000 hectares
of tea-land.
MRIL has, of course, been
on an acquisition spree for sometime
now. It made no less
than four acquisitions, including
Phu Ben, and is hungry
for more. Beginning with
the acquisition of Williamson
Tea Assam's 17 gardens from
Borelli Tea in 2005, it went
on to purchase Doomdooma
Tea from the erstwhile Hindustan
Lever in 2006, before
sipping up Moran Tea. All the
gardens are in Assam where
MRIL has a major presence
with 47 gardens. It made the
acquisitions at a time when a
lot of companies, mostly trading
outfits, sought to either
withdraw from the plantation
sector altogether or at least
de-risk their business
through formation of joint
ventures. Within Vietnam the
B. M. Khaitan group company
is now looking for fresh opportunities
and in this case it
has the advantage of an earlystarter.
Now another big tea company
B. K. Birla-controlled
Jayshree Tea Industries Ltd
has said that it was keen to
make acquisition, with the
grand old man himself saying
that Vietnam and Uganda
were the countries of choice.
It was learnt subsequently
that preliminary level talks
have already begun with a
company in Uganda.
Funding
With improved industry
status, acquisitions are now
being funded through a mix of
debt and internal accruals as
against the earlier debt route,
which dented the bottomline
of many companies. Companies
like Jayshree Tea prefer
their internal accruals and reserves
to fund buyouts.
It may be noted here that in
the world tea scene, Vietnam's
progress is seen as remarkable.
Since 2001, while
its average tea production increased
by 11.5 per cent, it has
been exporting increasing
portions of tea and currently
about 75 per cent of its output
is exported. Uganda is seen as
another success story though
its political situation may
throw up a case for concern.
Prices look up
The Indian tea industry
had seen major changes in its
operation during the last decade
pressured as it was by the
unprecedented crisis due to
over-supply on the one hand
and a prolonged period of low
price realisations on the other.
Prices, depressed since
1999, have begun to look up
since 2007 and have been on
an upswing.
This coupled with the fact
that after a long while a consumption
growth is evident in
most Asian countries, particularly
China, India, Pakistan,
Iran and the Russian Federation,
has created buoyancy
in the tea industry.
However, although there
are a sizable number of sick
gardens in West Bengal, very
few companies seem to be interested
in acquiring such
properties, even when they go
scouting for acquisitions.
"The size of their labour
force, the legal complications
and their liabilities do not
make them worth the effort,"
said the senior executive.
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Consumption growth, evident in most Asian countries, has created buoyancy in the tea industry
RECOVERY PHASE: A worker plucks tea leaves in the Dagapur tea garden on the outskirts of Siliguri