Deal, to be finalised in a month, will help make the business vertical profitable
Kolkata-based Eveready Industries is in talks with the world’s largest tea producer and its group company, McLeod Russel to form a joint venture to grow its packet tea sales volume from the current 4,000 tonne to 10,000 tonne over the next 3-4 years.
This move, according to Eveready Industries’ managing director, Amritanshu Khaitan, would help make this business vertical profitable.
“The finer points of this joint venture are yet to be worked out. Initially, we will form a subsidiary for the tea business and then form a special purpose vehicle to turn it into a joint venture. We’ll come to an arrangement in a month’s time,” he said.
Khaitan is yet to narrow down over the shareholding pattern in the subsidiary and decide if it will be an asset amalgamation or an outright transfer.
“The idea is to leverage on the expertise on McLeod Russel’s immense experience in tea and market it using our distribution channel”, he said.
McLeod Russel currently holds 2.29 per cent direct stake in Eveready Industries while the latter doesn’t hold direct stakes in the former.
Asked if Eveready will now be sourcing tea from McLeod Russel, which will imply a rise in prices, Khaitan said, “If McLeod Russel is able to get better prices in the auctions than selling it to Eveready, we’ll procure the tea from other sources”. McLeod Russel’s tea is priced higher than the industry average.
However, the tea producer has a wide portfolio of gardens ranging from premium tea to economy ones.
In case the tea business is hived off as a subsidiary entity, the new entity will have a starting turnover of Rs. 80 crore. However, the paid up capital for this entity is yet to be finalised.
The packet tea segment, covering the Tez, Jaago, and Premium Gold brands, account for five per cent of the company’s annual sales. Currently, these brands account for anywhere between 1-5 per cent of the tea market across geographies in India.
McLeod Russel’s net loss in the quarter ended March 31 2017 narrowed down by 8.4 per cent at Rs 107.83 crore as compared to the loss of Rs 117.77 crore in the fourth quarter of the last fiscal year while its net revenue during the fourth quarter (Q4) of 2016-17 soared by 13.19 per cent at Rs 353.62 crore. Its topline in the Q4 period of 2015-16 stood at Rs 312.42 crore.