Tatas plan to restructure loss-making tea plantation business in Assam, West Bengal
The Tatas are looking at restructuring the loss-making tea plantation operations of the group located in Assam and West Bengal.
The move comes at a time when tea growing is turning highly risky and largely money-losing proposition.
It is also in line with the overall strategy of Tata group head N Chandrasekaran of turning all of the Tata empire lean and profitable.
“Three consecutive years of adverse results makes it imperative that goals and deliverables get reprioritised and we dedicate our focus based on the emerging realities…We are seriously looking at all options of financial and operational restructuring,” Ranjit Barthakur, chairman of Amalgamated Plantations Pvt Ltd, told the private shareholders consisting mostly of estate workers who collectively own a minority stake in the company.
The business is being carried out by the demerged estate business of Tata Global Beverages.
The Tatas, which, on an aggregate basis controls majority 65% of Amalgamated Plantations Pvt Ltd are now open to the financial and operational restructuring of the tea estates in Assam and West Bengal.
Tata Tea’s demerged plantation business in Assam and West Bengal is in dire stress mainly due to the inherent weakness of corporatised plantations in the face of growing breed of low-cost small growers.
Cutting costs wherever possible is one key area, Barthakur said.
“With the recent refinancing of long-term debt, APPL’s debt-repayment obligations are expected to significantly reduce in the medium term,” rating agency Icra had highlighted recently, adding that ratings were constrained by deterioration in APPL’s financial profile, with the company reporting operating losses during FY17 on the back of increasing costs and a decline in weighted average realisation of teas sold.
Greater sourcing of leaves from small tea growers for “critical input material supply” has now been identified by the management as one of the other focus areas for Amalgamated Plantations, in which listed entity Tata Global Beverages hold a little over 41% stake.
“As we all know, the purchase leaf business is akin to trading operations. Overall, it is fairly profitable and allows a company to spread its overhead costs across a higher volume base, by filling up under-utilisations of own capacities,” Barthakur said.
APPL has raised bought leaf procurement from outside by as much as 17% to 15.48 million kg in FY17 from 13.23 million kg in the preceding year.
While regulated planters like APPL or McLeod Russel have to burden fixed costs like regulated wages, ration and housing for workers, small growers decide their own costs.
“The world over, small tea growers STGs and bought-leaf factories are successful as low-cost producers. To compete with these mainly proprietary operators and remain profitable, we as corporates have to consistently recalibrate our operating strategies and cost bases. The reason is simple, the dynamics affecting us, are quite onerous when compared to the compliances and obligations of the small tea growers,” he said.
- Its demerged plantation business in Assam and West Bengal is in dire stress
- This is due to the inherent weakness of corporatised plantations