Eveready plans to revamp tea business, could be spun off into a subsidiary
Eveready has authorized MD Amritanshu Khaitan to revamp the tea business to take on market leaders Hindustan Unilever and Tata Global Beverages
Kolkata: Battery maker Eveready Industries India Ltd on Monday said its board has approved a plan to restructure the company’s packet tea business, which could be spun off into a separate subsidiary in future.
The company said in a regulatory filing that its board had authorized its managing director Amritanshu Khaitan to evaluate all possible ways of strengthening the packet tea business, which in fiscal 2016 clocked Rs72 crore in revenue.
“While the packet tea business will continue to leverage (Eveready’s) widespread distribution network, we shall examine all other options (such as) induction of a strategic partner,” Khaitan said in a statement.
Eveready’s shares on Monday rose 2.34% to Rs253.65 on BSE, while the benchmark Sensex closed 192.83 points up at 28,661.58.
Post-restructuring, “the standalone remaining business will represent only the Eveready-branded product verticals”, the company added in its statement. The management expects the restructuring to be concluded in a few months.
Mint had reported on 3 March 2016 that Eveready was looking to restructure its packet tea business to realise its true potential in the Rs10,000 crore market for branded tea, which is dominated by Hindustan Unilever Ltd and Tata Global Beverages Ltd.
These two companies are estimated to control about 40% of the market by volume, according to a key official at Eveready, who asked not to be identified. Eveready’s aim is to scale up its packet tea business to be the third biggest in India, he added.
For almost a year, the Williamson Magor group, promoter of Eveready, has been weighing how it could leverage its “deep understanding” of the tea business, being the controlling shareholder in McLeod Russel India Ltd—the world’s biggest tea plantation company.
One of the possibilities being considered is to align Eveready’s packet tea business with McLeod Russel’s operations, according to the unnamed official cited above. For the plantation company, it will create a sales channel with higher margin.
Packet tea yields a margin of around 15% even for small regional players, which is higher than tea sold as a commodity, this person added.
Eveready’s management is of the view that the packet tea business needs an investment of Rs10-15 crore a year for the next few years for scaling up. At the same time, Eveready isn’t too keen to infuse funds into the business from the cash flow of battery, flash lights and home appliances, the official said.
However, Eveready is willing to lend its distribution network for expansion of sales of packet tea—the company reaches over one million retail outlets directly and at least 3.5 million more indirectly, he added. Once the packet tea business is carved out, it will look to acquire more brands, the market being fragmented with over 1,000 brands. Currently, Eveready has only two brands of packet tea: Tez and Premium Gold.