Kolkata: The world’s biggest tea producer, McLeod Russel India Ltd, on Wednesday announced it had concluded a deal to acquire from a British firm six tea estates in Uganda, which have a combined production capacity of 15 million kg a year, for $30 million (Rs140.5 crore).
At least two other leading Indian tea companies, including BK Birla group’s Jay Shree Tea and Industries Ltd, had bid for the gardens, which until now were owned by James Finlay Ltd, a 259-year-old plantation firm headquartered in London.
Expansion plans: McLeod Russel managing director Aditya Khaitan. Indranil Bhoumik/Mint
The acquisition raises McLeod Russel’s total production capacity to 96 million kg a year. This is the firm’s second acquisition of tea estates in Africa—its first was in Rwanda in August, but the deal has since been cancelled by the Rwandan authorities.
On Wednesday, McLeod Russel said in a notice to stock exchanges that it was expecting to complete the acquisition of James Finlay (Uganda) Ltd by 15 January. McLeod Russel’s wholly owned subsidiary Borelli Tea Holdings Ltd would be paying $25 million for the shares of James Finlay (Uganda). Borelli would also repay a $5 million loan taken by the gardens in Uganda from James Finlay group.
McLeod Russel’s shares ended 1.5% higher at Rs261.10 apiece on the Bombay Stock Exchange on Wednesday, while the bourse’s benchmark Sensex index gained 3.2% to close at 17,231 points. The company announced the acquisition after the Indian stock markets had closed.
McLeod Russel’s managing director Aditya Khaitan said his company had worked on this acquisition for the past 18 months. “We always wanted these gardens,” he said.
The combined production capacity of the six gardens could be expanded to 20 million kg over the next five years, according to Khaitan. The six gardens together have around 3,500 ha under cultivation. There are five tea processing factories in all; one more might have to be added, he said.
In 2008, the gardens earned a combined revenue of $24 million and a net profit of $5 million. In 2009, they were expected to post a net profit of $7 million on revenue of $30 million.
“McLeod Russel has paid around Rs94 a kg or one-year sales of the gardens, which is a great price,” said a tea industry official, who did not want to be identified.
“Typically, in India, the price you pay is twice the annual sales of a garden because Indian tea is more expensive,” he added. “Though African tea is worse, anything less than Rs100 a kg is a great bargain.”
McLeod Russel has estimated production cost of the gardens in Uganda at $1.15 (Rs54) per kg, whereas in India, it is Rs80-100 per kg. “The cost of production in Uganda is low because the yield of the gardens is very high and labour is not as expensive as in India,” Khaitan said.