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Business News/ Companies / Eveready looks to spin off tea unit, work with McLeod Russel
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Eveready looks to spin off tea unit, work with McLeod Russel

The Williamson Magor group-controlled firms aim to scale up their packet tea business to take the No. 3 spot

Eveready MD Amritanshu Khaitan says Williamson Magor group sees an opportunity in India’s fragmented packet tea market. Photo: Indranil Bhoumik/MintPremium
Eveready MD Amritanshu Khaitan says Williamson Magor group sees an opportunity in India’s fragmented packet tea market. Photo: Indranil Bhoumik/Mint

After several rounds of restructuring, battery maker Eveready Industries India Ltd is looking to spin off its packet tea business into a separate unit and scale it up by aligning its operations with that of the promoter group’s plantation company, McLeod Russel India Ltd.

The 10,000 crore packet tea market in India is dominated by Hindustan Unilever Ltd and Tata Global Beverages Ltd, with a combined market share of around 40% by value. Williamson Magor group-controlled Eveready and McLeod Russel aim to scale up their packet tea business to become the third largest in India.

The group recently hired Sangeeta Talwar, former executive director of Tata Global Beverages, as a consultant to advise it on scaling up Eveready’s packet tea business, which currently generates around 80 crore in annual revenue.

Eveready is weighing “various options" to grow its packet tea business, said managing director Amritanshu Khaitan. “For greater traction from within and outside the group, our packet tea business could go through some restructuring."

The packet tea market in India is fragmented, with over 1,000 brands, so the Williamson Magor group, which is the world’s largest producer of tea, sees in it an opportunity to emerge as a leader, according to Khaitan. “Till now, we have not done much to seize this opportunity," he said.

“It will take time, but I fully support their objective to establish themselves as the No. 3 national player," Talwar said in a phone interview.

The plan to align Eveready’s packet tea business with McLeod Russel’s plantations may appear to be counter-intuitive in the light of what Hindustan Unilever and Tata Global Beverage did with their gardens. Both divested themselves of their plantations because commodity cycles had opposite effects on the two businesses.

When tea prices went up, the packet tea business suffered, and when they were depressed, the plantations became a headache. Eventually, both companies chose to focus on marketing tea.

But at the Williamson Magor group, the situation is “very different". The Khaitan family is trying to “strategically leverage" the strengths of their two key companies: McLeod Russel’s “deep knowledge of tea" and Eveready’s “robust distribution channel", according to Talwar.

The packet tea business is also likely to benefit from McLeod Russel’s cash flow, according to a key official at the plantation company, who did not wish to be identified. The company already has plantations across the world and is scouting for opportunities to invest for the long term, this person said.

“So why not build a consumer franchise in tea—a business we understand?" he asked.

Returns from packet tea business are healthy—estimated conservatively at 15% even for regional players by an industry expert who asked not to be named. So, looking at long-term returns, it makes more sense for McLeod Russel to invest into packet tea than to put money away in treasury, he added.

If the business is scaled up, McLeod Russel will have the opportunity to sell some of its produce through this channel at a better price, according to the industry expert. Its realization for a part of its produce will improve substantially, he said. “Still, it is going to be a very different cup of tea... but an interesting gamble."

Because it is a low-entry-cost business flooded with a lot of strong regional players, it will take Eveready at least five years to establish itself as the third largest national brand, according to Talwar. “It will have to consistently invest to build a brand franchise on a differentiated platform," she added.

Though plans have not been firmed up yet, it is expected that Eveready will invest around 15-20 crore a year to build its brands, according to officials at the Williamson Magor group.

But the key to scaling up the business will be the optimal utilization of Eveready’s strong distribution channel. It has direct access to some one million retail outlets and indirect access to around 3.5 million more across the country.

Internally, the Williamson Magor group is of the view that Eveready’s distribution network can support a much greater throughput than only batteries and flashlights. So, Eveready is aggressively looking to expand its portfolio of product offerings.

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Published: 03 Mar 2016, 01:15 AM IST
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