Kolkata: Tata Global Beverages Ltd is looking to divest its 41% stake in Amalgamated Plantations Pvt. Ltd—India’s second largest producer and supplier of tea with estates in Assam and the Dooars region of West Bengal.

Amalgamated Plantations, which was carved out of the erstwhile Tata Tea Ltd a decade ago, produces around 43 million kg of tea a year, of which 26 million kg is made from its own tea crop. The firm, which has lately been looking to expand sales of packet tea, has 21 estates in Assam and four in Dooars, with over 23,000 hectares under lease and 31,000 employees.

In August, Tata Sons Ltd chairman N. Chandrasekaran had said that Tata Global Beverages was reviewing its investments in plantations. Along with associated firms, Tata group owns around 65% in Amalgamated Plantations. It isn’t clear if the group is scouting for a buyer for the entire stake immediately.

“In line with our stated intentions…Tata Global Beverages continually evaluates its portfolio of businesses in line with its strategy and long term goals," a spokesperson for Tata Global Beverages said in an emailed statement on Thursday. Jagjeet Singh Kandal, managing director of Amalgamated Plantations, declined to comment.

Tata Global Beverages is expecting an enterprise value of around Rs1,300 crore (not adjusted for liabilities) for Amalgamated Plantations, at least three potential investors said, asking not to be named. Tata Global Beverages is currently trying to assess the interest among potential investors—mostly large companies invested in plantations, they added. The going rate for plantations in Assam is around Rs500 per kg of annual production, the people said.

Tata Global Beverages is looking to exit at a time when the tea industry is expecting prices to firm up. However, one key uncertainty is labour compensation. If the centre makes it mandatory to pay minimum wages to plantation workers over and above other benefits provided under the Plantations Labour Act, valuations of the estates on sale will undergo a “sea change", said one of the potential bidders briefed on Tata Global Beverages’s intention to exit.

“The problem is size… not too many companies may be able to afford to buy the Tata group’s stake in Amalgamated Plantations," this person added.

As a stand-alone producer of tea, Amalgamated Plantations is under pressure due to high cost of production. It is looking to expand margins by increasing sales of branded tea, Kandal said in August.

Arun N. Singh, managing director and chief executive of Goodricke Group Ltd, said he was sceptical about investing in tea estates until there was more clarity on labour compensation. Companies complying with the Plantations Labour Act are stressed because of the “huge cost advantage" of unorganized sector producers who do not have to comply, he added.

International Finance Corp. (IFC), a World Bank arm invested in Amalgamated Plantations, had the option of selling 30 million shares to Tata Global Beverages at the end of April last year, but did not exercise it, according to Tata Global Beverages’s annual report.

With investments from IFC, the estates of the erstwhile Tata Tea in Assam and West Bengal were hived off and transferred to Amalgamated Plantations in 2007. It was the first step taken by the Tata Group to withdraw from plantations.

Employees were given equity interest in Amalgamated Plantations as well as in Kanan Devan Hills Plantations Co. Pvt. Ltd—a company launched in 2005 to transfer Tata Tea’s plantations in Munnar. Tata Global Beverages continues to own 28.5% in it.

Last month, Tata Global Beverages concluded an agreement to sell its 31.85% stake in the profit-making Watawala plantations in Sri Lanka for Rs120 crore. Tata Group had acquired a majority stake in the plantations in 1996, but over time, its control got diluted as other investors were brought in.