Kolkata: Tata Global Beverages Ltd (TGBL) is examining ways to deal with the “tough" problem of loss-making tea plantations in which it has invested, Tata group chairman N. Chandrasekaran told shareholders at the company’s annual general meeting on Friday.
Sidestepping questions on whether the company is looking to sell stakes in tea estates, Chandrasekaran said the company will “prune" its portfolio wherever required, and added that the group has no plan of “going back" to running plantations.
Back in 2004-2005, TGBL—then Tata Tea Ltd—decided to divest its tea estates to its workers, starting with those in Kerala’s Munnar district. TGBL continues to own 28.5% in Kanan Devan Hills Plantations Co. Pvt. Ltd in Munnar, while employees of the company own a majority stake. Kanan Devan produces around 22 million kg of tea a year.
A couple of years later, TGBL decided to divest its tea estates in West Bengal and Assam to employees and other financial investors. Amalgamated Plantations Pvt. Ltd, in which TGBL currently owns 41%, came into being in 2007. Amalgamated is one of the biggest producers of tea in India, with annual output of around 40 million kg.
Combined with stakes held by other group companies, the Tata group owns around 65% stake in Amalgamated.
Asked by a shareholder about TGBL’s investments in these companies, Chandrsekaran said: “It’s tough one...We will be taking a call on both plantations."
The value of TGBL’s investments is shown in its annual report as Rs61 crore in Amalgamated and Rs12.33 crore in Kanan Devan. In addition, TGBL has subscribed to Amalgamated preference shares worth Rs50.9 crore. For 2016-17, TGBL’s share of loss in Amalgamated and Kanan Devan stood at Rs15.2 crore and Rs37 lakh, respectively.
It is not surprising that TGBL is looking to exit its plantation investments, said an industry expert and consultant, asking not to be named. When the company decided to withdraw from plantations more than a decade ago, it was clearly stated that the company would, going forward, focus on marketing tea, he added.
But it may be “very difficult" to find a buyer for its substantial stake in Amalgamated, this person said.
“The company is too big," he said, adding that there may be investors for small stand-alone tea estates in Assam, but Amalgamated is a behemoth with around 31,000 workers and 23,092 hectares under lease for cultivation.
Two key Amalgamated executives said the Tata group-controlled enterprise wasn’t immediately looking to sell its plantations. However, at the same time, the company is looking to reduce its dependence on its own plantations, these officials added, asking not to be identified. The company has started two new factories to process leaves grown by small cultivators.
Asked if it was possible for the Tata group to sell its ownership in Amalgamated, one of the officials said: “Every shareholder has a right to decide if he wants to stay invested. If the Tata group decides to exit, there are ways to facilitate it despite Amalgamated being a large producer."