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Tea barons in battle for four Uganda gardens

Tea barons in battle for four Uganda gardens

Kolkata: The Birla and Khaitan families of Kolkata—two of India’s oldest and biggest players in the tea business—are competing with each other to acquire four tea gardens in Uganda from a British firm, according to an official of the Tea Board of India, the industry regulator.

BK Birla group’s Jay Shree Tea and Industries Ltd and B.M. Khaitan-controlled McLeod Russel India Ltd are vying for the gardens, which have a combined production capacity of six million kg a year, said the Tea Board official, who declined to be identified because of the sensitivity of the matter.

What makes the battle interesting is the fact that McLeod Russel’s chairman B.M. Khaitan is a director of Jay Shree Tea as well.

“We haven’t seen such a battle before," said a director of Jay Shree Tea, who, too, declined to be named. “The matter was discussed at a board meeting recently… Neither Mr Khaitan nor Mr (B.K.) Birla is willing to back out."

B.K. Birla is the chairman of Jay Shree Tea.

Jay Shree Tea managing director D.P. Maheshwari said his company was looking at acquisition possibilities in Uganda, but refused to offer any further comment.

McLeod Russel refused to comment on this story.

The gardens could fetch a valuation of up to Rs90 crore, according to the Tea Board official. “The going rate for gardens in Uganda is Rs100-150 a kg," he said, adding that the six gardens have around 3,000 ha under cultivation. Tea is cultivated on around 2,000 ha; the rest is used for the cultivation of eucalyptus.

Both McLeod Russel and Jay Shree Tea have said in the past that they were keen to expand in Africa. In August, McLeod Russel acquired a 75% equity interest in Olyana Holdings Llc, a US firm, which bought from the Rwandan government a 60% stake in a tea estate. McLeod paid $2.75 million (Rs12.7 crore today) for its stake in Olyana.

If Jay Shree Tea manages to snap up the gardens in Uganda, that would be its first acquisition outside India. Currently, it has 22 gardens, spread across Tamil Nadu, Assam and West Bengal, and produces 22-23 million kg of tea a year. In fiscal 2009, Jay Shree Tea posted a net profit of Rs13.88 crore on net sales of Rs441 crore.

Jay Shree Tea’s shares fell 4.5% to Rs337.20 on the Bombay Stock Exchange (BSE) on Thursday, while the bourse’s key index, the Sensex, ended 2% lower at 16,854.93 points.

McLeod Russel, the biggest tea company in the world, produces at least 80 million kg of tea a year from its gardens in Assam, West Bengal and Vietnam. In the year till March, the company posted a net profit of Rs85.64 crore on a turnover of Rs855.77 crore.

The company’s shares closed 5.33% lower at Rs258.40 each on BSE on Thursday.

“Kenyan gardens are widely regarded as the best in Africa, but because there’s nothing available there, people are looking to buy gardens in other countries such as Uganda and Ethiopia," said the Tea Board official.

The cost of production in Uganda is around $1, or Rs46.30, a kg, whereas in India it is around Rs70, according to him. Also, the average yield of African gardens is significantly higher than those in India.

“In Uganda, for instance, the annual yield is 2,500-3,000kg (of tea) per hectare, whereas in India, it is 1,800-2,000kg," the official added.

Companies such as Kanan Devan Hills Plantations Co. Pvt. Ltd (KDHP), to which Tata Tea Ltd sold its plantations in Kerala in 2005, and Dhunseri Tea and Industries Ltd are also looking to enter Africa.

Though KDHP refused to comment, Mehreteab Mulugeta, an official at the Ethiopian embassy in New Delhi, said the company would soon sign an agreement with the Ethiopian government to secure on lease 10,000-12,000ha on which it would start cultivating tea. “The land would be leased out for 50 years, and initially the company would take only 2,000ha," he added.

C.K. Dhanuka, Dhunseri Tea’s chairman and MD, said: “A deal fell through, but we are still looking to enter Africa."


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