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McLeod Russel to trim plantations, outsource tea from small growers

McLeod Russel to trim plantations, outsource tea from small growers

AUGUST 9 2018

 

Following in the footsteps of HLL and Tata Tea, the world’s largest tea producer McLeod Russel is looking to trim its plantation portfolio.

 

The lost production will be replaced by leaves outsourced from small tea growers. The 2,055-crore turnover (consolidated) company, in a joint venture with group entity Eveready Industries, has also launched a parallel effort to enhance the packet tea business from barely 4 million kgs.

 

“We want to be asset-light and focus more on the branded-tea sector,” Aditya Khaitan, Vice-Chairman and MD, McLeod Russel, told newspersons after the company’s AGM on Thursday.

 

Till March 2018, McLeod was producing 67 mkg of tea from 52 gardens (it produces an additional 30 mkg in Africa and Vietnam). This was topped by 20 mkg of tea outsourced from small growers.

 

In June, the company inked agreements to sell 12 gardens, producing 14 mkg. While the sale is yet to be implemented, Khaitan said the production loss would be compensated by raising outsourcing. The contribution of outsourced teas in total sales will jump from roughly 27 per cent to 46 per cent. That’s not all. McLeod is looking to sell more gardens. “It is getting difficult to improve the profitability of certain gardens. We are in the process of identifying such assets,” Khaitan said.

 

The move should help McLeod to make its balance-sheet cleaner. The sale of 12 gardens, if approved, will help the company to pare its debt from 1,000 crore to 200-300 crore.

 

The headroom can be utilised in the packet tea business, Khaitan said. The company currently sells Tez and Jaago packet tea brands in Uttar Pradesh and Madhya Pradesh. Khaitan said, the company will would consolidate its position in its existing markets before exploring entering diversification into other States. “In the next one or two months we are likely to firm up a strategy for our packet tea business,” he added.

 

In an interaction with BusinessLine earlier, Amritanshu Khaitan, MD, Eveready, said that plans were afoot to scale up the sale of packet tea business to 10 mkg in the next three-to-four years.

 

Q1 net up

 

For the quarter ended June 30, 2018, McLeod posted a net profit of 1.51 crore on a standalone basis, as against a net loss of 1.66 crore in the same period last year. The average selling price was up by 15.70 to 184.05 a kg during the period.

 

Source:https://www.thehindubusinessline.com

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