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In its pursuit of plan to enter the tea retailing business for the first time, McLeod Russel, the world's largest tea producer, will be acquiring an equal stake in Greendale India Ltd, one of the wholly-owned subsidiaries of Eveready Industries India Ltd (EIIL). Both McLeod Russel and EIIL belong to the Williamson Magor Group, controlled by the Khaitan family.
While EIIL had kept its focus on batteries and flashlights, its tea retail division, which owns a few brands, couldn't be used optimally, resulting in the under-utilisation of assets as well as the brand value of the packet tea. The battery major, hence, was on the lookout for a partner which can not only invest in reviving GIL by pumping in capital, but also take the brand forward.
On the other hand, McLeod Russel, another group company, which so far, has been a pure plantation company, was on the lookout to enter the tea retail business.
"We have the strength in distribution and McLeod Russel has the expertise in production. It was thus a natural alliance", EIIL's managing director, Amritanshu Khaitan said.
On Friday, EIIL's board finally decided to give a green signal to the agreement, before it takes its final shape. As per the roadmap, EIIL will enter into a share purchase cum shareholders agreement with McLeod Russel to operate and manage GIL as a joint venture, with both these WMG entities holding 50 per cent shares each of Greendale.
EIIL currently holds 50,000 equity shares of Rs. 10 each in this subsidiary of which McLeod Russel will be picking up 25,000 shares of Rs 10 each which will ensure an equal partnership between the two group companies.
At a later stage, EIIL would be investing up to Rs. 20 crore in this subsidiary in tranches.
Incorporated in May 2011, GIL has a paid-up capital of Rs 5-lakh with an authorised capital of Rs 20 lakh. For the year ending on March 31, 2017, it posted a topline of Rs 2.16 crore, which was a momentous jump when compared to the Rs 3.3-lakh revenue this subsidiary earned during 2015-16.
The battery major will also be entering into an asset transfer and assignment agreement with GIL for transfer of the relevant trademarks valued at Rs 20 crore and other identified assets which might be related to the tea retailing business.
Industry estimates suggest the packet tea market in India to be worth around Rs 10,000 crore.
During the quarter ending on September 30, 2017, McLeod Russel posted a 9 per cent increase in its net profit at Rs 144 crore, despite the net revenue stagnating at Rs 469 crore.
In the similar quarter of the previous financial year, the company's net profit stood at Rs 132 crore with a topline of Rs 472 crore.