To stay in game, McLeod Russel plans 10-year road map

Firm has asked at least three advisors to give deliver recommended road maps, which are expected in next six months

McLeod Russel, the largest tea producer company in the world, is preparing a 10-year guide map for itself, to strengthen its footing in the sector.

“We are reaching a point where McLeod Russel has to redefine itself to remain in business,” said the managing director, Aditya Khaitan, after the company’s Annual General Meeting.

He said one focus in the coming 10 years will be on strategic tie-ups and in understanding the present and future tea consumption patterns. Asked about the nature of such tie-ups, he said, “It could be with Eveready (Industries) or any partner from whom we can gain strategically.” Eveready and McLeod are part of the same Williamson Magor Group. If there is a tie-up, McLeod will have access to the wide distribution network of Eveready Industries, which can push its sales. Currently, it ships about 4.5 million kg of tea a year to Eveready, which sells this as branded packet tea under the Tez brand name. McLeod Russel has already approached at least three advisors who are likely to give their recommended raod maps to the company in the coming six months.

“There is a huge change in the way people have been drinking coffee nowadays. Similarly, while loose tea previously accounted for the bulk of sales, people are now increasingly using packet tea. We need to understand what the trend will be for the future,” he said to a query from Business Standard. Asked about concern areas in the near future, Khaitan highlighted four as needing a relook. The company owns 64 tea estates round the globe and controlling the vagaries of nature like an unusual monsoon, droughts, severe temperature fluctuation and so on is a primary concern. Followed by the increase in mechanisation of tea gardens. Availability of labour and supply of tea are the other two concerns.

For the past 10 years, it has been spending Rs 15-20 crore a year to improve irrigation facilities in its gardens. As of now, 53 per cent of its gardens are irrigated. Back in 2005, McLeod Russel had prepared a road map to increase its production. Khaitan said the objectives highlighted then to scale up had been achieved, the marketing and value addition fronts need a relook.

During 2015-16, the production was 85.7 mn kg, as against 80.1 mn in 2013-14.  Asked about global expansion, Khaitan said the company was open to acquisitions if it suited the objectives but would not unnecessarily strain its interest and debt burden. “The debt to equity ratio should not go up,” he added.

During 2015-16, the company’s finance costs accounted for Rs. 101.5 crore, from Rs 66.1 crore in 2014-15.