Tata Tea buys majority stake in Russian firm

Acquisition expected to fast-track its beverage foray.

Known for its acquisition-led strategy, India’s second-largest branded tea company, Tata Tea, has tied up with the European Bank for Reconstruction and Development (EBRD) to buy 51 per cent in a Russian packaging and distribution company called Grand.

Russia is the world's largest tea market by volume after the UK and India. Grand is Russia's second-largest tea importer, accounting for 15 per cent of imports. The size of the deal was not disclosed.

Tata Tea will take a 33.2 per cent stake in Grand through one of its overseas subsidiaries and EBRD 17.8 per cent. The remaining 49 per cent will stay with the founding promoters led by Alexander E Borisov. The acquisition is subject to several conditions, including regulatory approvals, and is expected to be complete in the first half of 2009.

The investment by EBRD and Tata Tea will be used to modernise the 15-year-old Grand’s production facilities to increase the quantity and quality of output, a company release said.

The move is aimed at fast-tracking Tata Tea's entry into Russia's fast-growing beverages market. Russia's tea market is growing at 12 to 13 per cent by volume, against low single-digit growth in India and China. Russia is largely a packaged and ready-to-drink tea market, and is more evolved than the Indian tea market, where loose tea accounts for 60 per cent of consumption.

In value terms, however, the Russian market is behind the advanced markets of the US, UK and Germany, where speciality and health teas are preferred. "Given the market dynamics of Russia, this is a great opportunity to grow Tata Tea's packaged tea portfolio under Tetley," said Sujay Kotak of Singhi Advisors.

Tetley is a 100 per cent subsidiary of Tata Tea, UK, and was acquired by the company in 2000 for £271 million. A week ago, Tata Tea, which also claims to be the largest player in its segment by volume, launched T!ON — a tea- and fruit-based cold beverage — to mark its entry into a Rs 4,000 crore segment that is growing 35 to 40 per cent annually. Tata Tea's Tetley is the second-largest teabag brand in the world.

"The vision for Russia involves working with the EBRD to build a multi-million dollar business over the next three years through a combination of acquisitions and brand introductions," a Tata Tea statement said.