After completing two tranches of garden sales in Assam that fetched McLeod Russel Rs 4.72 billion, the world’s largest tea producer is looking at selling more estates in the state as well as Dooars in West Bengal.
The proceeds from the sales will primarily be used to pare its outstanding debt by 70-80 per cent, fund the ongoing share buyback and invest in factories to process tea bought from external sources. The debt, which stood at Rs 10 billion at the end of March 31, has been brought down by around Rs 3.5 billion.
Sources said McLeod Russel was targeting another Rs 3-4 billion from the third tranche, which is likely to be executed in the next three-four months. Industry sources told Business Standard that the tea companies, which had placed their bid for the stressed assets of Assam Company being auctioned under the Insolvency and Bankruptcy Code, were interested as these firms were looking at expanding their portfolio.
A source said Dhunseri Tea and Industries, which had bid around Rs 4.5 billion for Assam Company, “would be interested if a proposal comes from McLeod Russel provided the valuation is right”.
For Assam Company, Dhunseri had worked out a valuation of around Rs 270-300 a kilo, but in the case of McLeod, the valuation can be higher as these estates are in an operational condition. From its past sales, McLeod had churned a valuation of Rs 340 and Rs 350 a kilo in the previous two tranches of sales.
A second source said more than tea companies, private equity players were interested for acquiring McLeod’s gardens in Dooars, as tea prices from this region was not remunerative.
“We are evaluating each of the gardens based on their individual strength and are trying to anticipate the cost structure. If will continue to incur losses, selling these is an option. You have to be a bit dispassionate about this business now,” Aditya Khaitan, vice chairman and managing director at McLeod Russel, said after the company’s annual general meeting (AGM) in Kolkata.
In turn, the company will focus on leaf procurement from small tea growers and process the tea from its own bought leaf factories which assures it a higher margin.
At its AGM, the firm’s shareholders approved to sell extra tea estates. According to the firm, shareholders nod is needed to execute sales which exceed 20 per cent of the value of fixed assets of the company. Under the proposal, the company has suggested to offload a maximum of 35 per cent of its fixed assets which translates into Rs 7 billion.
Profits come back as tea prices rise
Riding on higher tea prices and sales volume, which went up by 9.3 per cent and 7.2 per cent respectively, McLeod Russel posted a net profit of Rs 15.1 million during the June quarter, against the loss of Rs 16.6 million incurred in the similar period of the last fiscal year.
Its revenue, on a year-over-year basis, shot up by 15.3 per cent to touch Rs 2.2 billion, compared to the net earnings of Rs 1.9 billion during the April-June period of 2017-18.