The Hindu Business Line : `Budget proposals will not help big tea cos'

JAY Shree Tea & Industries Ltd, a B.K. Birla Group company, is a diversified tea company. The 59-year old company started off with one tea estate but currently owns 17 gardens with almost 8,000 hectares of cultivable land and producing nearly 14 million kg of tea every year.

Jay Shree's operations, however, are not restricted to tea alone. It manufactures single super phosphate and sulphuric acid in its chemical plants at Kardha in West Bengal and Gurgaon. While the Bengal plant was set up in 1961, the other was established in 1987.

Jay Shree is also engaged in warehousing activites in Kolkata and Kochi. It used to run a plywood business too, which was closed down later. In real estate, the company developed residential and commercial complexes in Kolkata and Bangalore. Recently, Jay Shree has forayed into the IT sector by setting up a 140-seat call centre.

Mr R.K. Ganeriwala, President (Finance & Corporate Affairs) & Secretary, spoke to Business Line on the vagaries of the tea industry and intricacies of fund management of a diversified tea company.

How would Jay Shree Tea as a corporate house gain from the proposals announced by the Union Finance Minister, Mr Jaswant Singh, in his Interim Budget?

The Finance Minister has shown great concern for the problems of the tea industry but I doubt whether any of the announcements made by him will help the big companies like us.

First, a host of announcements, like working capital loan up to Rs 2 lakh at an interest rate of 9 per cent and a subsidy of Rs 8 per kg of tea, were meant only for the small growers. Integrated tea companies have got nothing to do with it.

Second, he spoke of the Special Tea Term Loan with a five-year repayable period and a one-year moratorium. I doubt whether it will be any good for the big tea companies such as Jay Shree, Tata Tea, Goodricke and others. These companies are already enjoying financial loans at much cheaper rates. The terms and conditions of these loans are better than what has been prescribed by the Finance Minister.

Tea majors are getting these benefits from the banks because of their financial power as they have continued to register profits despite the lull in the tea sector. However, it is not so with the smaller and weaker companies. They need the support of the banks and financial institutions most. But the question is will the banks give loans to these weaker companies at nine per cent interest?

In Jay Shree we are already getting loans at around five or six per cent. I am sure companies like Tata Tea and others are also getting loans at similar rates. So, I feel that the recent announcements will not help Jay Shree Tea much.

In 2002-03, Jay Shree Tea registered an income of Rs 162 crore and net profit of Rs 8 crore. What are your expectations for the current financial year, 2003-04 and how will it be achieved?

In the current financial year we are expecting a turnover of Rs 200 crore. Profitability is likely to cross Rs 10 crore. Tea business registered a healthy growth during the first nine months of 2003-04. While net sales increased from Rs 76.22 crore to Rs 91.51 crore, profitability went up to Rs 9.22 crore from Rs 8.94 crore.

Our chemical and fertiliser business has benefited a lot from good monsoons. Till the end of December 2003, sales of chemicals and fertilisers increased from Rs 28.78 crore to Rs 33.82 crore but net profit jumped from Rs 51 lakh to Rs 2.41 crore.

On the other hand we have closed down our ailing plywood operations. The factory has been sold out and the workers have been retrenched through a VRS. The info-tech business has started generating revenues and profits too and it will keep on increasing in every quarter. During April-December 2003-04, Jay Shree Tea's other income almost doubled to Rs 11.07 crore from Rs 5.07 crore. Why is it so?

This is because of the ongoing bull run in the stock market. We have invested almost Rs 55 crore in different mutual funds such as HDFC, Reliance, Birla and others. These mutual fund schemes have given us good dividends to the tune of Rs 55 crore during this period. We hope that if the bull run continues we will be able to earn some more dividend by the year end. This will push up net profit further.

As on March 31, 2003, Jay Shree Tea had a reserve of Rs 109.63 crore. Are you looking at gardens for acquisitions or new business sectors?

We are not considering fresh acquisitions as of now. We have recently taken management control of a sick Darjeeling tea garden. We may acquire it if we succeed in making its operations financially feasible. For that we have fixed a deadline of March 31, 2004. Till now our loss on this account is around Rs 30 lakh and it may go up to Rs 60 lakh.

We have also invested Rs 5 crore for setting up the Sarla Birla Gyan Jyoti School in Guwahati. It is a corporate activity of Jay Shree Tea. In the next two years we will invest another Rs 10 crore in the second and third phase of the school. Then we wish to set up a similar school at Siliguri in North Bengal. The West Bengal Government has already approached us for one such school in that region. We will invest a similar sort of amount over there too.

Jay Shree Tea has merged two out of its three subsidiaries namely Siddhi Binayak Tea Ltd and Shiva's Group Ltd. When will you merge North Tukvar Tea Co Ltd?

We will not merge North Tukvar Tea Co into Jay Shree Tea as it will make us liable to pay a huge salami to the West Bengal Government. At present, the State Government charges a salami of Rs 15,000 per hectare on sale of tea estates. Though it is not a sale still we will have to pay that salami.

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