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The ₹730-crore Goodricke Group is in negotiations to acquire two plantations from the world’s largest tea producer, McLeod Russel of the Williamson Magor Group.
Sources told BusinessLine that Goodricke hopes to add 4.1 million kg capacity (mkg) through the acquisition of 2.6 mkg capacity at the Bargang tea estate and 1.5 mkg at the Harchurah tea estate in Assam.
Considering McLeod’s last sale of four gardens with four mkg capacity to Luxmi Tea at ₹141 crore, the proposed acquisitions could cost Goodricke about ₹143 crore.
Goodricke MD and CEO Atul Asthana acknowledged that the company is in negotiations with McLeod but denied being anywhere near to closing the deal. He also refused to confirm the names of the estates.
Kamal Kumar Baheti, Director of McLeod, refused to comment.
The ₹1,596-crore McLeod Russel has sold 12 Assam estates with a total capacity of 14 mkg at ₹472 crore since June to pare debt (₹976 crore as on March 31, 2018), as well as to acquire overseas assets and invest in the packet-tea segment, where the company has a small presence.
Shareholders’ nod
McLeod Russel has got shareholder approval to sell up to 35 per cent of its assets in India. The company had 52 tea estates in India, producing 67 mkg, at the end of the last fiscal year. It has the scope to sell more estates.
Following the sale of the 12 estates, McLeod Russel’s own production capacity (the company also outsources to small growers) stands at 53 mkg. Finalisation of the deal with Goodricke will bring down its capacity to 49 mkg. This might not affect total sales as the company has already announced plans to step up outsourcing. The change, if any, is expected in profitability. Over the last five years, McLeod Russel’s interest payout has increased from ₹56 crore to ₹170 crore (in 2017-18).
In comparison, Goodricke has consolidated its finances, leading to a reduction in interest payout from ₹4.78 crore to ₹2.13 crore over the last five years. This is in spite of the company’s ₹20-crore acquisition of eight packet-tea brands from Godfrey Phillips India in 2017.
High-margin focus
The thrust on the high margin packet-tea business is expected to shore up Goodricke’s bottomline.
The company currently produces 29 mkg of tea, including roughly 1 mkg of Darjeeling tea, and outsources 7 mkg. Roughly 30 per cent of the total sales volume (36 mkg) is directed toward packet teas, which is rising by 5-6 per cent a year.
The acquisition, if it fructifies, will increase Goodricke’s own production to 33 mkg.
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