Financial Daily from THE HINDU group of publications
Saturday, Mar 19, 2005
Agri-Biz & Commodities
Tata Tea registers new firm for estates' transfer
Chennai , March 18
TATA Tea has registered a new firm Kannan Devan Hills Plantation Ltd, into which its plantation business of 17 leased estates in Munnar in Kerala will be transferred.
"The new company was registered on March 15," Mr Percy Siganporia, Managing Director, Tata Tea Ltd, told mediapersons here.
The company has sought shareholders' view through postal ballots separately to transfer the 17 estates and sell eight estates, including the Valparai coffee plantation, on free-hold plots in Munnar. The ballots will be scrutinised next week. Along with the lands, which have been let on lease for generations, the new firm will also get Tata Tea's processing units. "All properties on the land of these estates will go to the new company," he said. However, the instant tea factory, which has a capacity to produce 2 lakh tonnes a year, will remain with Tata Tea.
Tata Tea, on February 12, decided to transfer its 17 estates to a new firm in which its employees would hold a majority states. The move, to shift 57,000 hectares of leased land, is part of its plan to exit the plantation business, particularly in the South. Along with this, it also decided to sell the eight estates owned by the company.
ICICI Bank has come forward to finance the operations of the new firm, while ICICI Securities is looking for buyers of the free-hold estates.
"Right from political leaders to trade unions to the workers, all have been taken into confidence on our company's move to transfer the 17 leased estates," Mr Siganporia said.
While the current employees of the estates, including pluckers and sub-staff, will hold 75 per cent stake in the new firm, Tata Tea will hold 19 per cent equity, while trusts would hold the rest.
"The shifting of the estates will help us save Rs 8-10 a kg on input costs. These costs are a combination of factors, including corporate overheads," he said. "These factors had contributed to loss of the unit in the last three years and once the transfer takes place, it will make profit. Also, we have reduced the overheads by giving voluntary retirement to some employees."
Mr Siganporia said 3,600 employees had opted for voluntary retirement.
"The employees will get a fair value of our assets based on Ernst and Young valuation. Also, they will now have access to alternative sources of revenue, not just depending up on tea cultivation," Mr Siganporia said.
Tata Tea will come up with the financial details of the new entity only after the due processes are completed.
Allaying fears that the transfer and sales of the estates would affect the company's profit, he said the topline growth would not be affected by the move. "Our brand business contributes 83 per cent of our income, while plantation, financial dealings and trading make up the rest," he said.
Tata Tea would also retain the Kannan Devan brand. "The new entity may not be able to take a risk in buying the brand. No valuation is being done on the brand, and there is no move to have it valued," he said.
It also plans to hold a stakeholders' conference in New Delhi soon to look at alternative business models for sustainability of tea cultivation.
Tata Tea would reconstruct its plantation business model across the country. "We are not saying that we are not interested and we are not walking away from plantations," Mr Siganporia said.
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