Financial Daily from THE HINDU group of publications
Saturday, Apr 09, 2005
Corporate - Restructuring
HLL to sell tea plantation biz to subsidiaries
Mumbai , April 8
IN the second major move of its kind in the tea industry, Hindustan Lever Ltd, has announced plans to sell its entire tea plantation business, comprising gardens and factories in Assam (Doom Dooma Division) and Tamil Nadu (Tea Estates Division), to wholly owned subsidiaries.
On February 11, Tata Tea disclosed plans (subsequently effected) to transfer 17 tea estates in South India to a new company featuring employee ownership.
An official statement on Friday said HLL is seeking shareholders' approval through postal ballot and the board would thereafter decide the consideration and effective date of transfer. Consequently, there was no official word on the likely value of the deal.
"The services of the permanent employees of the two divisions will be transferred to the subsidiaries with continuity of service and full protection of their existing terms and conditions of service," the statement said.
HLL is the second integrated tea major after Tata Tea Ltd to engineer such a move in its plantation business.
HLL's Doom Dooma Division consists of seven tea estates in Tinsukia district (planted area of roughly 3,100 hectares) and three tea-processing factories with about 6,100 permanent employees. In the last three years, the division produced 17,100 tonnes of tea but incurred operating losses primarily due to adverse weather conditions, excess supply leading to low prices at the auctions and high social costs.
The Tea Estates Division in Tamil Nadu has seven tea estates (planted area of roughly 3,700 hectares) and six tea-processing factories with about 6,300 permanent employees. In the last three years, the division produced 31,200 tonnes of tea. It posted a slender profit in 2004, but incurred losses in 2002 and 2003, due to reasons similar to those in the Assam plantations.
It is believed that revenues from these two divisions were slightly below 1 per cent of HLL's 2004 turnover of Rs 10,245.79 crore.
Doom Dooma made an operating loss of Rs 6.7 crore in 2002, Rs 21.9 crore in 2003 and Rs 7.6 crore in 2004. The Tamil Nadu estates made an operating loss of Rs 6 crore in 2002, Rs 5.5 crore in 2003, but a profit of Rs 80 lakh in 2004.
HLL has been exiting businesses that do not align with its focus on FMCG businesses. Its decision to move out of plantation business is in line with this objective. "The company therefore believes that it would be prudent to transfer them into separate businesses with a view to providing clear focus to operations, both in terms of land productivity and manpower productivity to manage costs and restore economic viability.
"This would enable HLL to explore opportunities for the formation of joint ventures with lead industry players with expertise in international sales and marketing. The company would also consider an outright disposal, if that is considered to be in the best interest of the business and all stakeholders,'' the statement said.
The shares of HLL edged down on the Bombay Stock Exchange to Rs 131.75 from the previous close of Rs 132.50.
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