McLeod Russel sells tea garden in a first to reduce debt

McLeod Russel, the world’s largest tea producer, has sold one of its gardens in the Dooars area in West Bengal that was making losses. The sale — the first in the company’s history — was done to reduce the firm’s debt burden.

The loss-making Bhatpara Tea Estate, which churns around ~15.53 crore for the company annually, accounting for 1.11 per cent of the top line, was under the management’s review for some years. The company finally decided to sell the 604.14-hectare estate, which produced 987,371 kg of tea annually, at a consideration of ~13.21 crore.

McLeod Russel had reached an agreement with Voom Food Industries, part of the Siliguri-based Chandanbari Tea Group, for the sale of the garden some days back. But it was subject to the approval of the West Bengal government.

In a statement to BSE, McLeod Russel said that the buyer was engaged in tea processing, packaging and marketing for 30 years and it intended to make an appropriate investment in the garden to make it viable in the future.

Without disclosing whether the company would sell other loss-making gardens, Managing Director Aditya Khaitan said, “We review the performance of each of our gardens from time to time. Based on that, the call to sell it off was taken.”

The company has 64 tea estates, most of which are concentrated in Assam. In Dooars, it had five gardens prior to this aforesaid sale.

As on March 31, 2017, the Khaitan family-controlled McLeod Russel has an outstanding consolidated net debt of ~885.11 crore, against a net debt of ~789.89 crore during the year-ago period. Its net debt to equity ratio increased from 0.41 to 0.45.

“This (the sale) will reduce the debt to the extent of sale proceeds,” Director K K Baheti said.

He also said that the profitability from operations in the Dooars region was lower in comparison to Assam.

Industry officials say that the Dooars area’s yield and the crop quality are also low in comparison to Assam.

McLeod Russel has also finalised a joint venture agreement with its group company, Eveready Industries, which will mark its entry into the tea-retailing business. Although the shareholding pattern and the role of the two entities are being worked out, sources suggest that some investment from both Eveready Industries as well as McLeod Russel would be required to run the joint venture.