M&As add to teams growth confidence: Tea Companies
March, 30th 2011
In India, tea prices have been rallying since 2008. According to the statistics released by the Tea Board of India, tea prices have almost doubled in the past five years due to a stagnation in tea production and steadily growing demand.
Consequently, India's tea producers have been minting money due to the rising price of their produce. Valuations of tea firms, like Mcleod Russell, Harrisons Malayalam , Goodricke Tea and Jayshree Tea have increased steadily over the past couple of years. Most firms have used the rally in tea prices as an opportunity to augment their plantations .
Rising tea prices have enabled the producers to fund acquisitions and expand inorganically . This has also enabled companies to increase production at a time, when there is a mismatch in demand-supply . In case of overseas acquisitions, companies secure a hedge against volatility in production in the domestic market that can occur due to weather uncertainties and labour unrests.
Mcleod Russel , the largest tea producing company in India, has acquired plantations in India , Veitnam and Uganda. It is now scouting for plantations in Africa. Its wholly-owned subsidiary Borelli Tea Holdings is set to acquire a 60% stake in Gisovu Tea Company of Rwanda.
Dhunseri Petrochem & Tea recently purchased Sona Assam Tea Factory having a capacity of the seven lakh kgs per annum. This is the fourth acquisition for Dhunseri in the current financial year. Goodricke Group is reported planning to acquire gardens there. As the new tea season starts in April, the industry expects prices to be on an average 15-20 % firmer than the year-ago level. This is because despite the weather being good currently, the new season will formally open with a shortfall of 60-100 million kgs.
The acquisitions made by the firms underscore their confidence in the bullish outlook of the tea market. With a positive price outlook, the domestic tea industry may continue to see further consolidation and overseas acquisition.