Tata Tea has decided to hive off 17 of its tea estates in southern India to a new company being formed by a group of employees of the company.
At a board meeting held on Friday, the company finalised its restructuring strategy for its south India plantations business, which entails transferring by way of lease or sale, the business, including assets and liabilities, of 17 tea estates, the regional office and connected service departments at Munnar to a new company formed by a group of Tata Tea employees.
Apart from the estates in Munnar, the company also plans to sell or lease some of its estates located in Kerala and Tamil Nadu, including one coffee estate. Tata Tea will be seeking shareholders' approval for the restructuring through postal ballot.
Tata Tea has been toying with the idea of restructuring the plantations business for the past 2-3 years because it plans to focus more on the branded tea business.
Plantations, which used to contribute around 80 per cent towards the company's turnover in 1980s, now account for 14 per cent of the company's turnover.
The restructuring will enable Tata Tea to focus more on the branded business.
Tata Tea has brands like Tata Tea, Tetley and Agni at the national level. Kanan Devan dominates in Kerala, Karnataka, Tamil Nadu and Goa, and Chakra Gold in Andhra Pradesh and Tamil Nadu. Gemini has a strong presence in some pockets of Andhra Pradesh.
Plantations had become a drag on the tea company's bottom line.
In 2003-04, Tata Tea incurred higher losses in Kerala, Assam, Tamil Nadu and West Bengal, individually despite implementing stringent cost controls and enhanced quality improvement measures.
Around 50 per cent of the company's estates are in southern India. The region has been adversely affected in the last 5-6 years and is fetching prices much lower than the cost of production. Tata Tea produces around 58 million kg of tea.
The main objective behind the restructuring is to insulate the company from increasing fixed costs and the volatility associated with the plantation business, including the vagaries of commodity prices.
The Indian plantation tea industry is globally uncompetitive in terms of costs and is impacted severely by weather conditions.
The company plans to enhance its product scope by focusing on marketing of black and green teas, especially fruit and herbal teas, ready-to-drink teas, tea serving systems and retailing tea.