Informist, Thursday, Nov 24, 2022
By Avishek Rakshit
KOLKATA – After signing a deal to exit the tea plantation business, Warren Tea Ltd is realigning its operations to focus solely on the packaged tea market in the country and set up a merchant trading tea export business.
“It is a strategic decision we have taken considering the unremunerative prices in the tea plantation sector as a whole, and our objectives at the company level,” Vivek Goenka, the company’s president, told Informist.
On Tuesday, Warren Tea entered into preliminary agreements with Dhunseri Tea and Industries Ltd and another Dhunseri Group company to sell all of its remaining tea estates, effectively marking its exit from the tea plantation business.
This 1.1-bln-rupee deal is expected to be completed in December.
In the past, two large companies in the country had also hived off their tea plantation business to focus solely on the retail or packaged tea segment.
In 2005, Tata Consumer Products Ltd, then known as Tata Tea Ltd, exited the plantation business by handing over control to two different corporate entities. In 2013, Hindustan Unilever Ltd, then known as Hindustan Lever Ltd, exited the plantations business by selling its tea gardens. Both have been focussing on the retail tea business since then.
This shift is attributed to the divergent performances of the two segments. While many tea plantation companies are struggling to meet production costs owing to stagnant and unremunerative prices in bulk tea sales, margins have been comparatively stable and better in the retail business.
Dabur India Ltd, too, has sharpened its focus on the retail tea market in the country, attracted by the relatively stable growth rate of around 4.5% projected for the premium tea market in India over the next five years. Within the 195-bln-rupee strong packaged tea market in the country, around 29% of the market comprises premium teas, which is roughly a 56-bln-rupee market.
Today, larger players in the retail tea business, such as Tata Consumer Products, Hindustan Unilever and Wagh Bakri, have a range of products across different price points and categories.
Attracted by the high margins, several start-ups such as Teabox and Vahdam have sprung up, trying to source tea directly from the gardens and auctions and sell it online, focusing on the premium end of the market.
“Margins are much higher in the premium tea segment and that is where we would like to focus in India,” Goenka, who is also the immediate past chairman of the Indian Tea Association, said.
“After Dec 31, when the deal with Dhunseri is expected to be completed, I will do an in-depth study of the market to come up with a detailed plan on packaged tea,” Goenka said. “But we are entering this space soon for sure.”
Warren Tea is yet to decide how proceeds from the sale of its gardens will be used.
Goenka said the company does not have any long-term debt as such and the working capital debt of “a few million rupees” will be repaid from the proceeds.
The realignment of Warren Tea’s business could entail investments in warehousing, tea blending units, brand building and such. Unlike the plantation business, tea retailing requires extensive spends on advertising and promotions.
The promoters of Warren Tea also have two other non-listed businesses that they are focussing on and readying them for expansion.
These entities are Vesta Hotels & Resorts, which has three upmarket hotels in Rajasthan and information technology solutions company, Softweb Technologies, which has offices in India and Bangladesh.
“We are going to expand our hotel network and may also come up with managerial contracted properties for the hotels business. In the case of software solutions business, we are increasing our focus on Southeast Asia,” he said.
MERCHANT EXPORTS BUSINESS
Banking on its strong contacts in Iran and other West Asian countries, Warren Tea is planning to roll out a tea exports division within the company that will focus solely on value-added exports.
“Value-added could mean a lot of things which can be done on the export front, but we are yet to take a call on the exact way forward,” Goenka said.
Currently, instead of just sourcing tea from the gardens and auctions and send it to export markets in bulk quantity, some exporters are going a step ahead to earn decent margins.
Some exporters are themselves handling the tea blend – a crucial component to ensure the success of a tea brand, packaging it into tea bags or packets as the requirement may be, and then ship it to buyers in export markets.
Although Warren Tea is yet to decide on the roadmap, it will be focussing on this value-added export business in the coming years.
At 1522 IST, shares of Warren Tea were down 0.7% at 73.40 rupees on BSE. End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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