July 24--KOLKATA -- Having raised its annual production capacity to 100 million kg,
Between 2005 and 2011, McLeod Russel acquired six large tea companies in India, Vietnam, Uganda and Rwanda to become the leader in plantations. But it now needs to find a new strategy for expansion because snapping up tea estates at commercially viable prices is becoming increasingly difficult.
The time has come to look for new growth opportunities, said Aditya Khaitan, managing director.
To expand sales, McLeod Russel has been buying green leaf from so called out-growers, or from estates owned by others, both in India and Africa. Going forward, the company is looking to expand leaf procurement through this arrangement, said an expert who consults with tea companies. This person asked not to be named.
Of the 90 million kg of tea that McLeod Russel produced in India in fiscal 2014, 65 million kg was produced by its own gardens, and the balance 25 million kg by other gardens. In the next three years, the company plans to raise production by at least 20 million kg by procuring more leaves from other growers, according to Khaitan.
The strategy is going to be the same for McLeod Russel's operations in Africa, added the consultant cited above.
In fiscal year 2014, McLeod Russel clocked Rs.1,754.22 crore in consolidated revenues from sale of 112.23 million kg of tea. Though sales grew 7.6% by value and 10% by volume, the company's operating profit margin came under pressure. It narrowed to 20.91% in fiscal 2014 from 24.23% in the previous year, resulting in net profit declining 6.1% to Rs.257.15 crore.
It is unlikely that McLeod Russel will launch its own brand of packet tea, according to the consultant. "Building consumer brands is expensive, plus the company will have to take on entrenched players," he said, adding that the group's attempt to build packet tea brands in the past has not been much successful.
Asked about his interest in packet tea, Khaitan said he wasn't immediately dismissing the idea, but at the same time his company didn't have the appetite to build consumer brands over a long period of time. "We aren't a company that will invest in a brand for 15 years before its starts paying back," he said.
The company, though, invests on average Rs.100 crore a year to upgrade and expand its plantations, Khaitan said, adding that McLeod Russel expects to present to its board its new growth strategy within three months.