McLeod Russel buys Vietnamese Tea Company for Rs 32 Crore

Mcleod Russel India Ltd. | Tea/Coffee | Agriculture & Allied activities | BSE: 532654 | NSE: MCLEODRUSS

06 Oct 2008 Evaluate

McLeod Russel India Ltd will acquire 100 per cent equity in Phu Ben Tea Co of Vietnam through its wholly-owned UK-based subsidiary Borelli Tea Holdings Ltd. This will be the first foray into a foreign country by any Indian tea plantation company. The estimated the cost of acquisition is at $7 million, to be paid in four installments; $2 million (around Rs 9 Crore) would be paid initially and the rest $5.01 Million (Rs 23 Crore) to be paid in three equal annual installments during the end of 2009, 2010 and 2011 respectively. The acquisition is expected to be completed by December 2008.

Phu Ben Tea Co produces 4.5 million kg of CTC black tea annually and has an annual turnover of about Rs 25 crore. It has three processing factories that would be stepped up from 4.5 million kg at present to 6 million kg within the next two years and 12 million kg in four years. The company owns 1,000 hectares, of which 80 per cent is under plantation, and plans to acquire another 1,000 hectares. The size of investment is still being worked out but the modernization of the factories might initially cost around $1 million.

The acquisition will boost the total tea production of McLeod Russel and its subsidiaries to more than 80 million kg annually. The entire production of the Vietnamese company would go to meet export commitments. With domestic tea prices in India set for steady increases in the coming years, the domestic production would be increasingly used to meet domestic demand. For the export market, which is price competitive, low-cost sourcing of tea is crucial and the acquisition of the Vietnamese company was therefore most appropriate. Thus McLeod moves one step forward in its vision to become a global producer of tea.

crack crack