Two firms eye Tata stake in Amalgamated Plantations

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Kolkata: At least two large tea producers have evinced interest in acquiring Tata Global Beverage Ltd’s 41% stake in Amalgamated Plantations Pvt. Ltd (APPL), India’s second largest producer and supplier of tea with estates in the Dooars region of West Bengal and Assam.

Kolkata-based Dhunseri Group and Mumbai-based MK Shah Exports Ltd have had initial discussions with Tata Global about the sale of its stake in Amalgamated Plantations, according to three people familiar with the development.

C.K. Dhanuka, chairman of the Dhunseri Group, said he was taking a close look at several estates in Assam which are on the block, but declined to discuss specifics. Himanshu Shah, director of MK Shah Exports, declined to comment.

“Tata Global continually evaluates its portfolio of businesses and different options in line with its strategy and long-term goals,” a spokesperson for the company said in an emailed statement—the same as this person had previously said when Mint reported in its 12 January edition that the company was looking to sell its stake in Amalgamated Plantations.

Tata Global is expecting an enterprise valuation of around Rs1,300 crore for its 25 estates, which produce 26 million kg of tea, according to the people cited above.

Combined with tea sourced from other growers, Amalgamated Plantations produces around 41 million kg of tea a year.

Tata Global’s expectation of Rs500 per kg of annual production—the going rate in Assam—is steep, said the people cited above.

They cited two reasons: several plantation companies are currently on the block and the lack of clarity on worker compensation for organized sector tea producers.

Dhunseri Group’s Dhanuka said he would wait for the government to decide if tea garden workers are to be paid minimum wages before expanding into Assam. Organised sector tea producers are struggling with costs because of the compensation they have to pay under the Plantations Labour Act.

Small tea growers, on the other hand, do not have to comply with the Act. Their cost of production is much lower and as a result they can sell cheap, depressing the market for all producers.

Carved out of the erstwhile Tata Tea Ltd, which was later renamed Tata Global, Amalgamated Plantations has made losses for the past three years aggregating to Rs85 crore, APPL chairman Ranjit Barthakur said in his statement to the shareholders of Tata Global last year.

“Plantation companies are in trouble and Tata Global is no exception,” said one of those cited above, asking not to be named. “The Tata group must now weigh between its steep price expectation and the company continuing to bleed further.”

It will take at least two years to turn things around at Amalgamated Plantations, according to this person.

And if the government mandates that workers will have to be paid the minimum wages, valuations will change completely.

The Tata group holds an additional 24% stake in Amalgamated Plantation, taking its total stake in the company to 65%.

It isn’t immediately clear if the group is scouting for a buyer for its entire stake in the company.

Even if it is decided that Tata Global will sell only its 41% stake immediately, the buyer will have an irrevocable right to acquire the Tata group’s remaining 24% stake and take control, according to the experts cited above.livemint