McLeod Russel intends to be asset light, focuses on bought-leaf

Kolkata, Aug 9 (IANS): In a bid to bring down debt and be competitive in the future, tea major Mcleod Russel is looking to be "asset-light" and to expand its capacity in bought-leaf sector, an official said on Thursday.

The company is also looking to make future investments, out of "free cash" and would not like to go into "borrowing mechanism", the official said.

"Each garden of ours is standalone unit. What the company has decided to do is to assess each garden on its individual strength including cost and yield. In order to be competitive, the company has decided that it should prune down some of the gardens which have been making losses individually over the last few years and will end up making losses in the coming few years," its Vice Chairman and Managing Director Aditya Khaitan said.

The objective is to "bring the debt down" so that there will be reduction in interest costs, he told shareholders in the 20th Annual general Meeting (AGM) here.

"We would like to add more leaf from unorganised sector which is going to grow... we want to expand our capacity in the bought leaf sector," he said on the sidelines of the AGM.

Khaitan also said there has been a growth of over 500 million kgs of tea in the unorganised sector during 2006-07 to 2017-18.

"In the last 7-8 years, we added close to 18-20 million (kgs of tea) to our portfolio by buying leaf from the unorganised sector," he told shareholders.

Elaborating further, Khaitan said the company is changing its model but "not exiting" from the tea business and also indicated that it might exit from some of its gardens and would replace the volume from bought-leaf sector.

"We believe it is better for us to be asset-light," he said.

"The company wants to do future investments out of free cash and we would not like to go into the borrowing mechanism. All the investments we are planning to make are long-term investments," he said.

In fact, the tea producer had recently signed a Memorandum of Understanding (MoU) with city-based M.K Shah Exports Limited to dispose of eight tea gardens in Assam for a consideration of Rs 331 crore.

Subsequently, the company also recently inked an agreement with Luxmi Tea Company for disposing of four tea gardens in the north eastern state at a consideration of Rs 141 crore.

Notably, the company had earlier proposed to utilise the sale proceeds in repayment of certain high interest bearing debts, for buying back its own shares from the shareholders of the company to the tune of Rs.100 crore and also making investment for diversification into packet tea business.