As production of tea falls globally and demand for it rises, Gujarat Tea Processors and Packers, the owner of the Wagh Bakri brand, is looking at acquiring gardens in Darjeeling, Assam and South India. The company, which operates in the retail market at present, has so far been procuring tea from auctions. ?We are planning to acquire three gardens, one each in Darjeeling, Assam and South India. Negotiations are on and we hope to clinch a deal soon,? said Piyush Desai, chairman, Gujarat Tea Processors and Packers.
Increase in bulk tea prices, coupled with high marketing costs for new regions, has put pressure on margins of tea retailers. A recent ICRA report on Gujarat Tea Processors pointed out that the company’s procurement cost has increased, resulting in a fall in operating margins from as high as 12.4% in 2006-07 to 8.1% in 2011-12.
?We are looking at buying a garden with a capacity of 15 lakh kg in Assam. For our Darjeeling operations, we will focus on gardens with a production capacity of around 50,000 kg,? Desai said. While he did not comment on investments in pipeline, Desai said the company?s fundamentals can sustain future inorganic growth.
Raj Kajaria, managing director, LSI Financial Services, feels the right time to buy a tea garden is when the market is down. ?The right price for acquiring a garden is 8-10 times its profitability. With domestic demand increasing at 3% per year and prices for good domestic tea higher by R20-25 per kg, acquiring a well-managed garden is a good deal,? he said.
Gujarat Tea Processors, the third-largest packaged tea company in the country in terms of volume, owns Good Morning and Mili Tea apart from its flagship brand Wagh Bakri. With almost 70% market share in Gujarat and 6% share in the national packaged tea market, the company sold around 28.8 million kg tea last year. It entered the Maharashtra, Goa and New Delhi markets between 2007 and 2010 and the Hyderabad and Chhattisgarh markets in 2011. The company plans to expand presence in UP, Haryana and Punjab in 2013-14.
Sales of the company increased 17.42% in 2011-12 to R618.72 crore from R526.93 crore in 2010-11. Net profit increased by around 17% to R32.8 crore in 2011-12 from R28.1 crore in 2010-11.