HLL Proposes To Transfer Doom Dooma And Tea Estates Plantation Divisions To Subsidiaries
08-04-2005 :
The Board will subsequently decide the consideration and the effective date of the transfer.
The services of permanent employees of the two Divisions will be transferred to the subsidiaries with continuity of service and full protection of their existing terms and conditions of service.
The Doom Dooma Division comprises seven tea estates in Assam 's Tinsukia district (planted area of approximately 3100 hectares) and three tea processing factories, with about 6100 permanent employees. In the last three years, the Division produced 17,100 tonnes of tea but incurred operating losses, primarily due to adverse weather conditions, excess supply leading to low prices at the auctions and high social costs.
The Tea Estates Division in Tamil Nadu comprises seven tea estates (planted area of approximately 3700 hectares) and six tea processing factories, with about 6300 permanent employees. In the last three years, the Division produced 31,200 tonnes of tea. It posted a slender profit in 2004, but incurred losses in 2003 and 2002, once again due to adverse weather conditions, excess supply leading to low prices at the auctions and high social costs.
The Plantation Divisions do not fit in with the objective of HLL to focus on FMCG businesses. The company therefore believes that it would be prudent to transfer them into separate subsidiaries with a view to providing clear focus to operations, both in terms of land productivity and manpower productivity to manage costs and restore economic viability. This would also enable HLL to explore opportunities for formation of joint ventures with lead industry players, with expertise in international sales and marketing. The company could also consider an outright disposal, if that is considered to be in the best interest of the business and all stakeholders.
Both the Divisions have gardens, which enjoy considerable equity both in the domestic and international markets. But they do not realise any premium for these equities, from captive supplies. It is believed that these equities can be better exploited in collaboration with an industry player, which is able to market garden teas in both domestic and international markets at considerable premium, while taking advantage of HLL's presence in Assam and Tamil Nadu, high quality plantation practices and harmonious relations with the work force.
Also, operating experience over the last few years has demonstrated that there are very little synergies between the Plantations Divisions and the Packet Tea business. Besides, regulatory changes, particularly in the Tea Marketing Control Order, have further diluted synergies for tea packaging companies, vis-à-vis own plantations.
