fiscal show to jazz up Tata Tea results
Tata Tea's acquisition
of Tetley Group is turning out to be a success
and the Tatas feel 'comfortable with the acquisition'.
"Tetley has performed
extremely well in the last fiscal. It is now number
one in the UK, in terms of volume, and number
two in terms of value," said Homi R Khusrokhan,
managing director of Tata Tea.
The financial results of
the company for 2001-02, to be announced next
month, will for the first time contain consolidated
figures, bringing out the full impact of Tata
Tea acquiring a company far bigger than itself.
The acquisition took place in March 2000 for POUND
Tetley is now number one
in Canada and number two or three in the US. This,
plus its prominent position in France, Poland
and Australia, make it the second largest tea
brand in the world after Levers.
The improving cash flow,
plus a POUND20 million loan from Tata Sons and
a POUND10 million loan from Tata Tea, have enabled
Tetley to bring down its debt-equity ratio from
3:1 at the time of acquisition to 1.75 now. Tetley
has been able to honour all its bank covenants
and service the Tata debt.
The loan from the Tatas
at 7 per cent has enabled Tetley to retire high-cost
debt, which bore as high a coupon as 17-18 per
cent. This in itself is helping Tetley improve
its cash position.
The two companies, Tata
Tea and Tetley, are going down the integration
route through groups of managers periodically
meeting to work on projects and process-driven
These processes are helping
identify new geographies such as Russia, the CIS,
and West Asia. The integration is covering areas
such as information systems, accounting and human
"The acquisition was
strategically a good move. Now (with control over
Tetley), Tata Tea can stand on two legs,"
Global distributors of
tea gain when producer prices are down. The Tata-Tetley
combine can now acquire tea globally from low-cost
The Indian tea industry
has been slowly losing out to Sri Lanka in terms
of both cost and quality and there is a 70 per
cent import duty on tea.
As India brings down the
duty to rates bound under WTO agreements, the
challenges faced by other Indian producers will
be offset for Tata Tea by the gains by its global
operations. "If we didn't have Tetley we
would be struggling," added Khusrokhan.
Another major gain from
the acquisition has been the access to some of
the best blending skills.
The secret of Tetley has
been a very consistent blend and Tata Tea's blenders
are learning from Tetley's blenders additional
dimensions of blending.
Some of the earlier
fears about cultural challenges facing an Indian
company taking over a UK firm steeped in history
have proved to be unfounded. With hindsight, Khusrokhan
feels, "Intuitively, we did all the right