The Hindu : Business : HLL to transfer plantation business

Online edition of India's National Newspaper
Saturday, Apr 09, 2005

Business

Business

HLL to transfer plantation business

By Our Staff Correspondent

MUMBAI, APRIL 8. Hindustan Lever Ltd. (HLL) has informed the stock exchanges that it proposes to transfer its tea plantation business by way of sale to wholly owned subsidiaries. The tea plantation business comprises both gardens and factories in Assam (Doom Dooma Division) and in Tamil Nadu (Tea Estates division).

The company is seeking shareholders' approval for the proposal through a postal ballot and the board will subsequently decide the consideration and the effective date of 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 about 3,100 hectares) and three tea-processing factories with about 6,100 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 about 3,700 hectares) and six tea processing factories with about 6,300 permanent employees. In the last three years, the division produced 31,200 tonnes of tea and posted a marginal profit in 2004, but incurred losses in 2003 and 2002, due to reasons similar to the Doom Dooma division.

The plantation divisions do not fit in with the objective of HLL to focus on the fast moving consumer goods businesses, according to a company statement.

The company therefore believes that it will 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 enable HLL to explore opportunities for the 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 divisions have gardens, which enjoy considerable equity 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 industry players, 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.

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, according to HLL.

Printer friendly page
Send this article to Friends by E-Mail

Business