Tata Tea to buy majority stake in Russian firm

Known for its acquisition-led strategy, India’s second-largest branded tea company Tata Tea has made inroads into Russia (after the US and UK) -- the world's third largest tea market by volumes.

It has joined hands with the European Bank for Reconstruction and Development (EBRD) to acquire a 51 per cent controlling stake in Russian packaging and distribution company Grand. It, however, did not disclose the deal size.

The move is aimed at fast-tracking its entry into the lucrative beverages segment and also strengthen its presence in the Russian beverages market. It was hardly a week back that Tata Tea, which also claims to be largest player in its segment by volumes, launched T!ON -- a tea- and fruit-based cold beverage to mark its entry into a Rs 4,000 crore segment that is growing at 35 to 40 per cent annually. 

• Established in 1994, Grand is the second-largest importer of tea in Russia, accounting for 15 per cent of Russia's tea imports. The largest importer of tea is Orimi Trade, accounting for 20 per cent. Unilever is the fourth-largest tea importer in Russia, accounting for 9 per cent of Russia's tea imports.
• Russia is the world's largest tea importer with total imports of 1,78,000 tonnes in 2008, up from 1,70,000 tonnes of tea imports in 2007. Total tea consumption for 2007 was 1,73,000 tonnes.
• The imports for 2009 is estimated to be at 1,85,000 tonnes, a 5 per cent increase.
• India is among the top 5 suppliers of tea to Russia. In 2008, the country supplied 45,200 tonnes of tea to Russia, whereas Sri Lanka was the larget supplier with 65,000 tonnes.

Tata Tea, through one of its overseas subsidiaries, will take a 33.2 per cent stake while EBRD will have a 17.8 per cent stake. The balance 49 per cent will remain with the founding promoters led by Alexander E Borisov. The acquisition is subject to the fulfilment of various conditions, including regulatory approvals, and is expected to be completed during the first half of 2009.

The company's stock was up nearly 3 per cent at Rs 559 on the Bombay Stock Exchange today.

The investment by EBRD and Tata Tea, stated a release, will be used to fund a programme which includes the modernisation of Grand’s production facilities in order to increase quantity and quality of output, thus opening the way for new market opportunities.

After India and China, Russia is the third largest tea market in volumes with volume growth of 12-13 per cent as compared to low single digits volume growth in India and China. Also tea is a national beverage in the country and even coffee is becoming increasingly popular, according to Abheek Singhi, partner and director, Boston Consulting Group.

The Russian tea market is largely a packaged tea and ready-to-drink tea market, and is more evolved than the Indian tea market, where 60 per cent of the market is dominated by loose tea consumption. However, in value terms, the market is behind the advanced markets of the US, UK, Germany where speciality and health teas are preferred.

Tata Tea's Tetley brand is the second-largest tea bag brand in the world. Given the market dynamics of Russia, this is a great opportunity to grow Tata Tea's packaged tea portfolio under Tetley, reasons Sujay Kotak of Singhi Advisors. Tetley, is a 100 per cent subsidiary of Tata Tea, UK, acquired by the company in 2000 for £271 million.

Besides Tetley, the company had acquired 30 per cent stake in energy brands company Glaceau in 2006 for $677 million. However, it subsequently sold the same to Coca-Cola for $1.2 billion.

In 2007, Tata Tea acquired 25 per cent stake in Mount Everest Mineral Water, which sells the Himalaya brand of mineral water. This has given the beverages maker a presence in drinking water segment.

Tata Tea has a significant presence in over 40 countries. The consolidated worldwide branded tea business of the Tata Tea group contributes to around 86 per cent of its consolidated turnover, with the remaining 14 per cent coming from bulk tea, coffee and investment income.

Tata Tea already has a presence in the Czech Republic tea market having acquired the assets of Jemca, a leading tea company with over 25 per cent market share in the Czech Republic, for $12.5 million. The acquisition was funded by The Tetley Group, which pushed the Tetley brand to the eastern European markets. The group has interests in South African tea company Joekels Tea Packers and Polish tea brands Vitax and Flosana.