HLL to hive off tea plantation business

Hindustan Lever Ltd (HLL) is proposing to transfer its tea plantation business by way of sale to wholly owned subsidiaries of the company as a prelude to formation of joint ventures or disposal.

The company has intimated the stock exchanges that it proposes to transfer both gardens and factories in Assam (Doom Dooma division) and in Tamil Nadu (tea estates division) to its wholly owned subsidiaries. The company is seeking shareholders' approval for the proposal through a postal ballot and statutory approvals.

The move would enable HLL to explore opportunities for formation of joint ventures with leading industry players having expertise in international sales and marketing.

The company could also consider an outright disposal provided it is in the best interest of the business.

The tea estates division in Tamil Nadu comprises seven tea estates and six tea processing factories with about 6,300 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, due to adverse weather conditions, excess supply leading to low prices at the auctions and high social costs.

The Doom Dooma division comprises seven tea estates in Assam's Tinsukia district 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.

HLL's move follows close on the heels of Tata Tea, which decided to hive off 17 of its tea estates, the regional office and connected service departments in south India to a new private limited company being formed by a group of employees of the company.

More and more companies are now moving away from bulk tea trading and are increasingly focusing on brand building or packet tea business.

Goodricke is also looking at concentrating more on branded tea and expanding its packet tea business.

According to HLL, the plantation divisions do not fit in with the objective of HLL to focus on FMCG businesses.

The company 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.