Rwandan acquisition gives McLeod Russel a foothold in Africa

FY09 was a good year for McLeod, with

average tea realizations jumping by

27% to Rs111 per kg.

But FY10 will see realizations trend higher,

as poor weather has affected output

in major tea producing countries

Mark to Market | Ravi Ananthanarayanan

Tea producer McLeod Russel India Ltd is spreading
its wings in key tea-growing regions.

Last year, it acquired Phu Ben Tea Co. Ltd,

a Vietnamese tea producer.

Vietnam is the fourth largest producer

of black tea in the world while India holds first position.

It has now acquired a stake in a tea plantation

in Rwanda, in East Africa. Rwanda's tea production

of about 20 million kg comes nowhere close

to its neighbour Kenya's production of

346 million kg or Vietnam's 140 million kg.

But its tea fetches good prices in

the Mombasa market,

a little below what Kenyan tea of similar quality gets.

McLeod gets a foothold in the African

tea market through this acquisition.

It is paying $2.75 million (Rs13.42 crore)

to acquire a 75% stake in Olyana

Holdings Llc.

Olyana had recently acquired

a 60% stake in Gisovu Tea Co. for $2.4 million.

The government retains a 30% stake in

Gisovu, held by the Rwanda Tea Authority,

while local farmers will own 10%.

Thus, the indirect stake of McLeod

in Gisovu will be 42%.

Olyana will invest to improve the quality and

output from these estates.

It also proposes to negotiate with

the government for other tea plantations too.

While McLeod will get to participate

in these projects, it may be required

to increase its investments also.

Gisovu produces about 1.7 million kg of tea,

while McLeod had produced

74.8 million kg in India and

4.5 million kg in Vietnam.

The environment is right for fresh investments.

Bank of America Merrill Lynch estimates that

McLeod's average realizations will rise by

13% during FY10.

Higher realizations will ensure a much

better performance from the tea gardens

it has acquired.

It will also generate more cash, which it

can use to repay debt and invest further

in Vietnam and Rwanda.

No wonder the stock price is up

34% from its level a month ago.

Write to us at marktomarket@livemint.com

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             J-L K.
Procurement Consultant
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