In 2005, Mr Aditya Khaitan steered McLeod Russel towards acquisitions to build a plantation empire in India. It was a move against the wind. In an interview to Business Line , the Managing Director of world's largest tea producer, shared his dreams of a balanced growth for the company in the years to come. Excerpts from the interview:
McLeod Russel added capacities when others were exiting plantation. Would you take a re-look to your success?
In 2004-05 we had a view that tea will be in short supply in the years to come. One thing I have realised in the tea industry is that you need to have certain love affair with the commodity. Yes, tea does have its problems. Labour will be hard to find and there will be shortage. Weather is not very consistent. All these affect the production cycle. But we were confident that we could handle it.
You referred to the problem of farm labour. Where do you expect it to move in terms of scarcity of labour and wage?
The worry is in terms of shortage of labour. For that (plucking) machines will have to be implemented. It is happening in South India. I foresee, in the future 20-30 per cent teas in the North India will be plucked by machine.
You are planning to add another 20-25 mkg production overseas with a focus on Africa. Do you attach any timeline for such acquisitions?
Everybody is expecting prices to go up in the long run. Therefore assets are either not available or the premium that is expected is not making any economic sense, today. It is important for us that the company does not go through the pain, as in early 2000, when we (then Eveready Industries) were highly leveraged and we had to sell some tea gardens to meet our requirements. Every time we look at growth, we always think of those moments.
Unless the assets make a huge strategic fit, we are willing to wait. Meanwhile, we are ensuring that our balance sheet gets stronger. I believe that in the next 2-3 years, opportunities will come. And, if you have excess cash, you are in a position to pay a slightly higher price for acquisitions.
But on the other hand, if something very attractive comes along, we do have resources to make the acquisition, be it in terms of cash or through borrowings, since our balance sheet is virtually debt-free.
You have said that tea is in short supply. Why this is not reflecting in prices?
It will happen in next one to two years. It will happen sooner than later.