The Goodricke group has many exceptions. With UK-based Camellia Plc controlling 74 per cent stake, it is the only foreign-owned tea planter left in India. Over the past five years, even as most plantation stocks suffered, Goodricke remained a consistent performer.
At a time when tea companies are shifting focus from plantation to outsourcing, Goodricke has upped the ante in plantation. After 30 years, it acquired two estates in Assam from McLeod Russel (which recently sold 20 estates) for ₹92 crore to take its own production to 31.5 million kg (mkg) from 29 estates.
Debt-free entity
“We never joined the bandwagon. We are a 100 per cent debt-free company and could have acquired more estates. But we didn’t, because we don’t want to increase the borrowings beyond manageable levels,” said Atul Asthana, MD and CEO of the flagship Goodricke Group Ltd (GGL).
Asthana believes that planters focussing on producing good teas will gain in the long run.
The listed entity reported a profit of ₹32 crore on a ₹730-crore turnover in FY18. The consolidated group turnover — including the unlisted Amgoorie India, Stewart Holl and Koomber Tea Ltd — is estimated at ₹800-850 crore with a profit of ₹70-80 crore.
The low financial leveraging is a major reason behind the group’s high profitability. As on March 31, 2018, GGL was the least leveraged plantation stock — when compared to peers such as McLeod and Jay Shree Tea — paying an annual interest cost of barely ₹2 crore.
GGL has already capitalised the 2017 acquisition of Godfrey Phillips’s ₹20-crore packet tea business. To ensure the profitability of the listed entity, only ₹31 crore of the total ₹92-crore acquisition is booked under GGL’s balance sheet. The rest is booked on the more profitable Amgoorie.
Value addition, exports
The acquisition should help improve the bottomline in more ways than one, said Asthana. First, it has pushed up the number of estates in Assam to 12, identical to the exposure in Dooars (Bengal), where the yield is higher but price realisation is nearly ₹20 a kg lower than Assam.
Second, Goodricke currently sells nearly 8.5 mkg of tea through packets. Of the total, nearly half is Goodricke’s own tea. The company is now aiming to direct more own-production to packet sales, thereby tapping extra value.
There is enhanced focus on exports, too. Till last year, 22 per cent of the company’s own production (29 mkg) was exported, ensuring higher realisation. The target this year is to enhance it to 31.5 mkg.
But that doesn’t mean Goodricke is free from concerns. Asthana said approximately three gardens in Dooars and two in Darjeeling are not making profits.
Wouldn’t it make business sense to sell the non-performing assets? “We never sold assets. We cannot. Our company is against putting jobs at stake. We have to turn the gardens around,” Asthana emphasised.
Mechanisation
But how will they cope with the dual issues of increasing supply of cheap teas from the unorganised small growers and a sharp 22-30 per cent rise in wages in the organised sector? The answer lies in saving costs through mechanisation and improving the quality for higher realisation, said the Goodricke MD.
Over the past two years, the company has mechanised spraying operations, saving five lakh man-days. It is now looking to mechanise 10 per cent of plucking operations, which accounts for 60 per cent of the labour cost, in Dooars.
“The pressure of higher wages will be there. We have to find ways to mitigate it,” said Asthana.