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July 13, 2011

India's Jayshree Tea & Industries to acquire African plantations

by Pradipta Mukherjee

Jayshree Tea & Industries Ltd. (JTI), the world’s third-largest tea producer, plans to acquire plantations in Africa as it seeks to double output in five years.

Jayshree wants to increase tea production to 50 million kilograms, Managing Director D. P. Maheshwari said. The Indian tea producer made three acquisitions in Africa last year to boost output as demand for the beverage exceeds supply.

“Organic growth has a limit,” Maheshwari said. “Unfortunately things in Africa move very slowly but I expect something concrete within the next three to four months.”

Jayshree joins McLeod Russel India Ltd. (MCLR), the world’s largest producer, in expanding overseas after output in India last year fell to the lowest level since 2005 because of pest attacks in the nation’s biggest growing region. Prices at auctions have almost doubled on average in the past five years, data from the state-owned Tea Board of India show.

“African region is the best place right now because labor cost is cheap and a company will get really good realization if exporting to Europe,” said Sanjay Manyal, a Mumbai-based analyst with ICICI Securities Ltd. “But tea prices are very high so the assets are going to be very expensive.”


Jayshree, which owns about 10,000 hectares (24,710 acres) of tea gardens and spent a total of 320 million rupees ($7.2 million) to buy tea estates in Uganda and Rwanda in the year ended March 31, expects another purchase to “improve production and profitability” as costs are lower in Africa, Maheshwari said. Acquisitions will be funded mainly with company’s profit, he said.

Tea production in India may total as much as 990 million kilogram this year as favorable weather conditions boosts yield, Maheshwari said. Output was 981 million kilograms in the financial year ended March, 2010, he said.

Jayshree’s tea productions from gardens in India may total 27 million kilograms this year and another 5.5 million kilograms may be supplied by plantations overseas, he said. The company produced 24.1 million kilograms of tea last year, he said.

Bloomberg

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