The acquisition of Eveready Industries’ packet tea business will make Madhu Jayanti International (MJIL), the acquirer, a pan-India player instantly from its current presence in only two states, while also complementing various price points to take larger competitors such as Tata Global Beverages, HUL and others head-on.
While MJIL’s Rs 55-crore packet tea business is limited to Maharashtra and Karnataka, Eveready’s three tea brands are sold in 14 states such as Uttar Pradesh, Rajasthan, Gujarat, Bihar, Jharkhand, Madhya Pradesh, among others.
The sale, which is expected to be signed by July 4, will transfer Eveready’s licensing rights to MJIL and give it access to a wide base of 2,800 distributors, primarily focussed in the upcountry markets.
“We expect to retain the entire distribution network of Eveready’s packet tea business, which will help us immediately reach 14 states at a go”, said Sumit Shah, executive director at MJIL.
MJIL only has 131 distributors currently. Shah hopes to route its current brands Sphoorti, Saraswati, Lalpan Gold and Tea Queen using Eveready’s network, which, in turn, will boost sales of these brands too. With the acquisition, MJIL’s tea production in India will also increase from 2.4 million kg (mkg) to 6.2 mkg and its income from branded tea sales will rise 53 per cent to Rs 198 crore this fiscal year itself.
MJIL’s brands operate in the higher end of the mass segment, priced between Rs 84-140 per 250 gm while Eveready’s brands – Tez, Jaago and Premium - operate in a price bracket of Rs 50-85 for similar grammage.
“The acquisition thus also helps us complete our pricing portfolio as well and we can have products across various price points which will help us compete better,” Shah said.
While Lalpan Gold, the highest priced-tea in the MJIL portfolio competes directly with Brooke Bond’s Three Roses, Sphoorti competes with Red Label. Eveready’s Tez Premium competes with Tata Premium and Tez Red and Jaago, it two other brands, compete directly with Tata Agni and Taaza.
In the coming five years, MJIL expects the brands it is acquiring from Eveready to make up 34-35 per cent to its consolidated domestic turnover.
Before this deal with MJIL, Eveready had entered an agreement with McLeod Russel to boost the packet tea business. However, the latter has been selling its estates to pare debt and lenders have been invoking company shares pledged with them.
Eveready sources said the proceeds from this sale will be used to boost the faster growing categories such as appliances and lighting and will help improve its EBITDA margin.
In the last fiscal year, its packet tea business stood at Rs 68.30 crore, but it had an EBlDTA loss of Rs 11.3 crore. Eveready felt it was not able to pump in money to promote the tea brands and saw the business as uneconomical.
(Business Standard)
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