He expects the company to grow 115 to 116 kgs of tea resulting in a 15-20 percent increase in its volumes. In an interview to CNBC-TV18, he said the latest tea producing plant acquisition in Vietnam will help the company increase its output to 7.5 million kgs.
Meanwhile, taking a cue from the monsoon forecast , he expects tea prices in the country to be positive.
Also read: See Sensex at 23K by Dec; funds shifting to India: Ambit
Below is the edited transcript of the interview to CNBC-TV18.
Q: What will this acquisition mean to you in terms of synergies or cheaper raw material from your Vietnam tea gardens or Vietnam as a source of supplying tea for you?
A: Strategically, we had said that we would like to grow through more acquisitions in the area where we are present. Currently, we have got four tea processing factories in Vietnam with around six million kilograms of production. We added one last year. Our capacity has gone from five million to six million. Our target is to produce around 10 million kilograms in Vietnam.
This is in the same area, around 10 kilometres from our existing tea processing factory. Synergically, it makes lot of sense for us. This has got a capacity of 1.2 million which we can increase. With this particular acquisition, our overall production in Vietnam is expected to be 7.5 million kilograms by next year. We just signed an agreement for total consideration of 2.8 million. It will take a month before we complete the deal.
Q: Do you also export tea leaves or tea from Vietnam? Is there any trading advantage in acquiring this company?
A: Basically, the additional production which will come in, whatever we produce out of Vietnam is 100 percent exported. It has got a good margin of around 20 percent for processing whatever leaves we get. Overall, the way Vietnam works is that the leaf is being sold to the company. They process it and sell the finished product in case of black tea.
Q: Your EBITDA are 30 percent, aren't they?
A: Vietnam has a different kind of structure. There, the leaf is being sold by the farmers to the companies. It is basically processing margin. We take the green leaf and then process it. There, the margin is 20 percent. It is similar to what we do for the small growers in India. So, 20 percent is normally the margins for the small growers leaf processing. This has been the case for other four factories in Vietnam. It is in-line with the existing operations in Vietnam.
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