The hills are alive

In illustrious company in the same issue (November 23, ’03) of business today is Homi Khusrokhan, managing director, Tata Tea, featured in a three-page article entitled "Tata’s Tea Party.” The reason: "His company’s three-year-old, $ 400 million acquisition of British premium tea brand Tetley — a deal that was dubbed a costly disaster soon after it was announced — is proving to be its smartest move yet. ‘I guess I could say we always told you so,’ chuckles the 59-year-old Khusrokhan, who previously headed Glaxo India before joining Tata Tea in February of 2001.”

Tata Tea’s share price which took a tumble from its peak of Rs 632 in January 2000 (just two months before the deal) to a low of Rs 116 in September 2001 has steadily risen to a current price (as on February 27, 2004) of Rs 348.90.

The turnaround has been the result of a major CTC (cut-tear-and-curl) company brew: Tetley’s Australian plant was shut down and production shifted to Cochin in India last year; Tetley closed three plants in the UK and US; the work force was pruned and a high cost debt swapped for low cost debt at 6.7 percent per annum in early 2003. Even three years down the line, the Tetley deal remains the largest cross-border acquisition by any Indian corporate.

Khusrokhan: successful corporate innings

But surprisingly enough, merging the two entities operationally (legally they are still separate, with K. Pringle being Tetley’s managing director) did not throw up any major glitches. "We had been working actively with Tetley even before the merger, so I guess the culture issues that generally plague mergers of this scale were non-existent,” the magazine quotes P. T. ‘Percy’ Siganporia, deputy managing director, Tata Tea.

Tata Tea has even absorbed specific skills, such as tea buying, sourcing and blending, from Tetley. "For example it has moved from a ‘heritage system’ — an old-world, touchy-feely system — to Tetley’s uniform computerized rating system Broadbrush. Says Siganporia: ‘With Broadbrush, you don’t have to be at the buying place physically, besides it is easier to assemble recipes. Both yield a huge jump in productivity.’”

But for Khusrokhan, much work remains, notes business today correspondent Abir Pal. Hindustan Lever Limited remains the market leader with a 33 percent share (ORG data for April 2002-March 2003). There are regional brands and a clutch of small, nimble, unbranded players who are undercutting their bigger rivals through aggressive pricing.

"Having Tetley in the fold then, enables Tata Tea to ride out the market troughs much more evenly. But what R. Krishna Kumar (vice chairman, Tata Tea) and Khusrokhan want ... is to make Tata Tea the world’s largest branded tea company. As of now, things seem right on track,” writes Pal. (Khusrokhan has since retired from Tata Tea and a successor is yet to be appointed.)