| Mcleod Russell, the world's biggest tea grower, plans to use rising prices to build a "war chest" of as much as $250 million to acquire companies. The plantation company, based in Kolkata, may buy tea companies in India and Africa as it targets a 50 percent increase in production to 150 million kilograms in three to four years, said Aditya Khaitan, managing director of McLeod Russel. McLeod plans to "wait for the tea cycle to turn and wait for people to exit plantations," Khaitan said in an interview at his office today. "There is no way for us to grow organically." Rising prices helped the 141-year-old company report record quarterly profit in the three months ended Sept. 30 and prompted it to acquire plantations in Uganda and Vietnam. Prices in North India, which accounts for 70 percent of the nation's output, may rise as much as 15 percent as demand for the beverage rises and costs increase for companies including Tata Tea Ltd., the owner of the Tetley brand, and Unilever Plc. McLeod's shares, which have more than doubled in the past year, declined 3.6 percent to 208.60 rupees in Mumbai. The benchmark Sensitive Index slipped 1.6 percent, paring its gains in the past 12 months to 43 percent. The average prices of tea sold in auctions in north India rose 14 percent to 97.4 rupees ($2.2) a kilogram in February from a year ago, according to data from the state-run Tea Board of India. Overseas Plantations The company completed the acquisition of James Finlay Uganda Ltd., which makes and markets 15 million kilograms of tea annually, McLeod said on Jan. 18. It bought U.S.-based Olyana Holdings LLC for $2.75 million in August last year to gain control of Gisovu Tea Co., a Rwandan plantation company. "It makes sense for Indian tea companies to look for plantations overseas as asset prices in India are high at the moment," said Anup Ranadive, an analyst at Tower Capital & Securities Ltd. in Mumbai. "McLeod, with most of its gardens in Assam, will continue to command a premium and that should help them generate enough cash." Khaitan expects India's demand for the beverage to rise 3.5 percent annually, outpacing the estimated 1.5 percent increase in production this year. India's output last year dropped 0.18 percent to 978.9 million kilograms, according to the Tea Board. Exports declined 5.7 percent to 191.4 million kilograms. "India is becoming a story in itself," Khaitan said. "Money is flowing into rural India and they are spending it on basic necessities."
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