Warren Tea looks to expand hotel business

Warren Tea Ltd, one of India’s oldest tea producers with seven prized tea estates in Assam, is looking to expand its hospitality business with substantial capital expenditure over the next three years, at a time of uncertainty, when plantation owners are faced with rising costs and contracting margins.

Maple Hotels and Resorts Ltd, a company in which Warren Tea owns 46.92% stake, will be spending at least Rs60 crore to expand operations. A hotel is being built in Jodhpur, and another one operating in Bikaner is being expanded, said Vivek Goenka, president of the company.

Alongside, Maple Hotels has expressed interest in buying a 90-room property in Jaipur, where it already operates two hotels. It is also looking to acquire stressed assets under insolvency resolution, according to Goenka. The company is currently eyeing properties with around 100 rooms for acquisition through the bankruptcy court.

In Jodhpur, the company owns a 1,500 sq. mt. plot, or about a third of an acre, on which a 60-room property is being built. It also has a 12-acre plot in Bikaner, where a 48-room property occupying four acres is currently in operation. Maple Hotels is looking to add 30 upscale tents at this property.

Most of the expansion is likely to happen in Rajasthan, where the company has three running hotels, according to Goenka.

Asked about plans for funding the expansion, he said cash flows from tea will not be ploughed into Maple Hotels. The two businesses are to be kept separate “as far as possible”. The hotel business, which currently generates around Rs20 crore in annual revenue, is to be scaled up “on its own strength”, Goenka added.

Diversification to spread risks is “very important as a strategy,” said Jagjeet Kandal, managing director of Amalgamated Plantations Pvt. Ltd, another large tea company with estates in Assam and the Dooars region of West Bengal.

But the key problem for plantation companies is that they do not have cash to invest to diversify, said Kandal, who fears production cost of tea could go up by Rs60-70 a kg on account of wage revision. If that happens, most tea companies are going to run out of cash within two months, according to Kandal.

Goenka, however, said “diversification is good and important as a long-term strategy” but the aim of scaling up the hospitality business was not to spread risks. He said he was pursuing growth in hotels and information technology because he saw a lot of potential in these businesses.

The group has been selling software solutions for enterprise resource planning (ERP) and facial recognition. The ERP solution has been implemented in at least 50 tea estates and a large majority of jute mills in operation, according to Goenka. From January this year, the group has started to sell software for facial recognition, and it has been implemented in at least 15 tea gardens, he said.

The software services venture, which is privately owned by the Goenka family, has started to sell solutions outside in India in markets such as Bangladesh and Nepal as well, Goenka said.

In plantations, too, Warren Tea is eyeing inorganic growth. It has expressed interest in taking over the beleaguered estates of Assam Co. India Ltd.

Source:-https://www.livemint.com/Companies/Rk2REevMNvmON47HgeWxRI/Warren-Tea-looks-to-expand-hotel-business.html

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