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Alagappan Arunachalam

INVESTORS can avoid the public offer of Beeyu Overseas. A tea processor that operates a bought-leaf factory in the Nilgris, Beeyu's , offer of 71.4 lakh shares is at Rs 14 a share, that is, at about 17 times its annualised earnings for FY-05. A cause of concern is the lower operating capacities achieved; Beeyu operated at 62 per cent of its capacity. The margins from the coffee segment have been declining over the years. The earnings from the tea segment have also dropped substantially; the segment booked a loss in the nine months ending December 2004.

Besides the tea business, Beeyu derives a chunk of its revenues from coffee exports; the revenues from this stream contributed 66 per cent in the first nine months of fiscal 2005. The earnings from the coffee segment set off the loss in the tea business. The increased demand for Indian coffee in the world market on account of a decline in production in Brazil, and a sharp spurt in prices have aided the robust results in the coffee segment.

With the proceeds of this public offer, Beeyu seeks to expand the capacity of its bought-leaf operations. The objective is to double the tea processing facility to 6,000 tonnes per annum by June and treble capacity by June 2006. Beeyu proposes to use 85 per cent of its capacities until 2007-08 and meet about 10 per cent of supplies from its plantations. The rest are to be sourced from tea gardens in a village adopted by Beeyu with the help of the Tea Board and UPASI.

Ninety per cent of Beeyu's revenues are from tea and coffee exports. The Russian and the CIS (Common Wealth of Independent States) markets, which have over the years been a major consumer of the South Indian tea, have been increasingly moving towards Kenyan and Sri Lankan tea.

Indian tea is among the dearer of the teas produced in Asia and Africa. Beeyu has ventured into the Gulf region; however, this market is yet to take off in a big way. It proposes to sell about 40 per cent of the tea processed domestically to cut down on its exposure in the global markets. This would entail taking on FMCG majors and other integrated players in the tea business.

Beeyu plans to set up a freeze-dried coffee plant along with Tata Coffee in Tamil Nadu, at a cost of Rs 80 crore with an equity contribution of Rs 10 crore from each of them. It also plans to acquire a tea processing facility in Sri Lanka at about Rs 2 crore and is also on the look out for plantations. These plans, however, are yet to unfold.

The offer will be open from May 26 to June 3; the manager to the issue is Canara Bank.

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