Tata Tea's acquisition of Tetley Group is turning out to be a success and the Tatas feel 'comfortable with the acquisition'.

"Tetley has performed extremely well in the last fiscal. It is now number one in the UK, in terms of volume, and number two in terms of value," said Homi R Khusrokhan, managing director of Tata Tea.

The financial results of the company for 2001-02, to be announced next month, will for the first time contain consolidated figures, bringing out the full impact of Tata Tea acquiring a company far bigger than itself. The acquisition took place in March 2000 for POUND 271 million.

Tetley is now number one in Canada and number two or three in the US. This, plus its prominent position in France, Poland and Australia, make it the second largest tea brand in the world after Levers.

The improving cash flow, plus a POUND20 million loan from Tata Sons and a POUND10 million loan from Tata Tea, have enabled Tetley to bring down its debt-equity ratio from 3:1 at the time of acquisition to 1.75 now. Tetley has been able to honour all its bank covenants and service the Tata debt.

The loan from the Tatas at 7 per cent has enabled Tetley to retire high-cost debt, which bore as high a coupon as 17-18 per cent. This in itself is helping Tetley improve its cash position.

The two companies, Tata Tea and Tetley, are going down the integration route through groups of managers periodically meeting to work on projects and process-driven objectives.

These processes are helping identify new geographies such as Russia, the CIS, and West Asia. The integration is covering areas such as information systems, accounting and human relations.

"The acquisition was strategically a good move. Now (with control over Tetley), Tata Tea can stand on two legs," explained Khusrokhan.

Global distributors of tea gain when producer prices are down. The Tata-Tetley combine can now acquire tea globally from low-cost sources.

The Indian tea industry has been slowly losing out to Sri Lanka in terms of both cost and quality and there is a 70 per cent import duty on tea.

As India brings down the duty to rates bound under WTO agreements, the challenges faced by other Indian producers will be offset for Tata Tea by the gains by its global operations. "If we didn't have Tetley we would be struggling," added Khusrokhan.

Another major gain from the acquisition has been the access to some of the best blending skills.

The secret of Tetley has been a very consistent blend and Tata Tea's blenders are learning from Tetley's blenders additional dimensions of blending.

Some of the earlier fears about cultural challenges facing an Indian company taking over a UK firm steeped in history have proved to be unfounded. With hindsight, Khusrokhan feels, "Intuitively, we did all the right things."