The Telegraph
Since 1st March, 1999
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Precursor to more alliances

Mumbai, Jan. 22: Is the Tata Chemicals-Hind Lever Chem merger a precursor to bigger alliances between the parents in the coming days' This is the question uppermost in the minds of analysts tracking the companies. The groups have been on excellent terms with each other after having sewn up two major alliances in the past. Tata Oil Mills (TOMCO) and Lakme were purchased by HLL.

Incidentally, no merchant banker was involved in the merger proposal of HLCL with Tata Chemicals.

Analysts expect the merger of HLCL and Tata Chemicals to make way for more partnerships in the rural markets.

In 1999, HLL had set up a 250-acre wheat farm in agrarian Hoshangabad in Madhya Pradesh with a Tata group company, Rallis India, as the agricultural input provider. Now the farm is spread over 5,000 acres of land. Buoyed by the success of this farm, Lever along with the Tatas may expand to other wheat-growing states in the country like Punjab and UP.

The Tatas will be input providers while HLL will procure the farm output directly from the farmer. The resulting ‘dis-intermediation’ will do away with the middleman. Avoiding the middleman at all stages from procurement of seeds and fertilisers to selling the grains will mean that the farmer and the corporate get to share the spoils.

“It is classical ‘dis-intermediation’ which will help HLL to create a cheaper supply base for itself. Such alliances will be great facilitators for the groups to grow their business,” they added.

The promoters of the farm are Rallis India as the agricultural input provider, ICICI as the finance provider and HLL as the procurer and end-user of the wheat.

HLL claims to have saved on handling and transportation costs through direct procurement of wheat as 4 per cent of wheat is usually lost in transit.

Through the pilot project at Hoshangabad, HLL has been able to increase wheat productivity by 70 per cent. Rallis is in the forefront of this project having set up Rallis Kisan Kendras in many rural centres. For HLL, aligning with such ventures would make good business sense as the rural markets account for 50 per cent of its sales.

There are issues that still need to be ironed out. At the project level, defaults by individual farmers are issues yet to be tackled, as there are no enforceable rules in place. More and more corporates are entering the boondocks to play a role in the village mandi. ITC has already set up e-choupals in villages. Rallis along with HLL have made a name in contract farming. As corporates go to the farm gate to sell and procure in a bid to shavecosts, the alliance between the two majors will obviously look at synergies like these.

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