Posted by: Sujoy Das | September 4, 2010

Tea Plantations: Cos eye huge profits

The Economic Times 2nd Sept 2010

KOLKATA: Tea companies with estates in Assam and West Bengal, such as McLeod Russel, Goodricke Group, Apeejay Tea, Dhunseri Tea, Assam Company and Jay Shree Tea & Industries, are in clover as production gets hit by heavy rains and a pest attack, pushing up wholesale prices by up to `25 per kg. Company officials and market analysts say this could result in a sharp spike in their third and fourth quarter earnings. Tea companies usually witness a lull in the last quarter and profitability suffers as there are hardly any buyers for end-season teas produced in November-December. This year, prices are likely to remain firm in these months too. Aditya Khaitan, managing director of McLeod Russel, the largest tea producer in the world with a production base of 100 million kg of tea annually, said production was down by 10-12 million kg by July and the August crop has been lower too. Due to heavy rains, tea estates have been waterlogged which is affecting production now. With only four months of the tea season left, including the tail-end production of November and December, it is likely that the north Indian tea production may fall short of the 735 million kg clocked in 2009. “As things stand today, I feel there will be a shortfall of at least 20 million kg this year,” he added.

This means the Indian tea industry may not be able to touch the 981-million kg production that it had achieved in 2009. Mr Khaitan, also the chairman of industry body Indian Tea Association, said a large quantity of quality teas are being bought at prices higher by `20 -25 per kg compared to last year. Even average quality teas are selling at a premium of `10 -15 per kg.

Marketmen too agree the second half of the current fiscal will be much better for tea firms. Rajesh Agarwal, head (research), Eastern Financiers, an equity broking firm, said: “A substantial decline in tea production in major tea producing countries, a shortage of carry-forward stocks coupled with a continued increase in consumption has helped tea prices to remain strong and going forward we believe the situation is going to be the same for the next two quarters. Take the case of BK Birla’s Jay Shree Tea & Industries. Given the fixed cost structure, Jay Shree is well-placed to benefit from the rise in tea prices and the concurrent rise in margins. We are quite bullish on the company and we believe that the valuations are extremely attractive.”

CK Dhanuka, chairman of Dhunseri Tea, which has 12 estates with a production of 12 million kg annually, said domestic consumption will continue to grow at 3.5%. DP Maheshwari, MD of Jay Shree Tea, which has 25 estates within its fold including three in Africa, said good teas are fetching anything between Rs 200 and `245 per kg. “We feel prices will remain firm in the coming months. It should be a profit-earning year for tea companies,” he added.

However, the Apeejay Group, which has 17 tea estates with a 25-million-kg production, believed things may not be rosy. “Better price realisation would not be enough to compensate the heavy loss in crop,” said an Apeejay Tea spokesman.

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