Bottom line swells for tea firms on lower crop, higher at-home consumption

Industry says Q3 of FY21 also likely to be good; Moreover, there will be no dry period as North Indian gardens observe closure during winters

A large part of the population is working from home and drinking more tea. A bump in at-home consumption of the world’s preferred beverage, coupled with lower crop due to Covid-19 disruptions is adding to the bottomline of companies.

The largest producer, McLeod Russel India, reported a net profit of Rs 148.29 crore in the September quarter, an increase of 63 per cent on a year-on-year basis; Jay Shree Tea & Industries posted a net profit of Rs 76.67 crore compared to Rs 8.41 in the same period last year; Goodricke Group clocked in a net profit of Rs 72.85 crore, an increase of 29.55 per cent. 

Revenues, too, were higher for the companies on a year-on-year basis. McLeod saw a 52 per cent increase in revenues, Goodricke 37.44 per cent and Jay Shree 38.46 per cent.

Azam Monem, director, McLeod Russel, explained that the tea industry is cyclical and every 7-8 years, there are triggers like high consumption and exports. 

“There were traces of the market bottoming out in 2019 and then Covid and adverse weather conditions impacted crop. At-home consumption has also risen,” he said.

Monem said information from larger packers suggested that at-home consumption had risen by 3-4 per cent while out-of-home (OOH) dropped by 20-25 per cent, which affected regional packers largely.

Consumption in India is highly skewed towards at-home which varies from 70 per cent to 96 per cent; OOH is mainly at workplace and the trend holds good more for the more industrialised western states. The trend in at-home consumption is global with people working remotely during the pandemic.

The industry, however, was impacted by the pandemic in more ways than one. Till September, crop loss stood at 18-20 per cent, on account of disruptions during the lockdown period and then adverse weather conditions in June and July. The deficit sent tea prices soaring and consumers accepted it.

Goodricke’s own crop for the six months ended September 2020 was down by 28 per cent as compared to the previous year. However, the overall shortfall of tea in the market led to a substantial upside in tea prices leading to its overall realisations going up by 43 per cent over the same period of previous year.

Atul Asthana, managing director and chief executive officer, Goodricke Group, said that the company focused on good quality tea and took a cut in crop for it, which added to the bottomline.

Upto October, the average price at auctions all-India was Rs 221.30 compared to 147.25 in the preovious year; for North India, the average was Rs 256 as against Rs 160.90 in 2019. That was below peak levels seen in August when prices at Kolkata auction had breached the Rs 300 a kg-level.

The industry expects the good phase to continue. Asthana said, “We are going into the year with a deficit.”

D P Maheshwari, managing director and chief executive officer, Jay Shree, said that the third quarter would also be good. “We may not a sequential jump like Q1 and Q2, but there will not be a drop in Q3.”

Moreover, the industry will not be going into a dry period as North Indian gardens observe closure during winters.

Prices of tea at auctions

.	Upto October
North India 2020	256.00
North India 2019	160.90
South India 2020	137.79
South India 2019	98.13
All India 2020	221.30
All India 2019	147.25

Figures in Rs/kg

Source: Tea Board