McLeod Russel posts 20.59% fall in net profit in Q3 after estate sales

The Tea Board had ordered compulsory closure of gardens and factories so that sub-standard tea is flushed out of the market

McLeod Russel's net profit fell 20.59 per cent to Rs. 53.59 crore for the quarter ended December 31, 2018 on the loss of production due to early closure of gardens in December following a Tea Board order, and sale of its 12 prime estates.

The net profit at the similar quarter of the last fiscal year stood at Rs. 67.49 crore.

Although the average tea prices in India firmed up by over Rs. 5 a kilo, the company’s revenue from operations during the third quarter (Q3) of the current fiscal year fell by 16.38 per cent at Rs. 465.22 crore as compared Rs. 556.38 on a year-on-year basis.

Kamal Baheti, director at McLeod Russel said, “The dip in production is on account of two reasons. We had to close our gardens early in December due to a Tea Board order and sale of gardens affected total production”.

A dip in the available crop for sale, in turn, affected its revenues although prices firmed up in the quarter under review.

With the sale of 12 gardens so far in the current fiscal year for Rs. 472 crore, the company’s total production of crop in the period under review fell by 35.77 per cent at 14.9 million kg (mkg). It had registered an output of 23.2 mkg in the Q3 period of 2017-18. 

The Tea Board had ordered compulsory closure of gardens and factories so that sub-standard tea, which is unsuitable for human consumption and is manufactured during the winter season, is flushed out of the market.

Baheti also reasoned that increase in wages by Rs. 20, which pulled up its expenses, was far short of the rise in prices which affected the company’s profitability.

Its operating profit, as a result, declined by around 72 per cent at Rs. 14.78 crore.

After the sale of 12 gardens, in September 2018, McLeod had again entered into Memorandum of Understanding with proposed buyers to sell another eight gardens for a consideration of Rs. 323.61 crore.

In a statement, the company said that higher tea prices have been offset by lower export demand but production for the month of December is likely to be lower by 15-20 mkg which is expected to boost prices as the first flush tea starts entering the market.

Also, the increase in wages and fuel prices are likely to have a negative impact on costs in the coming days.

“Cost per kg are likely to go up by Rs.20 per kg during the year. The company has taken substantial cost-cutting measures to offset the increase in costs”, the statement said.

The company’s scrip on the BSE closed at Rs. 88.10 a piece, down by 2.60 per cent.