McLeod Russel India nears all-time low; stock tanks 41% in three days

McLeod Russel India shares continued to reel under pressure, hitting an over decade low of Rs 45.45, down 10 per cent on the BSE on back of heavy volumes. The stock of flagship tea company of the BM Khaitan group was trading at its lowest level since March 12, 2009 on the BSE.

During this week, the stock has tanked 41 per cent from level of Rs 76.40, as compared to flat performance in the benchmark S&P BSE Sensex. It was quoting close to its all-time low of Rs 35.25 hit on December 2, 2008 in intra-day trade.

The trading volumes on the counter jumped 3.5 times with a combined 3.08 million shares changing hands on the NSE and BSE till 01:59 pm.

“There are no reportable disclosures and we are not aware of the specific reason/s for significant movement in the prices of the scrip of the company in the recent past,” McLeod Russel India said on clarification with reference to recent slide in its stock price.

On April 22, 2019, the company informed stock exchanges that it has executed an agreement for sale of specified assets of Addabarie Tea Estate, Mahakali Tea Estate and Dirai Tea Estate of the Company, with Luxmi Tea Company Private Limited.

Earlier, the company had entered into a non-binding term sheet with Saffron Enclave Private Limited, inter alia, for sale of specified assets of the aforesaid three estates, which has expired on 31st March, 2019, the company said.

Brokerage firm ICICI Securities has dropped the company from its coverage owing to slowdown in tea consumption. In its latest research report released on Friday, analysts at the brokerage firm wrote, "though domestic tea production has been increasing well, the increase in consumption is slow. This does not augur well for the industry. This unhealthy demand-supply situation is one of the primary reasons for falling prices in auctions."

"We believe McLeod’s continued deterioration in earnings in the backdrop of rising production costs along with high debt exposure is structural in nature. Hence, we are dropping coverage on the company," they added. 

On March 29, 2019, the rating agency ICRA revised credit ratings of the company’s term loan, fund-based and non fund-based facilities. It removed rated instrument from ‘watch with developing implications’, and assigned ‘Negative’ outlook.

“The revision in the ratings factors in the continued deterioration in the company’s profitability, owing to lower-than expected increase in realisation not adequately compensating for the significant increase in labour expenses in the current financial year, which along with debt funded high exposure to group companies, have kept the capital structure stretched and debt coverage indicators under pressure. The liquidity position of the company also witnessed considerable deterioration,” ICRA said in rating rational.