Rain, pests cause more than a storm in tea industry's cup

Heavy rain, coupled with pest attacks, pulled down the bottomline of the tea industry in the first quarter.

Financial performance of tea companies – bulk and branded – together showed revenues from tea increased three per cent to Rs 1,417.33 crore while operating profit dropped 38.51 per cent to Rs 151.94 crore. Margins on tea sales declined 40.28 per cent.

“Though the first quarter is not indicative for the industry, financial performance was affected due to crop loss,” Aditya Khaitan, managing director of the world’s largest bulk tea producer, McLeod Russel India, said.

The industry has seen substantial crop loss in North Bengal and Assam. Assam saw a production decline over two successive months—May and June—in 2010. While during May, the region witnessed a three million kg loss in crop against the corresponding period of last year, June has seen the maximum loss in crop in both Assam and West Bengal.

In the first quarter, average of North Bengal and Assam tea prices was at Rs 119.12 a kg, compared to Rs 129.18 a kg. In South India, however, crop was higher than the corresponding period, which translated to a steeper drop in prices. The average price of South Indian tea during April to June stood at Rs 66.36 as against Rs 86.23 a kg. Branded tea company, Tata Global Beverages, faced severe erosion in margins as the bulk tea market made a strong opening beginning of the season.

Even as the first quarter performance looks gloomy, prices are likely to increase in the coming months on crop loss.

Stagnant production in India, shortfall in production in the quality belt of Assam and carry forward shortage should lead to firmer prices in India, said an industry representative.

“The crop situation particularly in Upper Assam (concentrated in the Doom Dooma area) has again been severely affected with nearly all the major tea groups operating in that region namely Apeejay Tea, Assam Co, M K Shah Exports, McLeod Russel and Warren Tea reporting significantly lower production,” the Indian Tea Association (ITA) said.

According to ITA estimates, July showed a further decline of two million kg of crop for the association’s members. “Even though South India was higher, the overall production in India is likely to be lower than last year,” Khaitan said.
 

TEA TROUBLE
Company	Margins  on tea sales

 Growth in %

Tea
revenueTotal
revenueNet
profit Jun ‘09Jun ‘10Jun ‘10Jun ‘10Jun ‘10 Tata Global Beverages16.069.244.157.75

LTP

Mcleod Russel25.8115.391.361.36-39.54 Goodricke Group18.3713.622.953.14-25.53 Jay Shree Tea27.1818.40-10.9823.18-8.20 Warren Tea21.914.5216.9916.99-14.84 Harrisons Malayalam16.84-20.91-17.7410.90

PTL

Assam Company India32.5442.783.5513.7814.68 Bombay Burmah19.522.180.5216.1244.57 Asian Tea3.072.6213.4813.4844.00 Rossell Tea29.9224.7114.7221.194.83 Total for industry17.9510.722.938.5679.95 LTP; Loss to profit  PTL; profit to loss *

With only five months of tea production left with the tail-end of November and December, the industry expects the year to close with a shortfall of 40 million kg, which implies that pipeline shortage at the beginning of next season would be to the tune of 90 million kg.