Demand, Price Spurt Right Brew For Tea Units
The tea industry, that faced a turmoil on the export front following the break-up of the Soviet Union, is showing signs of recovery. Falling exports do not worry it now.
The industry is sitting pretty on growing domestic demand and a rise in tea prices during the current year. An average 4.6 per cent rise in domestic consumption as against a growth of about 2.7 per cent in production during the last four years has subdued export growth which has declined by an average two per cent a year in last four years. In the year 1996-97, nineteen tea companies notched up a 14.5 per cent growth in sales and 10 per cent surge in net profits. As in the case of other companies, costs of fund ate up profit margins of the tea companies.
A 33 per cent rise in interest burden restricted the growth of gross profit to 4.3 per cent. Consequently gross profit margins fell to 13.3 per cent from 14.6 per cent in the previous year.
Tata Tea, the industry leader, with a 33.5 per cent increase in sales turnover and 27.2 per cent in growth in net profits, shored up the overall results of tea companies. The gross profit margin has, however, declined to 13.6 per cent as against 15.2 per cent in 1995-96 and 22.8 per cent in 1994-95.
The company attributes the fall to depressed prices for tea during the early part of 1996-97 besides a 74 per cent rise in the cost of funds. A redeeming feature has been a 82 per cent rise in exports of tea and a 116 per cent increase in exports of traded coffee. Tata Tea accounts for over eight per cent of the tea grown in India. The company has 29 tea estates in Kerala and Tamil Nadu and 22 in Assam and West Bengal.
The company showed a foresight by acquiring tea estates in Sri Lanka, Kenya, Zambia, Uganda and South Africa. It has a new thrust on exports for future growth. The company's presence in the auction as well as in the value-added packet tea segments may shield it from overexposure and ensure a steady price realisation. With prices on the rise in the near future, the company hopes to do better in the current year.
An investor-friendly Jay Shree Tea & Industries witnessed a 3.3 per cent rise in sales turnover and a 16.7 per cent growth in net profit. The company, with most of its tea gardens located in the north, expects to cash in on higher price realisation.
Its GPM fell marginally to 10.9 per cent in 1996-97 as against 11.4 per cent in the last year, mainly due to its diversified activities in shipping, fertilisers and plywood. The Indian tea industry, after witnessing a negative growth in profits in 1994-95 and 1995-96, is inching up on the growth path. The reasons for the surge are many.
With an expected fall of 40 per cent in Kenyan tea output in the current year, prospects of Indian tea exports in 1997 have brightened. Of late, the United Kingdom buyers are eyeing Indian tea to meet their demand.
The hardening of Kenyan tea prices at the London auctions and enquiries by the Russian buyers have also helped the demand for Indian tea. The current price trend at CTC auctions has also been encouraging.
Assam valley teas are fetching around Rs 55-66 per kg as against an average auction of price of Rs 50.95 per kg in 1996.
The industry, however, suffers from high costs of operation. Being an agro-based product, tea production is labour intensive. Nearly 55 per cent of total cost is attributed to labour. Low acreage under tea also restricts its cultivation. The age of Indian tea bushes is another factor.
While in Kenya and Malawi the average age of tea bushes is around 30-35 years, over 40 per cent of tea bushes in India are over 50 years old and about 19 per cent between 30 and 50 years.
This results in low yield per acre for Indian tea manufacturers. In the light of above analysis it seems the perspective plan of the Indian tea producers to produce 1000 million kg by 2000 AD looks far from realisable.
The fact is India's tea output has risen by just 3.4 per cent a year during the last six years, from 754.2 million tonnes in 1991 to 780.1 million tonnes in 1996.
As the per-acre yield of tea gardens in the country is low compared to international standards, the production plan needs to be pruned to a realistic level of around 875 million kg for 2000 AD. Export is another area where Indian tea is losing its grip as is evident from the fact that tea exports fell from a robust 224 million kgs in 1980 to around 154 million kgs in 1996 after the fall of the Russian market.