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Tea - ƒ Lower production, higher realisation to augur well for industry
The overall production from January-November, 2010 fell by 13.23
million kg (mkg) to 907.65 mkg (682.71 mkg in the north and 224.94
mkg in the south) leading to a surge in prices by ~| 15 per kg. Thus,
in spite of a decline in volumes, higher realisation would augur well
for the companies that could witness almost a 10% increase in
revenues in FY11. In Q3FY11E, we expect revenues to be up ~10%
YoY and ~5% QoQ though the higher employee cost would pull
down the margins by around 4% YoY and 14% QoQ.
ƒ Global outlook continues to remain positive for tea companies
The country’s overall exports from January-November, 2010 were flat
as the corresponding period last year at 178 mkg, per unit realisation
fell to | 130/kg against | 142/kg last year due to higher production of
~100 mkg in Sri Lanka and Kenya (world’s largest producers of black
tea). However, we believe the higher global tea production of 2010
may not sustain in 2011. Also, with the increasing global demand at
~3.5% per annum we expect global prices to rebound to | 150/kg.
Also, the two major tea producing companies, McLeod Russel and
Jayshree Tea are continuously eyeing acquisitions of tea gardens in
Africa (due to lower cost of production) in order to increase capacity
and capitalise on the increasing demand. We also believe the
increasing demand for quality tea (Darjeeling tea) produced by
Jayshree Tea would continue to command higher realisations (~|
250-300 per kg) in international markets.
Harrison
Malayalam
We est tea sales of 5.7mkg at avg of |72/kg & rubber sales of 2800 tonnes at
|190/kg.Inspite of high realisation from rubber,falling realisation from tea & higher labour
cost would keep margins low at 7.2% against 13.7% in Q3FY10.Rubber prices expected
to remain firm at ~|200/kg; would improve margins going ahead
Jayshree
Tea
We expect average realisation from tea in Q3FY11 to be | 154/kg against | 148/kg in
Q2FY11, thereby pushing up sales by 15% YoY and 17% QoQ to |162 crore. However,
sales volumes could dip by 1.5 mkg to 9.3 mkg for the quarter. Continuing employee
cost pressure would pull down margins to 22% against 24.3% in Q3FY10
McLeod
Russel
Surging tea prices, higher demand with shortfall in tea production, especially in North
would lead to higher realisation estimate at | 153/kg with dip in sales volume to ~24
mkg. Thus, Q3FY11 sales are likely to grow 7% YoY to | 358 crore with margins sliding
to 40% (| 143 crore) from 44% (| 149 crore) in Q3FY10
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