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Higher tea realisations to augment revenues…
Jayshree Tea (JT), the second largest producer of tea in India, would
benefit from the synchronous rise in domestic and global tea prices.
With the rise in tea realisations and increasing contribution from high
quality Darjeeling tea, we expect net profit to grow at a CAGR of ~15%
from FY11-FY13E.
High priced Darjeeling Tea to drive earnings growth
The company owns six estates in Darjeeling, which is known for its
superlative quality of orthodox tea. Darjeeling tea is mainly exported to
Russian and Middle East countries. In 2010, average realisations of
Darjeeling tea were | 285 per kg as compared to | 120 per kg for black
tea. With the robust demand for high quality tea in international markets,
prices in the current year are expected to reign higher by a further | 15-20
per kg. Hence, backed by higher realisations and increasing exports of the
company (| 48.6 crore in FY08 and | 90 crore in FY10), we believe
Jayshree’s revenues would continue to grow at ~12% CAGR from FY11-
13E. We expect the EPS to grow at ~9% CAGR in FY11-13E.
Acquisitions to improve volumes
JT has been able to increase its sales volume from 18.2 million kg (mkg)
in FY08 to 23.4 mkg in FY10. The company achieved this by increasing its
production capacity through acquisition of estates in East Africa (Rwanda
and Uganda of 5.3 mkg capacity per annum) at an investment of | 30
crore. It is further eyeing acquisitions in Kenya and Africa that would help
the company to boost its sales volumes and capitalise on the increasing
demand for tea across the globe. Also, with a debt to equity ratio of 1.1,
we believe the company is comfortably leveraged to raise funds in order
to undertake acquisitions, going forward.
Valuation
At the CMP of | 173, the stock is trading at 6.9x and 5.6x its FY11E and
FY12E EPS of | 24.8 and | 30.7, respectively. With tea production in India
in 2011 expected to be ~980-1000 mkg and production in Kenya and Sri
Lanka expected to decline by ~16%, we believe tea prices would remain
firm, subsequently improving the company’s earnings. Hence, we have
valued the stock at 6x its FY12E EPS to arrive at a target price of | 190
Technical Outlook
The share price bottomed out around | 140 levels towards early March
2011 and witnessed a smart rally backed by strong volumes. A round of
profit bookings from the 200 DEMA levels saw the stock taking good
support at its short-term moving averages.
After a brief consolidation near the short-term moving averages, the stock
has recorded a break-out past the downward sloping trend line, which
had acted as a key resistance in the entire price decline from the highs of
| 204 in September 2010 to the recent low of | 138. The said break-out
has occurred on the back of a good jump in volumes indicating increased
participation at the break-out levels.
Among oscillators, the 14 period RSI as well as the MACD continued to
remain in a rising trajectory and point towards further upsides in the short
to medium term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Higher tea realisations to augment revenues…
Jayshree Tea (JT), the second largest producer of tea in India, would
benefit from the synchronous rise in domestic and global tea prices.
With the rise in tea realisations and increasing contribution from high
quality Darjeeling tea, we expect net profit to grow at a CAGR of ~15%
from FY11-FY13E.
High priced Darjeeling Tea to drive earnings growth
The company owns six estates in Darjeeling, which is known for its
superlative quality of orthodox tea. Darjeeling tea is mainly exported to
Russian and Middle East countries. In 2010, average realisations of
Darjeeling tea were | 285 per kg as compared to | 120 per kg for black
tea. With the robust demand for high quality tea in international markets,
prices in the current year are expected to reign higher by a further | 15-20
per kg. Hence, backed by higher realisations and increasing exports of the
company (| 48.6 crore in FY08 and | 90 crore in FY10), we believe
Jayshree’s revenues would continue to grow at ~12% CAGR from FY11-
13E. We expect the EPS to grow at ~9% CAGR in FY11-13E.
Acquisitions to improve volumes
JT has been able to increase its sales volume from 18.2 million kg (mkg)
in FY08 to 23.4 mkg in FY10. The company achieved this by increasing its
production capacity through acquisition of estates in East Africa (Rwanda
and Uganda of 5.3 mkg capacity per annum) at an investment of | 30
crore. It is further eyeing acquisitions in Kenya and Africa that would help
the company to boost its sales volumes and capitalise on the increasing
demand for tea across the globe. Also, with a debt to equity ratio of 1.1,
we believe the company is comfortably leveraged to raise funds in order
to undertake acquisitions, going forward.
Valuation
At the CMP of | 173, the stock is trading at 6.9x and 5.6x its FY11E and
FY12E EPS of | 24.8 and | 30.7, respectively. With tea production in India
in 2011 expected to be ~980-1000 mkg and production in Kenya and Sri
Lanka expected to decline by ~16%, we believe tea prices would remain
firm, subsequently improving the company’s earnings. Hence, we have
valued the stock at 6x its FY12E EPS to arrive at a target price of | 190
Technical Outlook
The share price bottomed out around | 140 levels towards early March
2011 and witnessed a smart rally backed by strong volumes. A round of
profit bookings from the 200 DEMA levels saw the stock taking good
support at its short-term moving averages.
After a brief consolidation near the short-term moving averages, the stock
has recorded a break-out past the downward sloping trend line, which
had acted as a key resistance in the entire price decline from the highs of
| 204 in September 2010 to the recent low of | 138. The said break-out
has occurred on the back of a good jump in volumes indicating increased
participation at the break-out levels.
Among oscillators, the 14 period RSI as well as the MACD continued to
remain in a rising trajectory and point towards further upsides in the short
to medium term.
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