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Tea
ƒ High export realisations due to global shortage
Kenya’s tea production has declined by 16.3% to 178.1 million kg in
January-June 2011 from 213 million kg in January-June 2012.
Simultaneously, tea production in Sri Lanka has remained flat at 220
million kg compared to 222 million kg in 2010. This has resulted in
higher global tea prices and higher exports realisations for Indian
companies. Tea realisation in North India is higher by ~10%, which
could help in higher earnings for the North India based companies. We
believe tea prices will remain high for the current financial year. Export
in North India during the same period has been 87 million kg with the
average realisations of | 185.0 per compared to 85.5 million kg with
average realisations of | 163 per kg in 2010.
ƒ Domestic production to increase to above 1000 million kg
Tea production in India would increase to above 1000 million kg in 2011,
higher than 966 million kg in 2010 led by the normal monsoon in North
India. Tea production during January-July 2011 has been 491 million kg,
6% higher than 462 million kg in January-July 2010. However, higher
export demand for Indian tea in European countries due to lower
production in the African region has resulted in higher realisations.
ƒ North India based companies to benefit from export
McLeod Russell and Jayshree Tea, based in West Bengal and Assam,
are the biggest beneficiaries of higher exports prices. North India based
companies are known for high quality tea and demand for this tea
mainly comes from European countries. We believe North India based
companies would witness both volumes and realisations growth.
Company specific view
Company Remarks
Harrison
Malayalam
The company is likely to witness robust earnings led by elevated rubber prices and
improvement in export realisations of tea. We expect the company to sell 5.2 million
kg of tea with average realisations of | 86 per kg and 2499 tonnes of rubber with the
average realisations of | 210 per kg
Jayshree Tea We expect the company to sell 11.9 million kg with average realisations of | 144 per
kg. However, with increase in wages by ~| 3 per kg, margins are likely to come
down to 22.7% from 25.2% in Q2FY11. We expect higher export realisations in Q3
could results in improvement in margins
McLeod Russel We expect the company to sell 24.9 million kg of tea with average realisation of |166
per kg in India and 6.3 million kg with average realisations of | 88 per kg in overseas
subsidiary. However, margins will witness some moderation due to 23% increase in
employee cost
Source: Company, ICICIdirect.com Research
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