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Tea prices stay cold, scald margins of plantation companies

Prices of produce have remained largely flat while the wages have been revised

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Profit margins of the tea producers in Assam and West Bengal are expected to be under pressure in the current quarter as tea prices have remained largely flat while the wages have been revised.

According to data available with the Tea Board of India, the average price of all tea from October till December 8 was around Rs 152-157 per kilogram. In the same period last year, it was in the range of Rs 147-153 a kg.

The price of CTC leaf tea in Sale 50 at Kolkata auction centre was Rs 154.18 per kg on December 11 as compared to Rs 151.28 per kg a year ago, while that for Orthodox was Rs 221.39 per kg as against Rs 197.22 per kg, according to data from the Calcutta Tea Traders Association (CTTA).

The price of all tea in Sale 49 on December 4 was Rs 173.83 per kg at Kolkata auction as compared to Rs 166.25 per kg a year ago, Rs 143.78 a kg at Guwahati auction as against Rs 140.21 per kg last year. At Siliguri, it was Rs 147.24 per kg, up from Rs 128.15/kg.

Shares of most tea plantation companies including McLeod Russel India, Goodricke Group and Dhunseri Tea and Industries are seeing a downward trend. Since September 14, McLeod Russel has plunged 24.9% to Rs 119.10 per share, Goodricke is down 16.4% to Rs 266.35 apiece and Dhunseri Tea and Industries has fallen 15.7% to Rs 248.

The operating margins are expected to be further hit with the cost of production going up by Rs 26-30 per kg due to interim wage hikes in Assam and West Bengal.

India produces around 1,320 million kg of tea annually, of which around 300 million kg comes from the organised sector, which expects its margin to shrink due to increase in wages and tea prices remaining flat during the quarter.

For the last few years, most tea plantation companies have been reeling under stress and many fear that the wage hike will only add to their woes unless there is a price increase.

According to Jagjeet S Kandal, managing director, Amalgamated Plantations Pvt Ltd, a Tata Group company, increase in the wages has impacted the firm and this year, the industry will be more in losses than any other year.

The decline in shipments to Iran added to the woes as the industry halted export of teas to the Gulf nation between July and October due to uncertainty, which brought down the prices of orthodox teas, Kandal said, adding that while India has been exempted from the trade sanctions on Iran resulting in prices of orthodox teas going back to the earlier level, it will still not match up for the losses the industry underwent in those three to four months.

"We don't have any more tea to sell now," he said. Amalgamated Plantations is expecting to incur an additional loss of Rs 45-50 crore this year.

India has been exporting teas to Iran for an average of $3-3.5 per kg.

Atul Asthana, managing director, Goodricke Group, said it is a tough year for the tea industry in North India and many companies are expected to account for losses on the back of the interim wage revision in West Bengal and Assam. He, however, said Goodricke has other lines of business and hence will not account for any losses, though its margins will also shrink compared to last year.

However, there might be some respite in the near future. J Kalyansundaram, secretary general, CTTA said prices are expected to go up as there is early winter closure in Assam and West Bengal this year.

The Tea Board sent out a directive to stop plucking of teas from December 11 in Assam, December 15 in West Bengal and December 17 in Tripura and Cachar district in Assam. The move was to curb the supply of low-quality tea in the market and tea industry experts feel this would reduce the December output by 20-25 million kg this year. The country produced 54.97 million kg of teas last December.

BITTER TASTE

  • The decline in shipments to Iran added to the woes as the industry halted export of teas to the Gulf nation between July and October due to uncertainty
     
  • Tata Group-owned Amalgamated Plantations is expecting to incur an additional loss of Rs 45-50 crore this year
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