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Monday, April 04, 2016

McLeod Russell Ltd: Buy
CMP: Rs.194
Target: Rs.210
SL: Rs.187.
Inpoll-bound West Bengal, closure of multiple tea gardens thanks to what industry insiders claim to be due to rising labour wages, is likely to affect annual tea production this year. The Western India Tea Dealers Association (WITDA) claimed that a crop shortfall of around 50 million kg is likely by March 2017 if the crisis continues.
As for impact on prices, the WITDA said that the situation would be more clear after June.

India produces around 1,250 million kg of tea, of which around 200 million kg is exported. Of this Dooars produces around 325 million kg, the gardens in southern India produce around 320-330 million kg and the rest is by Assam. As such small tea growers across India produce nearly 350 millon kg of tea. Labour cost is about 60 per cent of the cost of production of tea.

WITDA claimed that as the reputed Duncans Goenka Group shut down seven of its tea gardens in North Bengal, close to 25,000 people became unemployed. WITDA president Piyush Desai who is also the chairman of Wagh Bakri Group said that tea garden owners are reeling under the rising labour wages. "Tea industry is one of the largest employers after the Indian Railways, and it employs one of the largest women workforce. However, as cost of labour rises, tea gardens are increasingly finding it unviable to continue with operations. Only recently, the renowned Duncans Group under GP Goenka closed down seven of its tea gardens."

While tea prices have been increased at the rate of 3-4 per cent per annum on an average, wages have moved up from Rs 112.50 in April 2014 to Rs 122.50 as on April 2015, and is scheduled to go up to Rs 132.50 from this month. This is almost a 40 per cent increase in three years.

The tea industry on the whole employs 1.1 million people and thus cannot be ignored politically. Rising of wages has been a direct corollary.

Between 2002 to 2007, 17 tea gardens shut down in Dooars and at least 1,200 deaths were reported in the area.

The situation is comparatively better in Darjeeling (which fetches higher prices of Rs 400-500 per kg and 70 per cent of it is exported), however, other gardens in West Bengal get an average price of around Rs 120-140 per kg, as compared to Rs 160-170 per kg. In Assam, Desai claimed while the profits have come down, not many tea gardens have closed down.

Desai said, "These are trying times for the industry. Prices fetched in the market are almost stagnant. Add to that, the PF, annual leave, sick leave, festival leave, bonus, housing, medical expenses, rations and basic protective gears like chappal, umbrella and blanket of the garden workers that has to be covered for."

Higher tea prices, as is expected, WITDA said, will also impact the livelihood of lakhs of small time tea vendors who survive selling prepared tea in cups. It feels that the need of the hour is a concerted action taken by the respective state government and the Centre to work out ways to resolve issues so that the tea industry.

Courtesy: Businesses Standard

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