Tea to turn costlier by 15% as output falls

[Editor: Last week the stock of McLeod Russel Ltd (the world's largest tea planter), was recommended in this blog at Rs.81.70, on the back of buoyancy in the tea market and due to revival of the tea sector. Meanwhile, there were media reports that: 

Heat wave conditions and drought in tea growing areas in South India have hit production of the tea crop by about 10 per cent, according to planters in the region. South India accounts for 20 per cent of India's total tea production of 1,200 million kg. "April-May is one the peak season for tea production. Whatever we lose in April-May is very difficult to make up," said Peter Mathias, former president of UPASI and a tea producer in Karnataka.

Mcleod Russel Ltd,  is one of the largest tea plantation companies in the world and produces around 100 million kg of tea a year from its estates in Assam and West Bengal and other estates in Vietnam, Uganda and Rwanda. 

In another significant development, the B.M. Khaitan Group-controlled Williamson Magor Group announced a major recast of engineering companies in its fold to consolidate its operations. The major companies in the Williamson Magor Group are dry-cell battery maker Eveready Industries India Ltd, bulk tea producer Mcleod Russel India Ltd and the engineering companies. 

The scrip closed at Rs.183.55 in the BSE. I am expecting the stock to cross Rs.195 at the end of this week. Those who have bought this share, can keep accumulating, on all dips. The company is coming up with Q4FY16 results on 30 May, 2016]

KOLKATA: A drop in tea production in Assam and West Bengal in April is likely to push up prices of tea this month to at least 15% above March rates when there was oversupply, say experts. Tea production had grown by 56% in March due to favourable weather conditions.

Experts said packet tea players are expected to purchase tea from the market in the middle of May, a situation which will firm up the market further.

"In March, production was up as early rains had improved the crop production. But incessant rains in Assam and a dry spell in Dooars and Darjeeling in West Bengal have impacted production of first flush teas in April," Azam Monem, director of McLeod Russel India, told ET. "End March prices dipped because of oversupply. But since April crop was affected, the supply will be less in May which will firm up prices."

In April 2015, India had produced 75.61 million kg of tea. Though the Tea Board is yet to come out with figures, industry executives said they expect April 2016 production to be less by 10-15%.

Domestic tea production in March grew 56% year-on-year to 68.34 million kg, according to estimated production data of the Tea Board. In March, Assam produced 31.29 million kg of tea, up 163% from a year ago. West Bengal, which has tea-producing regions of Darjeeling, Terai and Dooars, produced 20.48 million kg of tea in March compared to 14.45 million kg produced in the corresponding month last year. South India's production fell 8.33% to 15.30 million kg in March.

Tamil Nadu, Kerala and Karnataka had together produced 16.69 million kg in March last year. Packet tea players like Ramesh Chand Agarwal, managing director of Mohani Tea, said from mid-May prices of CTC tea quality will shoot from 160kg to Rs 140 kg in March. Mohani Tea, a major north Indian player, has already used up its old stock of tea. "We need to buy fresh tea from next week. Prices will be up but we will not pass on the price rise to our consumers," Agarwal said.

Parag Desai, executive director of Wagh Bakri Tea said prices may rise because of speculation. "There was a good crop in March. The impact of rains will not be much as far as tea production in Assam is concerned. We have spoken to the weather department and there will be no shortage of tea this year. Volumes will be good and, we do not see prices shooting up suddenly," Desai said.

Courtesy: The Economic Times