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Nilanjan Dey

Increase in consumption, recovery in price augur well for industry

Kolkata , Jan. 10

Tea stocks are again being followed closely by sections of the market, thanks to what investment circles say are a congregation of several favourable factors influencing the tea industry at the moment. Besides, the Union Government move to introduce Special Tea Fund amounting to about Rs 4,760 crore to boost yields by 30-50 per cent in the next 5-7 years also augurs well for the tea industry.

The latest trends stem largely from the current year's statistics, including prices as well as production and import figures. Production till October 2006 increased by 22.9 million kg (mkg) to 820.4 mkg, while imports have mounted by 4.24 mkg to 16.79 mkg in the first nine months of 2006 compared with the same period last year. Also, prices are seen to be reversing for the better.

The consumption figure has increased by 4.8 per cent for the past five years. The continuation of this trend is expected to help shore up consumption further this year, broking firm SKP Securities has noted, adding that the increasing consumption pattern and the somewhat limited increase in production will translate into a demand-supply mismatch. This will, in turn, lower the inventory levels and increase tea prices, it is felt.

"After years of falling prices, Indian tea has seen a price reversal in the current year. From an average tea price of Rs 64.55 per kg in 2004 it dropped to Rs 58.06 per kg in 2005. In 2006, all auction centres across the globe have registered price increases," SKP Sec has pointed out.

There has been a rise in tea prices in 2006, a trend reflected in an increase in the average prices at major trading centres in India — a 15.8 per cent increase in the first nine months of 2006 compared with the same period last year.

Among stocks that are said to be keenly watched are Tata Tea and McLeod Russel, both of which have lately gone through a number of deals. The two companies are also seen to be leading the tea pack.

Tata Tea has transferred the business of North India Plantation Operations to a new company to be established on the basis of a special valuation exercise with IFCs participation. Earlier, it acquired a stake in Energy Brands of the US through its British subsidiary.

The McLeod Russel/Williamson Magor combine has recently mooted an acquisition of The Moran Tea Co from Moran Holdings Plc. A venture with D1 Oils of the UK for developing jatropha (bio-fuel) has been planned as well.

Tea industry watchers, however, maintain that domestic production can slowdown the growth of the tea industry.

Production has already witnessed a somewhat tardy growth of 1.87 per cent over the last five years.

It takes around 3-4 years to set up a new plantation farm - which limits the scope of scaling up domestic production in the short-term. Production will also be subdued due to the closure of certain small tea gardens in Assam.

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