The Hindu Business Line : McLeod Russel sees better year ahead but cost pressures cause concern

While average increase in auction prices was Rs 12-15 a kg this year, rise in fuel price, fertiliser price and higher wage bill have been a matter of concern

Our Bureau

Kolkata, June 2

McLeod Russel India Ltd, the largest producer of tea, looks forward to a year of good results due to the rising trend in tea prices but what causes concern is the cost pressure.

It has projected production to go up by 2 million kg to 77 million kg during 2008-09. Exports are expected go up by 3 million kg to 30 million kg during the year.

“While the average increase in auction prices ranged between Rs 12 and 15 a kg in April and May this year, the rise in fuel price, fertiliser price and higher wage bill too have been a matter of concern,” Mr Deepak Khaitan, Vice-Chairman of the company, said here on Monday. “Last year, the adoption of various measures helped keep down the increase in cost to Rs 2.5 a kg as against the industry average of Rs 4 a kg.”

Rising production

In April, the company’s production was up by about one million kg, he said pointing out that another one million kg increase during remainder of the year should take place in normal course. The exports would rise largely to fill the gap in availability being created by the shortfall in the Kenyan crop. Till April, the shortfall was 40 million kg.

“Due to lower production in Kenya and higher demand for orthodox teas in first three months of 2008, the tea prices both in Kenya and Sri Lanka are ruling higher by 25-30 per cent over the same period of last year,” he said. “We have strong franchises overseas.” Europe is McLeod Russel’s major market, though there would be higher exports also to the US, Russia, Iran, Japan and Pakistan.

Mr Khaitan indicated that the company would double the production of orthodox tea in the current year to reach 7 million kg. “In the current year, we propose to make a capital investment of Rs 25 crore to step up our orthodox production and also to modernise and increase the capacity of our factories,” he said. In 2007-08, the company processed 5 million kg of tea produced by other gardens having no factories and this would rise to 6 million kg. “We have captive arrangement with several smaller gardens,” he said.

In the current year, McLeod Russel proposed to invest Rs 20 crore on jatropha cultivation, which was started about two years ago. “Right now, we have 62,000 hectares in Jharkhand and north-east under jatropha cultivation, likely to rise by another 70,000 hectares in the current year,” Mr Khaitan added.

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