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Our Bureau

Kolkata, Sept. 9

Analysts are turning bullish about tea stocks of late as domestic and export prices of the commodity are going up steadily. According to Mr Rajesh Agarwal of CD Equisearch and Mr Ajay Jaiswal of Microsec, if the overall market sentiment steadies up, it would be difficult to ignore the improving fundamentals of the tea stocks.

“Commodity prices dictate the commodity stock prices. However, the overall negative sentiment in the market had drawn investors away from the tea counters,” Mr Jaiswal said.

Mr Agarwal said robust domestic demand, shortfall in Kenyan tea production and sluggish growth in production have boosted the fortunes of the tea industry. The Indian tea sector is witnessing improvement in tea auction prices, thanks primarily to lower production in Kenya, which is witnessing adverse weather conditions as well as civil unrest.”

The Indian tea production increased by 6.10 per cent to 240.24 million kg in the five months ended May 2008, powered by nearly 14 per cent rise in South Indian tea production and relatively modest 2 per cent rise in North Indian tea production.

Average tea price increase year-on-year is 16-20 per cent. “After adjusting a rise in cost of production owing to input cost increase, EBITDA level profits have gone up significantly against the last fiscal. If the price levels remain at this level, operating margins may double for the whole of this financial year for a number of good tea companies,” said Mr Kamal Baheti, Director Finance of McLeod Russel.

According to industry sources, expectation is that price level may go up by 30 per cent year-on-year. In the two months ended May 2008, tea exports grew by nearly 25 per cent to 22.73 million kg and in the first seven months’ exports have gone up by around 19 per cent. This growth has come without compromising on the prices.

The average auction price of North Indian teas was up by Rs 18 a kg this year, while South Indian tea auction prices went up by Rs 8 a kg to Rs 10 a kg. The gap between the North and South Indian teas are narrowing down fast.

According to industry insiders, the tea’s international price cycle has turned favourable and the upward movement to stay for another three to four years. Dhunseri Tea was today moved up by 5 per cent, while McLeod Russel and Jay Shree Tea finished flat.

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