Tea stocks see revival of interest

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Kohinoor Mandal
Nilanjan Dey

Kolkata, Feb. 8

THE tea sector, shunned by the stock market for long, seems to be finally brewing a hot cup, thanks to scrips that are rapidly gathering steam.

While leading counters such as Tata Tea, Jayshree Tea, Williamson Tea Assam and McLeod Russel have already started to record large volumes, some of the smaller names are looking up as well, investment circles point out in a reference to stocks such as Goodricke and Apeejay.

The market's interest in the sector stems from a combination of factors - a sudden demand for tea at auction houses that have almost run right, a drought in Kenya that may just about turn into a boon for Indian exports, and above all, higher price realisations by domestic producers. The result: a potential addition to the average tea company's bottomline.

More than the export market, the industry is raking in the moolah from domestic consumers. The Indian Tea Association, the apex industry body, has already announced that the per capita consumption of tea has increased to 733 grams from 630 grams in 1996-97.

"The market has discounted the industry for some time. But several things point to a possible re-rating, at least for the leading players," said Mr Raamdeo Agrawal, MD, Motilal Oswal Securities.

As for the dominant names that are currently making news in the market, Tata Tea and Harrisons Malayalam seem to be cases in point.

The former, a Nifty constituent, has been rising steadily for the past one year. On Wednesday, it opened at Rs 904 and appreciated intra-day to Rs 922. The 52-week high and low for the counter are Rs 971 and Rs 500 respectively.

The RPG group company, Harrisons Malayalam , which is actually a more diversified venture, too has lately assumed greater significance, given the sizeable volumes it is commanding every day. On Wednesday too it saw large number of trades on the NSE.

According to Mr Deepak Khaitan, Vice-Chairman , McLeod Russel, "Tea is about the only major commodity that has not done so well on the bourses, especially when compared to sugar. This may well change now".

McLeod Russel, incidentally, is the top player in the sector, courtesy its 70 million kg production capacity. The stock is buzzing - on Wednesday, it crossed the Rs 100-mark for the first time this year.

As things stand, a host of small players, many with only a few gardens, make up the rear.

These are typically low-volume counters that not many investors are aware of. Examples include Diana Tea, Ledo Tea and Norben Tea.

Mr Nilesh Shah, President, Kotak Mahindra Mutual Fund , is of the view that Indian tea is a potential gainer because of the country's competitive advantages on this front. "It has to be seen how the sector leverages on its inherent strengths in the days ahead. The market will want to have significant earnings visibility before any serious realignment takes place," he noted.

According to Mr P.T. Siganporia, ITA Chairman and Tata Tea MD, tea stocks piled up from 2001 to 2003. In the next two years the inventories decreased.

"The current stock positive is similar to what it was in 1999, when the average tea prices sky-rocketed. Buoyancy in the prices would come this year," he said.

(This article was published in the Business Line print edition dated February 9, 2006)
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