Tea stocks are brewing up in bourses with some rapid gains. What’s the buzz? Bloomberg TV India caught up with Jay Shree Tea Managing Director DP Maheshwari to get a perspective of the domestic and global tea industry. While Jay Shree hopes to improve output and margins, globally the supply crunch may continue as India, Indonesia and Sri Lanka are unlikely to record higher output, he said.

Tea stocks are gaining in stock markets. What’s the outlook for tea production, exports and prices in 2016? How can the global supply chain impact India’s tea industry?

The global supply, if you see whatever production figures we have till the December ended 2015, there was a shortage of 100 million kg of black tea globally. Add to that the normal increase in consumption, which is around 1.5-1.75 per cent or so. You can safely take that 150 million kg was reduced from the supply pipeline and that is why the prices were firm in the market. Here in India, January production is lower by 4 million kg. So prices in India are very firm — it was up by ₹20-30 per kg from last year. We expect market to remain firm till at least July after which we have to see how the production comes up.

From the industry point of view, the last couple of years have been tough. What would it take for the industry to turnaround?

Last quarter, for any tea company that has got business in North-East India, will be in a deficit, because there was no production for the last three months whereas they continue to incur all the fixed expenditures. So, there is always a shortage in the last three months of the fiscal year. This year, the situation is better because whatever stock we had sold out and whatever we are producing is, getting a better price. But last-quarter loss will definitely remain. But when you start FY17 at these price levels, you can expect the big gain in the first quarter.

Will you say structurally the industry is out of the woods or is it a long way off?

I think so. If this (price) trend continues, the industry will definitely get benefitted. But there are other issues as well — the cost has gone up very steeply in the last two years because of wage increases. But this increase in prices is a big relief. It will ease out the situation.

In terms of profitability and margins, what can an investor in Jay Shree Tea expect in next 2-3 quarters?

It will be much better than last year. We have taken the quality route. All our tea gardens, wherever they are located, are among the top quality. So our sales average will be high. And our crops will also be high because of the huge development work undertaken in the last 6-7 years. And if prices are good, margins will be better than what we have this year.

Do you see this global supply crunch to continue for majority of this year?

I think so. The only country where the production can increase is Kenya where January output was the highest monthly production so far at 50 million kg. The previous high was 40-45 million kg. But we expect their production to taper later in the year. Whatever growth in tea production happens, it will come only from Kenya. Other than that, production is not going up in India and Indonesia, while Sri Lanka is in trouble. So in major black tea-producing countries, production is not going up while demand continues to go up. So, I feel this supply crunch will continue.

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