Higher realisation hope brews a rally in tea stocks

After a period of uncertainty, optimism seems to have returned for tea companies, as their shares rallied on the BSE on Tuesday with the hope of the balance sheet getting better in the near term.

Shares of Mcleod Russel surged 11.49 per cent to ~192.15 apiece, while that of Rossell India’s gained 7.73 per cent to close at ~119.15 a share on the BSE. Goodricke Group’s scrip went up by 5.23 per cent to end at ~405.15 a share. James Warren Tea, too, jumped 4.7 per cent to close at ~137.1 a share.

The optimism, according to industry officials, is on account of improving prices, as production is poised to decline.

In September, due to heavy torrential downpour, production in Assam, which accounts for over 50 per cent of the annual production in the country, fell 27 per cent to 81.75 million kg (mkg). Production in West Bengal’s Dooars also dipped 19 per cent to 43.01 mkg.

November also is expected to see a shortfall of 10-15 per cent, from a year-ago figure of 109 mkg. Owing to the early onset of winters this year, the periodic two-month long garden closure will be preponed by a fortnight, which will also impact the production.

“This year total production will be less than that of the previous year and the opening season, as a result of this, will be good,” C S Bedi, managing director at Rossell India, said.

Historically, prices surge in the auctions and private sales whenever the industry is faced with production shortfall. A similar expectation prevails now. According to McLeod Russel, the world’s largest tea producer, prices in India have increased ~ 5 per kg due to increased demand (from both domestic and export markets) and lower production.

Kamal Kishore Baheti, director at McLeod Russel, expects prices to remain strong in the coming three years. “Prices are now moving up and I believe there’ll be a 10 per cent increase this year on a cumulative basis,” he said.

For the quarter ended September, both Rossell India and Goodricke Group posted a 10 per cent increase in their top line at ~51.66 crore and ~200.55 crore, respectively. McLeod Russel, however, took a marginal hit of 0.7 per cent at ~468.63 crore in its net income.

Moreover, after a dull start to export prices this year, things have started to look brighter in the past two-three months, as export prices, particularly of Assam tea, surged.

Azam Monem, chairman at the Indian Tea Association (ITA), said demand had been increasing, both at domestic and international markets.

Domestic demand for tea is estimated to have surged past 1,000 mkg in the last financial year, against 951 mkg in 2015-16.