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Tea scrips: Uncertain outlook

Reshma Krishnan

THIS column tracks price movements on the Bombay Stock Exchange. The gains and declines in prices are with reference to the closing price of the first trading day in a cycle of 15 trading days. The Index Of Consistency (Column `N') shows the difference between the number of days, prices gained and number of days they declined.

EVEN though the market has been in a buoyant mood the past fortnight, the atmosphere has not spread to all the sectors. Some of the major losers have been pharmaceutical companies, who have lost favour with the investors. These firms include Eupharma Lab , Nichol Lab, Jagsonpal Pharma, Lupin Lab, Bal Pharma and Morepen Lab.

The pharmaceutical industry saw hectic interest between the first and third quarter of last year, mainly on account of unwarranted optimism in research potential. Since then the market has witnessed a correction and prices are gradually stabilising.

On the other hand, there has been some upward movement in mainline pharmaceutical companies such as Aurobindo and Cipla; a pointer to the market's capacity to discern companies with sound fundamentals. This has paved the way for the dying out of the herd mentality in the pharma industry.

The tea industry has also run into rough weather in recent times, which is reflected in the falling share prices of heavyweights such as Tata Tea, Jayshree Tea and NEPC Agro.

The share price of Tata Tea witnessed an eight per cent fall the last fortnight following the release of the company's financial results for 1999-00.

The company's performance is not surprising considering the current state of the tea industry. While its sales posted a marginal increase, its profits have fallen and earnings have been compensated mainly by income from other revenue streams such as inve stment.

Profit after tax declined three per cent to Rs. 124.57 in 1999-00 from Rs. 128.76 in 1998-99. This could be explained by the severe drought in tea-growing regions in the North, and falling prices in the South.

The industry's current scene is a culmination of falling commodity prices, rising production volumes and falling exports. Expected consolidation is pressurising the industry as a whole, making for an uncertain outlook, felt more by the growers than the m anufacturers.

The tea production for the country is estimated to be in excess of predictions in the wake of good weather. Production for the January-April period was 27 per cent over that of the previous corresponding period. Exports, on the other hand, has fallen ove r 50 per cent in the first quarter of the year, mainly due to lack of demand from Russia and cheaper exports from Kenya and Sri Lanka.

The fall in the average price of tea at auction centres has been unabated since the high in October 1999. This is mainly in lieu of imports from Sri Lanka and excess production.

The implications of these issues on the companies will vary. For a company such as Hindustan Lever which buys most of its tea through auctions, a fall in commodity prices might help increase realisations.

However, a company such as Tata Tea will not be affected as much since it focuses on packet tea. Besides, three-fourths of its crop is processed for use in its own brands, such as Kannan Devan and Chakra Gold, thereby reducing the amount of tea it auctio ns.