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Tata Tea: Perking up?

Reshma Krishnan

The bourses seem to be slowly recovering from the decline witnessed over the past weeks. Old economy stocks have seen the most action, as recent volatility at the Nasdaq has led investors to be wary of high tech scrips.

Among those old economy stocks that saw a small rally have been a few tea company stocks such as Jayshree Tea, Goodricke and Tata Tea.

Tata Tea has been languishing at the lower end of the market after it fell from a high of Rs 655 in October 1999 to a year-low of Rs 167 in October 2000. However, it has rallied since mid-November to rise around 33 per cent. This could be on the back of a small recovery in the prices of tea both in South and North India. Prices at auction centres are looking up, increasing by about Rs 7-10.

Tata Tea is the largest integrated tea manufacturer in the world; integrated in the sense that it is involved in all phases of the value chain and, therefore, incurs both benefits and hazards.

It benefits from the fact that it does not have to depend on the open market as it owns gardens, therefore having control over both the quality and quantity of tea produced. But this very fact is a disadvantage as on account of the TMC (Tea Marketing Con trol Act), companies have to put a large percentage of the tea they produce through auctions, thereby erasing any gains they may garner as a result of owning the plantations. However, this applies to only tea that is sold in bulk and not packaged tea.

The outlook for the industry in general is uncertain. The year 2000 was not kind to the industry as the first half of the year saw falling prices, rising production levels and falling exports.

While prices have marginally recovered, they are still way below their levels in 1999. The average price of tea at auction centres has also seen an unabated fall from a high of Rs 81.62 per kg in October 99 to Rs 47.82 per kg in April 2000, a fall of 41 per cent.

Though the financials for the six-month period ended September 2000 are not impressive, the performance is acceptable in the situation that the industry currently finds itself in.

Income from operations is down 5.5 per cent to Rs 419.95 crore from Rs 444.84 crore the previous year. Staff costs have increased owing to the wage settlement. Overall expenditure has decreased, especially as the consumption of raw material has fallen du e to the drop in tea prices. Margins have gone up to 28.6 per cent from 27.2 per cent.

While top-line growth has declined, bottomline profits are still holding stable, with a marginal increase of 3.31 per cent to Rs 74.70 crore from Rs 72.30 crore.