Favourable trend in realisations likely to hike tea company-margins: ICRA

Kolkata, Dec 28 (IANS) With tea prices firming up at North Indian auction centres backed by healthy demand and stagnant production in the domestic market, margins of most large bulk tea producers are expected to be expanded in the current fiscal, said a study released on Thursday.

"This firmness in prices at North Indian auction centres is likely to sustain for the remainder of the current fiscal, thus supporting margins and debt coverage indicators of most large bulk tea producers based out of North India in FY2018," rating agency ICRA's study noted.

According to the study, prices at South Indian auction, however, have been impacted by higher production levels. Nonetheless, most large bulk tea players in South India are unlikely to witness any material contraction in operating profitability in the current fiscal, as the increase in production would largely negate the impact of lower prices.

"The stagnant production, higher exports, given the shortfall in Kenyan production and healthy domestic demand, prices have firmed up considerably for North Indian producers as the season progressed," said the agency's Vice President and Sector Head (Corporate Sector Ratings) Kaushik Das.

According to him, a large carryover stock, on account of surge in production towards the end of the previous season, had weighed on prices at the beginning of the current season.

Overall global tea production for the calendar year 2017 is likely to remain below last year's levels, albeit marginally, based on historical trends.

While Sri Lankan production is likely to record some increase over the previous year and Indian production is expected to remain largely stable, a shortage of around eight per cent is expected to be sustained in Kenyan production for 2017.

"Thus, the Kenyan crop loss is likely to continue to weigh down on overall production levels for CY2017 (calendar year 2017).

"This has kept prices strong on the global front, with Sri Lankan prices touching $4.06 per kg during ten months of CY2017, as against $3.10 per kg in the corresponding previous months, and Kenyan prices standing at $2.99 per kg in the current year, vis-a-vis $2.32 per kg during ten months CY2016," the study added.

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