Drop in prices to hurt tea companies' H2 bottom line: Indian Tea Association

KOLKATA: The second half of financial year 2011-12 does not appear to be bright for tea companies. With prices sliding Rs 10-15 per kg and the rate of interest going up by 3% on an average, tea companies' cash flow is under pressure.

CS Bedi, chairman of Indian Tea Association, said: "The interest rate has gone up by 2.5-3% on an average. This is putting pressure on the margins of tea companies as the cost of production is going up. Moreover, over the last fortnight tea prices have shown a drop, which is a matter of concern for all tea companies. This is bound to have an effect on the bottomline of tea companies in the second half of the current financial year."

India's tea production rose by 10% to 114.70 million kg during June 2011 on the back of a higher output in Assam and West Bengal. The country produced 104.03 million kg of the brew in the same month last year, according to Tea Board data.

Production in Assam, which accounts for more than 50% of the tea produced in the country, rose by 24% to 62.82 million kg in June 2011 from 50.70 million kg in the year-ago period. Similarly, output in West Bengal rose by more than 2% to 25.95 million kg from 25.34 million kg in the year-ago period. During the January-June period of the 2011 calendar year, tea production rose to 358.32 million kg from 338.96 million kg in the corresponding period of 2010.

With an improvement in production this year, arrivals at auction centres have increased suddenly. "July and August are the two months when generally arrivals for auctions improve. Last year, the scenario was different. Production had gone down due to a pest attack and excessive rains. This had pushed up prices last year. This year, the prices are not going up as last year's levels.

In some cases, there is a drop in prices. However, quality tea are fetching good prices," said J Kalyansundaram, secretary, Calcutta Tea Traders Association. Orthodox tea producers have suffered the most this year as they cannot export their produce to Iran, a major market, due to a payment problem. "Orthodox teas are selling at price which is lower than by Rs 10-15 per kg," said Bedi.

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