Low tea prices to hit Tata Tea profit

Low tea prices will hit profits of Tata Tea Limited this financial year, but a cyclical recovery is expected next year, the firm's executive director said on Tuesday.

"On a year-to-year basis, the profit (in April 2000-March 2001) will not be as aggressive as last year," Percy Siganporia said in an interview.

He said it was premature to forecast the extent to which its profits would fall but said second quarter (July-September) profit would be lower than that in the year-ago period.

The company posted a profit of Rs 462.1 million ($10.11 million) on income from operations of Rs 2.31 billion in the second quarter of last year.

In the first quarter of the current year it posted a net profit of Rs 386.4 million compared with Rs 260.9 million in the year-ago period.

However, stripped of other income, net profit in the first quarter was only Rs 81 million compared with Rs 259.4 million in the same period last year.

Net sales dropped to Rs 1.92 billion in the first quarter from Rs 2.14 billion in the same period of last year.

"I think we will probably see the turnaround moving into the next fiscal itself. You have to realise that this is an agro product with its own cycle."

Easier tea prices hurt

Trade officials said the average price of tea in the January to June period this year was Rs 59.4 a kg against Rs 67.81 per kg in the same period last year.

The slide was sharper in the gardens of southern India, where the average price fell to Rs 46.36 from Rs 57.86.

Siganporia said tea estates in southern India, where smaller planters depended on government subsidies, were making losses.

"While the (fiscal) year started at commodity price levels which were just about below the price of production in south India, significant drops have taken place since then," he said.

Tata Tea shares have also fallen sharply since then. Its shares were quoted at Rs 231.60 at the Bombay Stock Exchange on Tuesday afternoon, less than half the price of nearly Rs 600 in the middle of February.

The firm produces about 32 million kg of tea a year from its estates in the south and another 30 million kg from estates in north-eastern India.

In February, the firm acquired privately held British Tea firm Tetley Limited for 271 million pounds sterling.

Siganporia said the company's profit would not fall as steeply as tea prices because of its value-added products.

"We have a certain degree of insulation because we have our value-added options, but we still sell a significant weight of tea at auctions and to that extent we take a beating. Definitely, our south India operations are incurring losses."

Consumers shift to bulk tea as prices fall

The company's packaged tea consumed about 80-85 per cent of the output from its estates in the north-east and about 65 per cent of production from the south, he said.

But branded tea accounted for only 45 per cent of total tea sales in India and price-sensitive consumers tended to shift to bulk tea when the prices were falling, he said.

The fall in commodity prices would ideally increase the profit margins of packet tea, but lower-end consumers shifting to bulk tea and rising input costs offset these gains, he said.

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