Tea processors and marketing companies are sailing high in anticipation of a rise in retail tea prices, amid lower crop estimates.
Since October 30, shares of tea companies have outperformed the benchmark index, the Sensex. The tea index (comprising tea companies listed on bourses) has surged 15 per cent since, while the Sensex has been mostly flat. Today, too, the scrips of leading tea companies witnessed heavy gains, with increased buying from investors.
The sector estimate is for 2012-13 output to fall by 10-15 million kg, to a little less than 950 m kg against 980 m kg in 2011-12. “We started with a drought, followed by excessive rain in the second quarter. This led to erratic climate conditions hurting the crop. However, we are hopeful of some recovery in production during November and December. Still, production may fall 10-15 m kg this year,” said Azam Monem, director, McLeod Russel India Ltd. “There will be a price rise of around 20 per cent but most companies will absorb a part of this. However, retail prices will increase around 10-15 per cent. But this is still below the inflation rate,” he added.
“The crop is likely to fall short and there is a possibility of tea companies increasing prices, which would increase their revenue potential and reduce the cost burden,” explained an analyst with India Infoline for the scrip demand.
A source from the Federation of All India Tea Traders Association said the crop for the first six months of the current financial year (April-September) was actually higher than for the same period last year, at 690.3 m kg against 688.7 m kg earlier. “However, we see prices staying firm for good quality tea due to early winter in the growing areas,” he said.
Prices at the Guwahati Tea Auction Centre were Rs 200-250 a kg in the early part of this month.