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The interim wage hike in West Bengal is likely to adversely impact the margins of tea estates in the state that contributes 37 per cent to north India's production, a report said on Thursday.
However, the impact would be lower for producers of quality tea, given the price premium they enjoy over the average market realisations, Icra said in a report.
The total wage rate per man day (including bonus, other cash components and benefits) for tea estate workers in West Bengal is estimated to increase by 12 per cent with effect from January 1, 2022. The hike follows an announcement by the state's labour department to increase the basic wages on an interim basis by 15 per cent to Rs 232 per day from Rs 202 per day, the report said.
As per Icra estimates, the wage hike would lead to an increase in the cost of production by Rs 16 per kg and would have a substantial adverse impact on the margins of tea estates in West Bengal which contributes around 37 per cent to north India's production.
Meanwhile, any revision in wage rates in Assam, where it moves in tandem with West Bengal, would materially impact profitability of the entire north India bulk tea industry, unless there is a commensurate increase in tea prices, it stated.
The current basic wage rate in West Bengal stood at Rs 232 per day compared to Rs 205 per day in Assam and the gap indicated the likelihood of Assam revising rates shortly.
Assam is the major producer of bulk tea, accounting for 60 per cent of north India's production and 50 per cent of all-India tea output, it added.
"This interim wage hike is likely to result in a margin contraction of around 700 basis points on a year-on-year basis for bulk tea players based out of West Bengal at a steady state level of realisations. However, the impact is likely to be lower for bulk tea players focused on producing quality teas, given the high premium their produce fetches over the market prices," said Kaushik Das, Icra Vice President and Co-Group Head, Corporate Sector Ratings.
An analysis of the auction prices during the first half of 2022 calendar indicates that the price of north India CTC (Crush, Tear, Curl) teas produced by the top 50 estates, at Rs 319 per kg, was 79 per cent higher than the overall auction average, he said.
The premium has increased this year compared to 65 per cent in CY2021, Das added.
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