Tea Stocks: Flavour of the Day !!!

Tea stocks are flying high in today's trade, thanks to reports of a tea price hike. According to a report in the Business Line, national and regional tea marketing companies have decided to raise prices by Rs 20 a kg from Friday. Another hike of Rs 20 (per kg) will follow in mid-June, if the supply does not improve at the auction centres.

Mr Harendra Shah, President, Federation of All-India Tea Traders Association (FAITTA), said the hike in prices has been necessitated on account of lack of rains, plucking of tea leaves at a very low rate in the North and South India tea gardens.

“People should understand that the price hike will not add up to our profit as most tea companies are operating below their production cost in the last few months. Currently, tea is sold by the traders at a loss,” he added.

In 2008-09, the average price rise was 55-60 per cent at the auction centre but the consumer price rise was only 25-30 per cent.

Following FAITTA’s decision, Tata Tea and HUL have also decided to mark up prices by Rs 40 a kg in two instalments, said Mr Shah.

“International tea prices have shot up due to the crop failure in Kenya and Sri Lanka,” said Mr Bhupat Shah, President, Retail Tea Merchants Association.



Slowdown in Output
The best quality of tea costs between Rs 270 and Rs 300 a kg, medium quality is priced at Rs 225-260 a kg, while the lowest quality comes at Rs 220 a kg.

The production between January and March in South India dropped by 8.156 million kg (mkg) to 41.34 mkg from 49.49 mkg in the corresponding period last year. Output in March alone dropped by 1.86 mkg to 17.69 mkg from 19.55 mkg recorded in the corresponding period last year.

The country’s output in 2008-09 is slated to fall 35-40 mkg to 891 mkg. Export rose to 195 mkg (160 mkg) in 2008-09.

Demand for Import duty cut
The Association has urged the Centre to bring duty on imports from Kenya on a par with Sri Lanka at 7.5 per cent against 100 per cent from non-SAARC (South Asian Association for Regional Cooperation) countries such as Vietnam, Indonesia and Kenya.

The availability at the market place would improve if the Tea Board of India, the regulatory body, implements the Government order of making it mandatory for farmers to bring in 75 per cent of their produce to the market place.

“At present, a major chuck of the produce is sold directly by the farmers to leading companies leading to a shortage at the auction centres,” said Mr Shah.

View: On back of this, Tea Stocks surged between 5% to 8%. Tea, Coffee and Sugar have recently seen a run on back of lack of production and sustained demand. We expect the prices of all these 3 commodities to remain strong and so the Stocks would be flavour for the next 2-3 quarters. Withing Tea sector, we bet on Mcleod Russel & Jayshree Tea. In Coffee, Tata Coffee remains the choice and in Sugar sector, Renuka sugar, Bajaj Hind, Balrampur Chini, Upper Ganges, Ugar Sugar & Dwarikesh remains in our limelight.