McLeod Russel switches to orthodox tea on higher rupee

Written by Corporate Bureau | Kolkata, Jul 30 | Updated: Jul 31 2007, 05:00am hrs
McLeod Russel India Ltd, in a bid to fight the adverse impact of rupee appreciation, has decided to shift significantly from CTC tea to orthodox (leaf), which fetches higher prices in international markets. Despite a weak price trend in the first quarter, McLeod, expects prices to improve over the rest of the year as there was a zero carry-forward stock at the beginning of the year.

We have decided to hike production of high-margin orthodox tea from 3.5 million kg to 8mn kg by the end of the current fiscal, and touch 10mn kg by 2010. To shift a part of our CTC production to the orthodox variety, we will be putting close to Rs 15 crore into our facilities as capital expenditure, McLeod Russel, MD, Aditya Khaitan said. According to Khaitan, every kg of orthodox tea fetches Rs 20-25 more than the realisation from CTC tea. The company commanded an average of Rs 86.19 a kg during 2006-07.

Realisation during the first quarter of the current fiscal was lower than that of the year-ago period mainly on account of a better Kenyan crop. Khaitan feels prices will improve and could even surpass the 2006-07 level on account of zero carry-over stock at the beginning of the year. Unfavourable weather in the first quarter of 2007 brought tea production down by 13mn kgs. We expect this shortfall to touch 70mn kgs in the next two years, Khaitan said. Rupee appreciation and higher exports from Kenya following a drought that the nation suffered the previous year has put pressure on tea exports, which, according to chairman BM Khaitan, dipped by 8% in the first quarter. We expect to end the year with exports of 20mn kgs, against 25mn kgs in 2006-07, the managing director said. Out of 25mn kgs exported last year, 12mn kgs were in dollar-denominated markets.