With input costs going up and production seeing a decline, tea companies’ margins are under pressure this fiscal. Industry insiders feel the margins may shrink from last year’s level if production does not improve.
According to industry estimates, for a garden with a production of around 1,800 kg, the cost has gone up to R140 per kg this year against R115 per kg last year. While input costs have gone up significantly, production decline has resulted into higher cost per unit.
Tea companies have already been facing pressure on margins during the current fiscal. For the quarter ending June, 2012, McLeod Russel posted a net profit of R19.31 crore, a decline of 48% from R37.33 crore for the similar period the previous year.
During the first quarter of the current fiscal, Goodricke Group posted a net loss of R4.75 crore against a net profit of R3.67 crore during the similar period the previous fiscal, a decline of 230%.
Duncans Industries also registered a net loss of R2.75 crore during the first quarter of the current fiscal against a net profit of R61 lakh during the corresponding period the previous fiscal.
?Fertiliser costs have gone up three times in the last one year. Coal prices have also increased by R2,000 per tonne. Inflationary pressure and an increase in wages have added to costs,? said CS Bedi, chairman of Indian Tea Association. Electricity costs during the year have also increased by 40%.
Cost per unit for tea has gone up further with a decline in production.
?September was disastrous for the gardens in Assam. We have not collated the figures but production in upper Assam has been severely hit. It seems that overall production in Assam during the month will be down by 8-10%,? Bedi said. Assam produced 6.69 mkg tea in September last year.
The first half of October has also been dull for the industry as soil temperature was low and the production is unlikely to make up for the losses. Assam produced little over 7 m kg last October.
Arun Singh, managing director and CEO of Goodricke Group, said, ?There is a significant pressure on margins this year. Production in Assam is down by around 11% and Dooars crop is down by 3%. But in terms of margins, Dooars is worst hit followed by Assam. On an average 10% decline in production translates into 10% increase in costs per unit.?
Although Darjeeling managed to get better prices this year, a decline in production and rising input costs have impacted the gardens heavily. SH Bagaria, chairman of the Darjeeling Tea Association, said that the production is down by 5% at present and is putting pressure on margins.