Tuesday, March 31, 2009

TEA stocks can give good short term return


Tea prices in the new season are at a decade's high on fear of global shortage, says Business Standard. This is mainly on account of a fall in tea output by both the leading tea producers-India and China.


India is the second largest producer and fourth largest exporter of Tea in the world, whereas
Sri Lanka is one of the largest exporters.
According to Industry experts the shortage is mainly on account of a less than average winter season rain fall in South India that has lead to a fall in output from both, the South Indian tea producers and Sri Lanka.

Dooars teas were selling at Rs 125-160 per kg, higher by Rs 20-25 while the small quantity of Assam teas that have made their way into the market were at Rs 140-150 per kg, again higher by Rs 20-25. (Business Standard).

Mr. Vishal Rati of HUL Tea Division says that "this shortage could continue taking the tea prices higher than the current levels" and Basudeb Banerjee, chairman, Tea Board of India, said, “It looks like a shortage right at the beginning of the year.”

Thus I strongly believe that it is a good time to invest in good beaten down stocks of tea producing companies. Based on the fundamentals of the industry I think that the companies which would largely benefit from the recent developments & the positive scenario in the industry are the ones possessing tea gardens & are into bulk tea business rather than too much involvement in packaged tea business.


One of the leading players in such segment is McLeod Russel (the next best investment could be Jayshree Tea), major player in auction tea markets and thus can take full benefit if rising prices through its auction system. The company is low leveraged compared to the industry and its figures for figures for ROA. ROE & ROCE for the are also rising over the past 3 years.
Thus given the current industry dynamics a 15-20% return in a month's time could be possible.

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