Most of the industries in India have been in crisis. Many of them are expecting the government's help to rescue them from both supply side and demand side constraints that they have been facing for months.
The tea industry of the country speaks differently although it had to suffer huge production losses in the Covid 19 related lockdown in the tea gardens. But most of the tea companies rapidly returned to the profit earning stage, from the month of May as the lockdown was relaxed in the tea gardens after about a month’s lockdown. Some of the good companies have made very good profit in the June quarter itself. The Goodricke Group posted a net profit of `16.17 crore. It could have been more if it was a normal year and revenue could also be higher. The Dhunseri Tea and Industries recorded a net profit of `13.07 crore although it earned a revenue loss of 23% compared to that of the previous last year.
Although there had been a supply demand mismatch for a few weeks, the bulk tea industry has experienced a sharp increase in both consumption and prices of tea. A report by rating agency ICRA shows that India’s tea industry, particularly, the north Indian tea producers are expected to report their best financial performance witnessed in recent history. As per ICRA’s estimate, domestic production in the calendar year 2020 was expected to be lower by 12% on a y-o-y basis provided further material changes did not take place during September to December. The report expects that the total production might fall by 13% in north India and by a mere 1% in southern India.
Pressure on bottom line is expected
The cost of production might increase by `25 to 30 per kg. But the estimate of cost escalation did not consider labour wage escalation. But now there has been a chance of increase in wage escalation. It is known that for the time period of January to July 2020, there has been a production loss of 22% compared to the same period of the last year. Out of this production fall, 26% was in northern India and only 3% was in southern India. The ICRA report points out that as the tea industry has been fixed as a cost-intensive industry, fall of production would increase the average cost of production per kg. The cost of production might increase by `25 to 30 per kg. The estimated cost escalation of ICRA had been 13-15%. In spite of that, a section of producers are able to earn high profit because of the average auction price which was 58% in northern India tea and 25% in south Indian tea.