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Tea companies likely to see 8% revenue degrowth this fiscal: Crisil
New Delhi, September 15, 2023 (ANI): The tea industry in India is expected to register an 8 percent degrowth in revenue this financial year, led by a decline in exports, according to Crisil Ratings.
Operating profitability is also expected to fall for the second year in a row, shedding 100 basis points (1 percent is equal to 100 basis points) to 5 percent, due to lower tea prices, it said.
Profitability had fallen 150 basis points last financial year, primarily because of an increase in wages.
“Wages, which constitute 20 percent of the total cost of production, was hiked 15 percent last fiscal,” Crisil said in a report.
Domestic demand, which accounts for 82 percent of sales volume, should remain steady at 1,100 million kg this fiscal, said CRISIL Ratings Director Nitin Kansal.
“However, exports, which make up 18 percent by volume and 30 percent by value, may slide 12 percent on-year to 200 million kg. Last fiscal, the export volume had increased 14 percent due to lower production in Sri Lanka, a major tea exporting country." Kansal said.
India, with a share of 11 percent, is the fourth-largest tea exporter after China, Kenya, and Sri Lanka.
This fiscal, increased supply of Sri Lankan tea will impact demand for Indian produce. Sri Lankan tea production is expected to rebound this fiscal given the better availability of fertilizers and pesticides.
Sri Lanka predominantly produces orthodox tea, which sees good demand globally because of its quality. The country accounts for 50 percent of the global trade in orthodox tea.
This will lower the realization of Indian tea companies with domestic production seen stable at 1,350 million kg this fiscal, Crisil said.
India as a whole contributes 23 percent to the global tea output and employs around 1.2 million workers in the tea plantation sector. Just Assam produces nearly 700 million kg of tea annually and accounts for around half of India's overall tea production.
For several years now, India's tea industry has been struggling with issues such as rising production costs, relatively stagnant consumption, subdued prices, and crop losses due to climate change. It also faces the challenge of finding a footing and holding its ground in a competitive global market.
The tea business is cost-intensive, with a sizable portion of the total investment being fixed cost. (ANI)