Low export demand and sluggish rural consumption to dampen tea realisations for North India estates, says ICRA
ICRA expects the margin for tea estates based out of North India (NI) to be significantly impacted in FY2024 due to the double whammy of increase in cost of production, following the wage rate hikes in West Bengal and Assam and the drop in realisation due to the low export demand and a sluggish rural consumption. According to ICRA’s recent note on the sector, the operating profit margin (OPM) of NI-based bulk tea players is expected to be significantly impacted in FY2024 and, given the current operating environment in the tea industry, both domestic and international, any material improvement in profitability during FY2025 appears unlikely at present. The rating agency has thus revised the sector outlook to Negative from Stable.
«The all-India auction prices of orthodox (ODX) tea in 10M CY2023 witnessed a significant decline of Rs.
51/ kg (~21%) on a YoY basis. The same was primarily driven by a sharp drop in the North India ODX tea prices by Rs. 70/ kg during 10M CY2023 on a YoY basis.
The price fall witnessed in South India (SI) ODX tea was, however, limited to Rs. 7/ kg (~5%) during the same period. The slump in ODX tea realisation was due to lower export demand, primarily from Iran,» said ICRA.
Similarly, the all-India cumulative auction average of crush-tear-curl (CTC) tea also witnessed a decline during 10M CY2023, but to a lower extent of ~Rs. 6/ kg (~3%). This was entirely due to the decline in NI CTC price by Rs.
10/ kg (~5%) as the SI CTC price registered an increase of Rs. 6/ kg during 10M CY2023 on a YoY basis. Sluggish rural demand, along with headwinds in export markets due to oversupply of Kenyan teas, India’s main competitor as far as CTC teas are concerned, have contributed to the decline.
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