Tea exports to grow due to high global demand: ICRA

Mumbai: There is likely to be a growth in tea exports, mainly supported by high demand for Indian tea in the international market on the back of supply issue, which will also boost domestic price as well, ICRA said in a report.

"There will be an upward trajectory in overall Indian export realisations, supported by high demand for Indian tea in the international market, given the supply side issues. This, in turn, is expected to provide support to domestic price trends as well," ICRA said.

Meanwhile, ICRA said the global tea production is likely to record a decline in calender year 2017, primarily on the back of crop losses in Kenya, which accounts for around 16 per cent of the total black tea production globally.

Given Kenya's status as one of the world's largest exporters of black tea, production levels from the country are likely to have a considerable impact on global demand-supply dynamics for the year, it said.

Further, the Sri Lankan crop levels, which contribute to around 10 per cent of global tea production, are also low. According to ICRA, the reduced global availability of tea is likely to result in the continuation of an upward price trajectory across most international auction centres which, in turn, would support Indian price trends going forward.

It also said that the likely growth in realisations over the near term is expected to have some positive impact on the performance of Indian bulk tea players in FY18, despite the continuing cost pressures, such as wage rates.

In the first quarter of the current calendar year, all the major tea-growing regions of India, Kenya and Sri Lanka had recorded a considerable loss in production.

While India and Sri Lanka have recovered those crop losses in the recent months, the loss of around 49 million kg, recorded by Kenya during Q1 CY2017, is unlikely to be made up in the latter half of the current year, despite some recovery in production during May-July 2017.

Consequently, the overall global tea output for CY2017 is expected to be lower than that of the previous year, inspite of indications of increased Indian production in 2017.

ICRA vice president and sector head, corporate sector ratings said Kaushik Das while the average domestic auction prices witnessed some moderation, there is variation across grades with better quality teas selling at a premium compared to last year and medium to lower quality have seen a softer trend.

"Profit margins and debt coverage indicators for bulk tea players are likely to witness some improvement in FY18 on the back of an expected increase in prices, especially for players operating in relatively higher quality tea segments,"
Das said.

In addition, he said, increased production and input tax credit available under the goods and services tax (GST) structure is also likely to support performance. "However, the overall improvement would be limited by continued costs pressures, mainly on account of increasing wage rates," he added.