tea industry analysis of jayshree tea industries

8/9/2019 Tea Industry Analysis of Jayshree Tea Industries

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INTRODUCTION

The tea industry in India is about 172 years old. It occupies an important

place and plays a very useful part in the national economy. The industry

combines both agriculture and industry.

Tea plantations in India are mainly located in rural hills and backward

areas of North-eastern and outhern tates. !a"or tea growing areas of the

country are concentrated in #ssam$ %est &engal$ Tamil Nadu and 'erala. The

other areas where tea is grown to a small e(tent are 'arnataka$ Tripura$

)imachal *radesh$ +ttaranchal$ #runachal *radesh$ !anipur$ ikkim$Nagaland$ !eghalaya$ !i,oram$ and &ihar. The competitors to India in tea

e(port are ri anka$ 'enya$ hina$ Indonesia and /ietnam.

There are basically two types of tea sales in India - through #uctions

and *rivate ales$ also called as e(- garden sales. In #uction sales$ tea is

auctioned at auction centers through brokers to buyers who either sell it to

wholesalers 0 retailers or e(port to overseas markets.

Tea is generally placed in the restricted category of the I! policy.

Through special Import icense tea can be imported by paying import duty.

ince #ugust 1334$ tea is being freely imported from the ##5 countries.

+nder the 6+ 0 * units tea can be imported for re e(ports after value

addition.

The tea plantation industry is strictly guided by various statutory 8rders

through the #cts of *arliament like - Tea #ct$ ssential ommodities #ct$

*lantation abour #ct$ 9actories #ct$ *9# #ct$ tandards of %eights and

!easures act etc.

6uality control strictly conforms to I 372: and *revention of 9ood ;

#dulteration #ct isposal of tea waste is done through the tea waste

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control of 13?3. !any gardens are now taking @uality certifications under I8

3AA2B

ome statistical facts about the Indian Tea IndustryB

The total turnover of the industry is around 5s. 1A$AAA crores.

ince independence$ tea production has grown over 2?A?$ while land

area has grown by CAD.

Total net foreign e(change earned per annum is around 5s.14E7 crores.

Industry is labour intensive and employs over 1.1 million workers and

generates income for 1A million people indirectly. %omen constitute

EAD of the workforce. 4A2 !.'gs or about 42D of total production of 341 !.'gs of tea went

for domestic consumption.

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RECENT DEVELOPMENTS

Inspite of its importance$ tea industry of India is going through a crisis

phase since 133AFs. The industry has witnessed many structural changes during

recent years$ which include G emergence of small tea growers in place of large

plantation and introduction of bought leaf factories


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Major causes of the crisis

>espite IndiaFs historical success with the tea industry$ in recent years$

the industry has faced serious competition in the international and national

market which has lead to the present crisis. Tea prices in India are being driven

down by many factorsB

a= >ecline in demand for Indian tea in the global market

b= >efects in auction system

c= *oor price reali,ation

d= >efective market structure

e= Increase in cost of production

Recommendations for improement

>espite being the largest producer and consumer of tea$ the Indian

plantation sector lacks appropriate mapping of production and

consumption levels. >ue to absence of accurate estimates the

formulation of long term industry wide action plans have been affected.

India has concentrated more on building up its large estates and has

given less attention to processing and improving the @uality by proper

blending and marketingGfor higher price reali,ation of their products.

+nlike its key competitors$ India does not have any powerful brand to

support its promotion drive in the international market.

tudy done by the +nited Nations 9ood and #griculture 8rgani,ation


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Improvement of supply chain management inside the country and global

tea marketing network.

The tea industry in India has a legacy of corporate farming right from

the day of &ritish rule. The current situation in the sector has given

ample reason for a rethink on whether corporate farming can really

boost agriculture

International brands like iptons$ &rooke &ond of )+ and Tetly tea of

Tata Tea etc are the market leaders and have great power in price

determination in both domestic

and international market. This needs to be stopped and proper

investigation is needed to curb the wrong practices in the tea market by

introducing new laws to regulate the price movements.

It has been observed that the actual producer of tea has no direct link

with the ultimate consumer. Therefore$ the producers do not understand

the market demand 0 choice of the customer$ it is very important in

todayFs market economy for long term sustainability of the industry.

%ith the withdrawal of sales restriction$ the growers can directly go tothe market by building their own brand. #s the margin of profit is very

high at the present domestic retail market$ Indian tea growers should

invest and take this opportunity for the promotion of their brand at the

retail market.

9resh capital inflow is needed right at this moment for the tea industry

of India. Investment in new plantations and production machineries

must come immediately to compete in the international market.

one of the most important steps from the government part shall be to

introduce a stronger competition law to curb the misuse of corporate

buying power and promote social ob"ectives at the garden level.

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CURRENT SCEN!RIO O" T#E INDI!N TE! INDUSTR$

Tea is normally classified based on the processing$ leaf si,e and grade.

9ermentation is the ma"or process and creates two ma"or classificationsB

Price Trend

5ecently tea prices showed bouyancy$ which started from 2AAC$ after

depressed prices for almost a decade since 1333.# slump in global output$

decline in production due to poor monsoon rains$ steady increase in domestic

demand$ range-bound e(port volumes and low growth in production further

drove prices upwards in 2A12.

)owever IndiaFs tea production had picked up in the last @uarter of 2A12

and initial signs are pointing to better weather in 2A1A$ signalling a possible

change in the price trend. ven if prices do not retrace too much$ producers

may have to live with subdued prices during the year. It does appear that the

two-year run of rising tea prices is losing steam.

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Chart %& Trend in Domestic Tea Prices 'source& ICR! Research(

Production) consumption and E*ports

# secular increase in domestic consumption on the one hand and muted

increase in production on the other$ has been the main factor supporting the

increase in tea prices from 2AAC onwards. #ccording to I5#Fs estimates$

while the average growth in production during the period 2AA:-A7 was "ust

1.3D or so$ domestic consumption would have increased annually at around

:.?D during the same period. The steady increase in domestic demand$ range-

bound e(port volumes and low I5# 5ating 9eature Indian Tea IndustryB

8utlook *ositive for the hort to !edium Term I5# 5ating ervices *age :

of 4 growth in production absorbed the pipeline stock over the years and left

virtually no carry-forward stock at the end of the 2AA7 season.

Production and consumption of Tea in India

Particu+ars ,--

.

,--

/

,--

0

,--

1

,--

2

,--

3

,-%

-

,-%

,

,-%4

*58>+TI8N


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E*ports

(ports play a vital role in maintaining the overall demand-supply

balance in the domestic market. )ealthy e(port realisation is also crucial for

domestic realisations as un-remunerative prices in the e(port market may lead

to e(porters dumping the produce in the domestic market$ which in turn would

e(ert a downward pressure on domestic prices. Tea e(ports from India have

remained range bound over the period 1337-2A11 with some year-to-year

fluctuations seen in between.

E*port of Tea from India

$E!R 5U!NTIT$'Mi++ion 67(

Va+ue'Rs8 Crores(

UNIT PRICE 'Rs9:7(

2A11 133.A? 14:A.34 31.33

,-%, 214.7: 2AAC.?: 31.7:

,-%- 174.7? 141A.11 1A1.2C

,-%% 2A:.12 2:32.31 117.41

,-%, 1:1.2 1777.AE 1:?.E2

J(port from Kanuary to eptember

ourceB I5# 5esearch

Import of Tea from India

The continuous fall in prices of tea$ coupled with high cost of production has

adversely affected the economy of the tea plantations resulting in some tea

gardens being abandoned or under lock out in various states. The teas being

imported are not necessarily inferior teas and the practice of blending with

Indian teas often serves the purpose of providing teas as per customers choice

and making them price-competitive in international markets.

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Import of tea from India

$E!R5U!NTIT$

'Mi++ion 67(Va+ue 'Rs8 Crores( UNIT PRICE 'Rs9:7(

2A11 1C.7C 34.?1 ?4.732A12 2:.41 113.E1 ?A.1?

2A1A 1?.33 1AE.CA C?.E:

2A11 2A.24 1C1.37 73.3A

2A12 1?.42 1:2.A3 4:.?A

J(port from Kanuary to #ugust

Profita;i+it< of ;u+: tea p+a


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Chart .& Trend in !77re7ate Income and Profita;i+it< Indicators of =u+:

Tea

Demand>Supp+< ?ap

9or the Indian tea industry$ the main driver of demand is the domestic

market$ with domestic consumption now growing at an estimated :.?D

annually$ as against around 2.?D a decade earlier. #t the current growth rate$

the domestic market would re@uire an incremental :A !kg or so annually$

going forward.

#s against that$ tea supply has been growing at less than 2D p.a because

it is difficult to improve garden yield of tea even during favourable climatic

conditions$ and new plantations need a long gestation period of at least E-?

years. Therefore the demand-supply gap in India is likely to persist at least over

the medium term.

INDUSTR$ OUTLOO6&

10

2009- 2012-2010- 2011-


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The tea industry has every reason to look ahead in 2A1A with great deal

of optimism and confidence$ according to the Tea !arket #nnual 5eport

published by K Thomas and ompany *rivate imited$ the worldMs oldest and

largest tea auctioneers.

%ith virtually no carry forward stock$ and growing domestic demand to

act as buffer against the uncertainties of the global tea trade$ price levels are

e(pected to remain attractive$ the report observes.

arly cropping patterns indicate that demand supply e@uation is likely to

be more balance in 2A1A. &oth 'enya and ri anka production is e(pected to

e(ceed that of 2A12 and indications are that the !arch crop in North India will

be higher than that of the last year following some much needed rainfall.

%hile the supply situation may be more comfortable than the previous

season$ it is likely to be absorbed by the domestic market where @uality

produce will continue to be in great demand$ the reports states.

E*ports

Indian e(ports at the end of 2A12 stood at 131.? million kg$ compared to

2A:.1 million kg in 2A11$ a decline of 11.C million kgs. The strong domestic

demand ensured that the e(porters were often out priced$ particularly in first

three @uarters.

ower orthodo( production in North India was also another factor

contributing to the decline in e(ports. #s a result$ e(ports out of North India at

34.4 million kg recorded a decline of 17.E million kg while e(ports out of

outh India at 32.7 million kg recorded a rise of ?.4 million kg. The per unit

value increased from 5s 117.41 in 2A11 to 5s 1:C.CE in 2A12$ a gain of 5s

14.4:.

(ports to Ira@ saw a significant increase during the year with an

additional 11.1 million kgs over 2A11. hipments to 5ussia grew by E.2 million

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COMP!N$ OVERVIE@

Aa


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#s the upreme ourt has banned the falling of trees in #ndaman ;

Nicobar Islands$the companyMs *lywood 8peration is still under suspension.

The 1AAD subsidiary company vi, hivaMs roup td was amalgamated with

the company with the prior approval from the shareholders w.e.f 2?.A2.2AA2.

It also proposes to set up an International 8utsourced all centre at

'olkata. The company is proposing to delist its e@uity shares from >elhi tock

e(change as there is no transactions.

On =SE) as on ,, !pri+ ,-%,&

Diidend $ie+d '( :.A1

Mar:et Cap 'Rs Mn( ::12.C:

P9E C.E?

EPS 'Rs8( C:.72

"ace Va+ue 'Rs8( 2A

Vo+ume 1C:2?4

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Shareho+din7 Pattern as in Septem;er ,-%,B

"IN!NCI!L ST!TEMENTS !N!L$SIS

9inancial tatement analysis means analysis and regrouping of data

contained in historical financial statements. It serves the essential function of

converting accounting data contained in financial statements in to useful

information which is always in scarce supply. #fter analysis of financial

statements$ interpretation of analy,ed information is done by decision maker to

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Description ' !s On

Septem;er ,-%, (

No of

Share#o+ders

No of

Shares

of

Share

Demat

Promoter

Indian *romoter 1E EE341C3 EA.2? :C4?17A

Tota+ Promoter %. ..32%03 .-8,/ 402/%1-

Non Promoter

Institutions

!utual 9unds 0 +TI 12 717?4? C.E2 71C14?

9I0&ank0Insurance :1 :412:4 :.E1

9II : 2AAAAA 1.73 2AAAAA

8ther A 2AAAAA 1.73 2AAAAA

Tota+ Institutions .0 %,322,4 %%80, %,1%,10

Non>Institution

&odies orporate 421 1C??C74 1E.42 1CA3C43

N5Is08&s 42 E2CA? A.:4 EA13?

8thers 3C?4 :C73ACE :2.32 2C33777Tota+ Non>Institution %-/0% /4114.1 .28%, .4.300%

Tota+ Non Promoter %-0-1 0010%1- /381/ /0,-341

?rand Tota+ %-0,% %%%1.443 %-- 34-0%-1


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forecast future profitability$ financial strength and li@uidity position of the

business.

T$PES O" !N!L$SIS&

9inancial statements are analysed to establish certain crucial

relationships which help us to take sound decisions. #ccounts for the year

2A1A-2A11 and 2A11-2A12 have been studied in this report.

#nalysis consists of B

Financial Ratio Analysis

Common Size Statement

Time Series Analysis

"IN!NCI!L R!TIO !N!L$SIS

5atio analysis is a very popular tool of financial analysis. +nder this

system of analysis$ financial statements have been analy,ed by computing

accounting ratios. 5atios indicate how a business is performing and provide

indications of trends and patterns. They can be compared to the same ratios in

previous yearsM accounts and the accounts of other businesses operating in a

similar environment. The ratios can be looked at from three perspectivesB

- reditors

- Investors

- hareholders

There are various parameters upon which various types of different analysis is

done. They includeB

1. i@uidity #nalysis.

2. *rofitability #nalysis.

:. olvency #nalysis.

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E. fficiency #nalysis.

LI5UIDIT$ R!TIOS

i@uidity is the ability to convert assets into cash or to obtain cash. It isimportant from the point of view of meeting the firmFs short term obligations.

Current Ratio

It is the ratio of the current assets to current liabilities of the company. It

is calculated to test the short term solvency of a business and its ability to meet

its short term commitments. &esides measuring li@uidity$ it also measures the

margin of safety available in case of uncertainty of flow of funds.

It provides a measure of degree to which current assets cover current

liabilities. The e(cess of current assets over current liabilities provides a

measure of safety margin available against uncertainty in reali,ation of current

assets and flow of funds.

5uic: ratio

#n indicator of a companyMs short-term li@uidity. The @uick

ratio measures a companyMs ability to meet its short-term obligations with its

most li@uid assets. The higher the @uick ratio$ the better the position of

the company.

6uick 5atioO


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Current Ratio&%e notice that in case of urrent 5atio Koonktollee Tea

and Kay hree Tea have a high current ratio whereas !ceod 5ussels and

5ossell have a low ratio.

)igh ratio indicates that

the company may be high amount of receivable and large amount

inventory piled up which is a bad sign$

whereas it may also suggest that the company receives its payments

well before the e(piry of the credit period as such indicating a strong

credit policy of the company.

Thus a right proportion of current assets and current liabilities are re@uired

and the ideal ratio is said to be 2B1.

5uic: RatioB

ometimes a company could be carrying heavy inventory as part of its

current assets$ which might be obsolete or slow moving. Thus eliminating

inventory from current assets and then doing the li@uidity test is measured bythis ratio. The ratio is regarded as an acid test of li@uidity for a company. It

e(presses the true Mworking capitalM relationship of its cash$ accounts

receivables$ prepaid and notes receivables available to meet the companyMs

current obligations. #gain when we look at the acid test ratio it indicates the

actual indicator of the current position.

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PRO"IT!=ILIT$ R!TIOS

*rofitability ratios are probably the most important ratios studied by any

analyst. They are able to give a good overall picture of a company with respect

to its peers. The most important ob"ectives for the business and$ arguably

therefore$ the most important ratios$ are those concerned with profitability.

Net profit mar7in

Net profit margin divided by net revenues$ often e(pressed as a

percentage. This number is an indication of how effective a company is at cost

control. The higher the net profit margin is$ the more effective the company is

at converting revenue into actual profit. The net profit margin is a good way of

comparing companies in the same industry$ since such companies are generally

sub"ect to similar business conditions. )owever$ the net profit margins are also

a good way to to compare companies in different industries in order to gauge

which industries are relatively more profitable. also called net margin

Net Profit

Mar7in

Net Profit

Profit ;efore Interest and Ta*ation

Turnoer Turnoer

Return on Capita+ Emp+o


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Aa


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denominator of the ratios depend on how one defines liabilities and

shareholders e@uity.

"inancia+ Leera7e ratios Aa%% Mar>%,

Total >ebts to #ssets A.?41 A.?23

apitali,ation 5atio A.E42 A.E41

>ebt-@uity 5atio A.323 A.32C

Interest overage 5atio 2.?1C 2.3?:

!N!L$SIS&

Kay hree imited would fall on the higher end.

TURNOVER R!TIOS

9i(ed asset turnover is the ratio of sales


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fficiency 5atio Kayshree Tea imited

!ar-11 !ar-12

ash Turnover 1E:.E4 1A.E3

Total #ssets Turnover A.34 A.7:#ccounts 5eceivable

Turnover C.A3 3.?

!na+


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Common SiFe Profit and Loss !ccount

Aa%% Mar>%,

hare apital :.?E :.E75eserves ; urplusE4.23 E4.E?

Net @orth ?1.4: ?1.32ecured oans E1.13 :3.C:+nsecured oans C.34 4.E?

Tota+ De;t E4.17 E4.A4Total Liabilities 1AA 1AA

ross &lock 7C.E3 72.C3essB #ccum. >epreciation 2C.7C 2?.72

Net =+oc: E3.7E EC.37apital %ork in *rogress

A.4E A.CEInvestments :1.31 :A.77

Current !ssets) Loans B !dances

Inventories 1C.A3 12.17undry >ebtors 21.?3 3.1?ash and &ank &alance

A.32 4.24oans and #dvances

11.: 4.4ELess& Current Lia;8 B Pro8urrent iabilities 21.3 4.2*rovisions 7.71 7.A1

Net Current !ssets 2A.23 2:.2:!iscellaneous (penses not w0o

A ATotal Assets 1AA 1AA

!na+


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COMMON SIGE INCOME ST!TEMENT

Aa%% Mar>%,

INCOME & ales Turnover 1AA 1AA(cise >uty 1.C7 2.2?8ther Income :.3? 4.Etock #d"ustments :.4 -A.C7

Tota+ Income 1AC.A7 1A?.E4EHPENDITURE &

5aw !aterials EE.7: :2.:*ower ; 9uel ost ?.73 7.?28ther !fgr (penses 22.7C :A.7Cmployee ost 7.E? 3.24elling ; #dmn (penses 7.27 1A.22

!iscellaneous (penses 4.E1 ?.:1

P=DIT 3.C? 1A.1

Interest ; 9inancial harges :.4E :.E2

>epreciation 1.C 2.?:

Profit =efore Ta* E.21 E.1E

Ta( A.A2 A.229ringe benefit ta( A A

>eferred Ta( A.3 -A.2C(tra ordinary items -A.4: 2.C

Profit after ta* E.12 1.?4

!na+


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AaB

Share Capita+ A.AE7

Reseres Tota+ A.A22 Tota+ Shareho+ders "unds A.A2E Secured Loans A.ACCUnsecured Loans -A.1?: Tota+ De;t A.A24 Tota+ Lia;i+ities A.A2C !PPLIC!TION O" "UNDS &

?ross =+oc: A.A73Less & !ccumu+ated Depreciation A.AC7Net =+oc: A.A4C

Capita+ @or: in Pro7ress A.:?2 Inestments A.ACE Current !ssets) Loans B !dances

Inentories A.:?C Sundr< De;tors 1.E21Cash and =an: -A.447 Loans and !dances A.:12 Less & Current Lia;i+ities and Proisions

Current Lia;i+ities 1.7E

Proisions A.124 Net Current !ssets -A.1AE Misce++aneous E*penses not ritten off

Tota+ !ssets A.A2C

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Income Statement

SE?MENT REPORTIN?&

The ob"ective of this segment is to establish principles for reporting

financial information$ about the different types of products and services an

enterprise produces and the different geographical areas in which it operates.

uch information helps users of financial statementsB


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different types of products and services of an enterprise and its operations in

different geographical areas - often called segment information - is relevant to

assessing the risks and returns of a diversified or multi-locational enterprise but

may not be determinable from the aggregated data. Therefore$ reporting of

segment information is widely regarded as necessary for meeting the needs of

users of financial statements.

A!$ S#REE TE! B INDUSTRIES LIMITED

&ased on the guiding principles given in #ccounting tandards on

Qegment 5eportingR


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Se7ment ise Information for the omestic (port Total

egment 5evenue :$?A$22$?? C4$37$11 E$13$13$CC

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RE"ERENCES

Kay hree tea ; Industries td. #nnual 5eport 11-12

www.money.livemint.com

www.bseindia..com

www.moneycontrol.com

www.capitaline.com
http://var/www/apps/conversion/tmp/scratch_6/http:%2F%2Fwww.bseindia..comhttp://www.moneycontrol.com/http://www.moneycontrol.com/http://var/www/apps/conversion/tmp/scratch_6/http:%2F%2Fwww.bseindia..com

tea industry analysis of jayshree tea industries

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