>JAYSHREE TEA (ICICI DIRECT)

Acquisition to boost volumes…
Jayshree Tea posted its Q4FY10 results with the topline growing 20.2% from Rs 73.7 crore to Rs 88.6 crore led by higher realisation of tea. Tea realisations were in the range of Rs 100-110 per kg for Q4FY10. The company has sold 22.7 million kg in FY10. Depreciation provisioning increased from Rs 1.6 crore to Rs 2.2 crore in Q4FY10. The company posted a loss of Rs 17.5 crore in Q4FY10 compared to a loss of Rs 42.9 crore in the corresponding quarter. The company sells the dust or low quality tea or leftover tea during January to March. This fetches lower realisations. Hence, most companies post losses in the March quarter.

■ Acquisition of tea gardens in Uganda
Jayshree Tea has acquired a 100% stake in Kijura Tea Co Ltd and Bondo Tea Estate Ltd. These companies have tea estates manufacturing around 1.2 million kg tea per annum and a tea factory
situated in the district of Kabarole in the state of Uganda. The possession of tea estates is expected to be effective from May 1, 2010. This acquisition would result in higher tea volume in FY11 and FY12, which inturn would boost earning as tea prices remain high.

Valuation
At the current market price of Rs 285, the stock is trading at 5.0x its FY11E EPS of Rs 61.3 and 4.7x its FY12E EPS of Rs 65.1. Tea prices have increased from Rs 104 per kg in FY09 to Rs 128 per kg in FY10 on the back of incremental demand from domestic market and exports. We
believe tea realisations for Jayshree Tea would further go up by 5-7% in FY11. This would keep margins intact. We value the stock at 6x its FY11E EPS with a target price of 366. We maintain our target on the stock with a STRONG BUY rating.

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