>Mcleod Russel (India) Ltd.

Continuous reduction in global carry forward inventory during CY08 and CY09 lead to higher tea prices internationally. CY10 saw a good crop with Kenya ( world’s largest exporter) reporting highest ever production at 399 mn kgs. But globally still the prices remained firm on the back of strong demand for black tea.CY11 followed as a stagnant to lower production year.


We believe that we are in a structural shift with a rising demand and supply gap, which is not likely to get resolved over the next few years, unless crop from Kenya increases substantially which is unlikely.This can lead to price rise which can last for few years.


The country has witnessed stagnant production over the last 4-5 years while domestic
consumption has been growing at a CAGR of 2.5%+ over the last 10 years.


India has been witnessing falling yields over the last 5 – 7 years due to the aging of bushes. Of the 11th Plan target there was 66 per cent shortfall in sanctions against a target of 54,524 ha area for replanting in the first four years (April 2007 - March 2011) as only 18,642 ha area was sanctioned for replanting. The impact of replantation efforts will be visible from FY14-15 as the pace of it picks   up, however by that time domestic consumption too would have grown resulting in no major  buffer.

Consolidation initiatives by Mcleod have started contributing from FY11.Improved profitability and  return ratios to enable the company to increase its operating cash flows and hence reduce
leverage.


To read report in detail: MCLEOD RUSSEL

RISH TRADER