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Which stock should your eyes be glued to this week?

ICICIdirect.com has come out with its report on Jayshree Tea.

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ICICIdirect.com has come out with its report on Jayshree Tea .

"Jayshree Tea (JT), the second largest producer of tea in India, would benefit from the synchronous rise in domestic and global tea prices. With the rise in tea realisations and increasing contribution from high quality Darjeeling tea, we expect net profit to grow at a CAGR of ~15% from FY11-FY13E."

"The company owns six estates in Darjeeling, which is known for its superlative quality of orthodox tea. Darjeeling tea is mainly exported to Russian and Middle East countries. In 2010, average realisations of Darjeeling tea were Rs 285 per kg as compared to Rs 120 per kg for black tea. With the robust demand for high quality tea in international markets, prices in the current year are expected to reign higher by further Rs 15-20 per kg. Hence, backed by higher realisations and increasing exports of the company (Rs 48.6 crore in FY08 and Rs 90 crore in FY10), we believe Jayshree's revenues would continue to grow at ~12% CAGR from FY11- 13E. We expect the EPS to grow at ~9% CAGR in FY11-13E."

"JT has been able to increase its sales volume from 18.2 million kg (mkg) in FY08 to 23.4 mkg in FY10. The company achieved this by increasing its production capacity through acquisition of estates in East Africa (Rwanda and Uganda of 5.3 mkg capacity per annum) at an investment of Rs 30 crore. It is further eyeing acquisitions in Kenya and Africa that would help the company to boost its sales volumes and capitalise on the increasing demand for tea across the globe. Also, with a debt to equity ratio of 1.1, we believe the company is comfortably leveraged to raise funds in order to undertake acquisitions, going forward."

"At the CMP of Rs 173, the stock is trading at 6.9x and 5.6x its FY11E and FY12E EPS of Rs 24.8 and Rs 30.7, respectively. With tea production in India in 2011 expected to be ~980-1000 mkg and production in Kenya and Sri Lanka expected to decline by ~16%, we believe tea prices would remain firm, subsequently improving the company's earnings. Hence, we have valued the stock at 6x its FY12E EPS to arrive at a target price of Rs 190," says ICICIdirect.com research report.

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To read the full report click on the attachment