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Jan 29, 2013, 10.34 AM IST | Source: CNBC-TV18

See high volumes in FY14, eye profits ahead: McLeod Russel

McLeod Russel's net profit grew by 5 percent to Rs 123.1 crore in the third quarter of FY13 from Rs 117.1 crore in a year ago period. Aditya Khaitan, MD of Mcleod Russel said staggered shipments led to weak Q3 performance. He expects to maintain profitability going forward.

We were expecting a higher percentage of sale to take place.

Aditya Khaitan

MD

Mcleod Russel

McLeod Russel's net profit grew by 5 percent to Rs 123.1 crore in the third quarter of FY13 from Rs 117.1 crore in a year ago period. Aditya Khaitan, MD of Mcleod Russel said staggered shipments led to weak Q3 performance. He expects to maintain profitability going forward.

Also read: McLeod Russel Q3 profit rises 5% YoY to Rs 123 cr

Khaitan also added that tea prices continue to show a robust uptrend and they have a production target of 25 million tonne this year. He expects volumes in fiscal year 2013-14 to be 10 million tonne higher than FY13. However, their Indian inventory remains at an all time low to support prices, he informed.

Going forward, Khaitan sees tea prices going up by Rs 15 to Rs 20 per kg (YoY) in FY14.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Your margins were expected to go up because tea prices have been firm because of lower crop but, we saw a bit of a slip in margins. Can you take us through why?

A: It has nothing to do with higher prices. Yes, we did get a jump in prices. Now we are seeing that the buyers want their sale shipment to be staggered. We were expecting a higher percentage of sale to take place, a lot of the tea that have been already manufactured have been sold but not being accounted for because people want staggered shipment and they want delivery just in time.

That will get reflected in this quarter, which is the January to March quarter. We did lose around 7 million tonne of our own crop up to December and we try to make it up with about 4 to 5 million tonne in out growers leaf, though the margin pressures on our own leaf is much higher than out growers. We have tried to compensate it to a certain extent by doing about 5 million tonne extra in terms of bought leaf and overall, we have been able to maintain the profitability going forward.

The jump in prices this year has been quite good and last year at the same time, the prices were heading southwards. This time the prices are holding, if not going up. So, overall I am expecting to end the year at a higher EBITDA and profit after tax (PAT) level than last year.

Q: What about volumes, do you expect sales to be quite sluggish this year, barely skirting the 10 percent growth mark?

A: I look at it differently. For us volumes come in two areas, either it is our own leaf, which is basically linked to weather or it is the second vertical that we have now become quite prominent on and it is the out growers leaf, where this year we will be producing around 18 million tonne, which is higher by 5 million tonne from last year.

Our plans are to increase this to 25 million tonne in the coming year, which is an addition of around 7-8 million tonne. The weather last year was quite horrendous; we lost crop from the month of March all the way up to October. We saw a little bit of respite in November. Seeing the history of weather pattern, we expect this year starting March to make up some of the 7 million tonne. We hope to add around 5 million tonne being on the conservative side and going forward, we are adding another 5 million tonne on the out growers. So, this coming year, I am expecting the volumes to grow by around 10 million tonne over last year.

Q: Could you tie that in with what you are seeing in terms of global shortfall because there is a pretty significant global shortfall in terms of production whereas consumption itself is going up over the last few years?

A: There is a drop across the board. We are seeing a deficit in India where we will begin this year with an all time shortage in inventory levels in excess of around 150 million and this is getting reflected in the prices of tea. We are expecting the opening levels in the months of March and April when the new season’s tea comes up to be at an all time high because there is just no tea in the system.

We are also seeing Africa, which is the next big market for black tea at around 30 to 40 cents higher than last year at the same time. So, everybody is factoring in the shortage in the inventory levels and they are also now looking at the long rains, which is what we look at in Africa being lower.

If that happens there will again be a shortage in Africa. Looking at the weather conditions in India, we still are in the early stage; we need some rain in the month of February and March to start our production on even keel and the way I look at it, we are expecting at least a minimum of Rs 15-20 hike in price levels than the last year. Overall, I am expecting the market to remain firm, if not move up as inventory levels start getting depleted every year.
 
Q: When you say prices remain in a robust uptrend, you mean that you are looking for about Rs 20 higher this year and what would that mean in terms of realisations for you?

A: It is very clear, if we have a normal year in terms of production, I am looking at Rs 10 to 15 increase in prices. If we have another year like we had last year, where we ended up losing crop every months, then the prices will be much higher.

From our point of view, it depends on certain factors because we are a fixed cost company. We will ensure that we make up some of the deficit by doing out grower’s leaf. Overall, every year we have been able to better our EBITDA and our PAT and I see the same trend happening next year also.

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