Tea prices may increase by Rs 10-15 a kg: McLeod Russel

A good monsoon means better crop recovery and improved tea prices, says Kamal Baheti, CFO at Mcleod Russell.

In an interview to CNBC-TV18, Baheti says, on a lower side, company expects tea prices to increase by Rs 10-15 per kilogram this season.

“This is a period for quality crop due to seasonal variation. So, prices tend to increase,” he says, adding, last year the average price was Rs 170 a kg and this year it may touch Rs 190.This could translate into additional earnings before interest, tax and depreciation and amortisation (EBITDA) of Rs 100 crore.Below is the transcript of Kamal Baheti’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: First, start off by telling us how much tea prices have gone up by over the last two months and what kind of an impact would it have on your revenues?A: Let me really clarify that this is a period which is the quality period when the prices do go up in terms of what has been there in the month of March, April and May. So, the normal increase in the prices are there because of the seasonal variations in the quality of the tea per se. But as we started this season, we started on a lower side as compared to last year. Gradually we are going up. Currently we have inched up higher than that last year. So, the trend is not only higher, it is higher than what the trend had been last year and as we go into the peak season and the overall consumption story pans out in India, I believe this is a year which is going to be a price story for tea which has been lack lustre for last couple of years at around 170-172 levels for our company.Anuj: What would that mean for financials because as it is, you had a good FY16? For FY17 what would that mean?A: For FY17, there are two factors which has to go in our favour. Number one is the crop and another is the price. We lost crop in the last two years because of the poor monsoons. This year, the weather conditions seem far better and if we recover 4-5 million kilograms of crop itself, it means that we will be able to take care of the normal cost increase, including the wage increase. So, any increase in prices will reflect in the earnings before interest, taxes, depreciation and amortisation (EBITDA) level. And we are expecting at least Rs 10-15 increase in the prices on the lower side; it may be even higher. So on a conservative basis, we expect around Rs 10-15 which means on 18 million odd kg for us, Rs 100 crore of additional EBITDA. And these are expectations because the prices have not gone up. These are not guidances, but going seems pretty good as far as this year is concerned, both on the crop as well as the prices.Sonia: I did not get the expectation. Currently the Assam tea prices are Rs 500 per kg, right?A: No, that price was just some lines which has been sold in the auctions. Rs 500 is nowhere near the averages. Average price is around Rs 150-160 per kg. These are the reports which came in the media because these were the highest prices ever received by one invoice in one of the auctions.Sonia: So, you are expecting from this Rs 156 per kg, you are expecting another Rs 10-15 hike?A: Last year we got around Rs 174 per kg for our company. As an average, we are looking at around Rs 190 this year. Of course, as I said, these are the expectations based on the price change which we have seen last couple of months.