Expect stronger sales figures in FY13, says Mcleod Russel

Tea company Mcleod Russel registered a 5% decline in its standalone net profit for FY12 owing to loss of crop during the months of November, December and March. The company has posted a standalone net loss of Rs 157.39 crore for the fourth quarter of FY12 in comparison to a net loss of Rs 122.94 crore in the same period last year.

In an interview with CNBC-TV18, Aditya Khaitan, MD, Mcleod Russel said that the crop loss has resulted in an increased price of tea. However, going into FY13, the company has a positive outlook and expects to increase sales on the back of rising demand.
Mcleod Russel is also looking at new opportunities for acquisitions. The company is keen to expand its operation in Africa and is hopeful of an acquisition in the next six months. Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: Could you tell us what the picture for FY13 looks like and if you can give us some guidance in terms of the revenues and margins, particularly margins, because in FY12 you have missed the earlier guidance of 31%-32%?
A: On the price front, the season has started off on a positive note for us. The ruling price today is Rs 30 to Rs 40 higher than last year. This is due to two reasons. From the month of November we had lost crops due to early winter and we lost crop in November-December and March.
Basically, the inventory levels at the frontend is depleted and buyers had to come in with a higher force to pick up the tea. Today, we are also seeing a slightly lower output in the month of May. Whatever tea we are losing in the month of April and May has triggered of a high price of around Rs 30 to Rs 40.
Going into the season, if the weather holds good for us we believe that this deficit of April and May will not be really catch up. Last year, till October, we had a much stronger weather forecast and our production was higher.
I am looking at a lower output this year in North India and with the prices at Rs 30-Rs 40 higher, it should remain at a much higher level going into the season. I am looking at this year with a very positive note. Q: You finished FY12 with sales of over Rs 1,400 crore. What looks like a reasonable estimate for FY13 and if you could just break up what international operations you reckon may contribute to that revenue target?
A: This year we actually got hit on our revenues on a standalone basis in Mcleod Russel India due to three factors. We lost crop in the month of March. We also had an interim wage agreement with our unions for three years which started off from 1 January and added to our cost in the first quarter of this year.
Going into the year we believe that our costs have been taken into account in terms of the wage revision. The only other factor which really will play a role in our cost front will be the weather. If the weather holds good then our crop should be able to hold out. It will compensate us for some loss in terms of crop because 85% of our cost is fixed. Price front is looking pretty good.
On the international level, we are seeing a drop of crop in Uganda and Rwanda. This again has triggered off a jump in prices. Overall, I am expecting to come up with a stronger sales figure in terms of prices.
A little early for us to indicate what we expect for the year. But looking at the present position compared to last year, I think we are on a better front because demand is outstripping supply in a big way. Q: What are the prices ranges now?
A: As of now, we are running at Rs 30-Rs 40 higher. What we were selling at Rs 150 to Rs 160 last year, is now selling in the range of around Rs 190 to Rs 210 in India. Overseas, where we were selling at around USD 1.90, we have now crossed the USD 2 mark.
Overall, both our overseas operation as well as India is looking pretty strong. The third factor that really is going to play a major role for us is our debt reduction which has taken place last year. We reduced our debt further by Rs 60 crore.
Hopefully, this year with RBI bringing down the interest rate, it will help us in reducing our interest cost. If there are no acquisitions, we would be able to repay another Rs 100-Rs 150 crore of debt. Q: With respect to acquisition, you have said that you are looking at an acquisition in Africa to drive growth. Could you provide us an update on that and is that something which we might see in the first six months of this new year?
A: I guess this is an ongoing process because for tea companies, the only way to grow is through acquisitions. We are looking at Africa because that is one of the areas where we want to grow. Today, our exposure in Africa is around 19 million kilograms. We are keen to expand that, in fact double that in the next few years.
That will bring a hedge for us in terms of our overall company strategy. Our aim is to become a 150 million player in the next couple of years and hopefully, we would be able to do that.
Today, obviously with the production and the demand-supply mismatch, price of tea is going up and the asset values also are going up on one side. But, there are not many sellers on the other side. We are keeping a very keen eye on opportunities and when they do come, we would be eager to bag one or two of them. Q: So it's unlikely that anything will happen in at least the first six months because you haven’t narrowed down, there are no sellers?
A: It's really difficult for me to predict anything as of now. But, I am also hoping that we should be able to do something in the next six months.