Mcleod Russel’s second quarter net profit slipped 9 percent to Rs 221.5 crore from Rs 245.5 Crore, last year. The company’s net sales were also down at Rs 487.2 crore against Rs 490.8 crore, year-on-year.
Speaking to CNBC-TV18 post earnings, CFO Kamal Baheti says the unfavourable weather conditions in Assam created challenges and made company lose up to 2 million kg crop last quarter.
However, the tea producer is hopeful of recovering losses in Q3 and Q4. The company expects a 15-20 percent growth in topline this year. We should be able to recover the loss of the sales in the first two quarters and maybe at the similar level to higher for the full year. So in Q3, which is mainly sales quarter, we should be able to see at least 20 percent growth in the topline," he concludes. Below is verbatim transcript of the interview:
Q: This has been a weak quarter for you, your sales are lower, your profits have fallen and your margins have gone down, what went wrong this quarter?
A: Right from the very beginning, we had an unfavourable weather conditions in Assam. We lost crop in Q1, we thought that we will be able to recover the crop in Q2 but instead of recovery we had lost further 2 million kilograms of crop in this year in Q2.
The prices had been higher by around Rs 13 per kilogram but they could not make up the entire loss of the crop. So Q2 has mainly contributed by the loss of 2 million kilograms of our own crop.
We could make up a bit through the small grower’s leaf but not to the extent that we can make profitability. Going forward, the current quarter, as we started, the crop had recovered.
We are up by a million kilograms in first 15 days as compared to last year. So if we start recovering and the prices hold of, we should be able to recover the loss of the profits in the first two quarters and the third and fourth quarter.
Q: To what extent can you overcome the impact of a poor crop, can’t you pass on prices and stress on more value added branded teas?
A: We are not in the branded product, we are in the bulk business. No doubt that the prices would contribute, auction prices had been higher and we have been able to take higher prices but the higher prices are also dependent on the international factors.
This year there has been a drop in prices in the African markets which does have an impact. Even if we are higher on prices, still we will be able to recover part of the losses in Q3 and Q4 but because of the shortage of the crop this year, the carry forward teas will be much lower and we should be able to see much higher prices in the new season.
Q: What were the exact domestic and export realisations that you have clocked in this quarter, how much has that fallen?
A: The domestic prices had been higher by around Rs 13 per kilogram as compared to last year at around Rs 185 and the export prices have also been higher by Rs 13-14. It is the sales quantity, because of lower crop the overall sales is lower compared to last year.
Q: In terms of sales quantity now that you are saying that in the next couple of quarters, you expect to see a recovery what kind of growth are you hoping to see in domestic and exports?
A: Exports will be lower this year because of lower prices in the overall international markets but we see a substantial increase in sales in Q3 and Q4. We see 15-20 percent increase in sales.
We should be able to recover the loss of the sales in the first two quarters and maybe at the similar level to higher for the full year. So in Q3, which is mainly sales quarter, we should be able to see at least 20 percent growth in the topline.
Q: In margins as well?
A: Margins normally in Q3 are lower compared to Q2 because of the seasonal business but overall margin as compared to Q3 last year should improve and that is why Q3 improvement in the overall profitability may recover some of the losses which we did in first two quarters.
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