Tea companies likely to witness eight per cent degrowth in revenue this fiscal: Crisil Ratings

Domestic production in India this fiscal is seen at 1350 million kilogrammes, it said.

The Tea industry is likely to report eight per cent dip in revenue this financial year, following a possible decline in export volumes, Crisil Ratings said in a report released on Friday.

According to the report, operating profitability will fall second year in a row, shedding 100 basis points to five per cent, primarily due to lower realisation.

Profitability of the companies in the last fiscal slipped by 150 basis, owing to increase in wages.

The report said that wages constitute 20 per cent of the total cost of production. The wages were hiked nearly 15 per cent in the last financial year.

However, low leverage and little capital expenditure of the tea companies will keep their credit profiles stable, the report stated.

The study rated 28 tea companies, which account for 12 per cent of the industry revenue of Rs 22,000 crore.

Nitin Kansal, director, Crisis Ratings, said "Domestic demand, which accounts for 82 per of the overall sales volume, should remain at 1,100 million kilogrammes this fiscal".

But, exports which make up 18 per cent by volume and 30 per cent by value, may fall almost 12 per cent to 200 million kilogrammes this fiscal.

India with 11 per cent share, is the fourth largest tea exporter after China, Kenya and Sri Lanka, the report said.

According to Crisil Ratings, increased supply from Sri Lanka this fiscal will have an impact on the demand for the Indian brew. The island nation produces orthodox tea which has good demand globally because of quality, the report said.

Domestic production in India this fiscal is seen at 1350 million kilogrammes, it said.

The report said low capital expenditure and stable working capital requirements will keep borrowings under control. This will keep the rating profiles stable, the report said.