Small-cap tea stocks gain on hopes of price rise

KOLKATA| MUMBAI: Small-cap tea stocks flared up on Tuesday in anticipation of a production shortage which might push up prices in the coming months. Production has slipped 25-30 million kg as erratic weather has hampered output in Assam and West Bengal, the two largest tea-producing states.

Shares of Dhunseri Tea jumped 10.7%; Harrisons Malayalam rose 7.4%, rising to a three-month high; BK Birla group company Jay Shree Tea gained over 5.7% to an eight-month high. However, after the initial gains, some stocks closed flat, or even marginally lower, during the day.

Goodricke group rose 5.2%, but closed 0.7% lower, while Warren Tea closed 1.9% higher, and Rossell India gained 2.2%. The McLeod Russell stock, the largest tea producer in the country, closed flat after initially rising 5%.

“There’s a definite shortage of tea this year — production has slipped 25-30 million kg. Every year, domestic consumption is rising by 30 million kg. So, if we take the drop in production and rise in consumption, the shortage could be 50-55 million kg,” DP Maheshwari, managing director, Jay Shree Tea & Industries, told ET.

Tea prices have appreciated by Rs 4-5 per kg at the auctions since October. Maheshwari feels that the prices will rise further by Rs 20-25 per kg when the new season begins in March-April. Kamal Baheti, director, McLeod Russel India, however, reckons that prices will increase by Rs 15-20 per kg for quality teas if production is good.

“Good qualities tea will fetch good prices, but not the inferior quality. If the weather is conducive, then quality tea will be produced,” Baheti explained.

At present, leading packet tea players such as Tata Global Beverages and HUL are buying heavily at the Kolkata and Guwahati auctions for meeting the demand. “They are buying because even if there’s a shortage of good quality tea, they can offer the same quality to its discerning consumers,” said Maheshwari.

Indian tea companies can also gain in the coming season as the Kenyan crop hasn’t been adequate this year — output in the first nine months of 2015 fell to 271.4 million kg from 315.7 million kg a year ago.