Indian tea industry expects 8% decline in revenue this fiscal year due to fall in exports: Crisil report

A decline in export volume will result in the Indian tea industry reporting an 8% on-year degrowth in revenue this fiscal, CRISIL Ratings said on Friday based on a study carried out on 28 rated tea companies.


Operating profitability will fall for the second year in a row, shedding 100 basis points (bps) to 5%, due to lower realisation. Profitability had fallen 150 bps last fiscal, primarily because of increase in wages. Wages, which constitute 20% of total cost of production, was hiked 15% last fiscal. However, low leverage and negligible capital expenditure (capex) will keep credit profiles stable.


Says Nitin Kansal, Director, CRISIL Ratings, “Domestic demand, which accounts for 82% of sales volume, should remain steady at 1,100 million kg this fiscal. However, exports, which make up 18% by volume and ~30% by value, may slide ~12% on-year to ~200 million kg. Last fiscal, the export volume had increased 14% due to lower production in Sri Lanka, a major tea exporting country."

India, with a share of 11%, is the fourth-largest tea exporter after China, Kenya, and Sri Lanka. This fiscal, increased supply of Sri Lankan tea will impact demand for Indian produce.

Sri Lankan tea production is expected to rebound this fiscal given the better availability of fertilisers and pesticides. Sri Lanka predominantly produces orthodox tea, which sees good demand globally because of its quality. The country accounts for 50% of the global trade in orthodox tea. This will lower realisation of Indian tea companies with domestic production seen stable at 1,350 million kg this fiscal. The consequent decline in operating profitability will reduce cash accrual by 40% this fiscal.

“Low capex intensity and stable working capital cycles will keep borrowings under control. So, the capital structure of tea companies in the CRISIL Ratings portfolio would remain stable, with gearing expected below 0.50 time as of March 31, 2024, in line with the historical trend. Healthy balance sheets will ensure comfortable debt protection metrics, lending stability to credit profiles,” said Argha Chanda, Associate Director, CRISIL Ratings.

Hence, despite weak operating performance, interest coverage of the sample set will remain over 3 times this fiscal. Weather conditions in key tea-growing areas and further hikes in wages will bear watching.