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Wednesday, October 28, 2009

Jay Shree Tea & Industries Ltd:Future prospects/analysis/buy/hold/sell,news/views/recomendation/tea sector bet

Scripscan:Jay Shree Tea & Industries Ltd

Story:The company is engaged in the manufacture of tea and chemical & fertiliser. Tea accounts for 66% of the revenue, whereas chemical & fertiliser accounts for 32.8% of the revenue. The company’s area under tea is around 8467 hectare, which includes 2064 hectare in darjeeling. Jayshree Tea’s tea production is 21.5 million kg in 2009,which includes 1.28 million kg of Darjeeling tea. The company manufactures superphosphate and sulphuric acid at its two plants at Khardah in North 24-Parganas, West Bengal and one plant at Pataudi in Gurgaon district, Haryana. The annual installed capacity is 2,25,721 MT superphosphate and 95,710 MT of sulphuric acid with production of 64,795 MT of superphosphate and 48324 MT of sulphuric acidduring 1999-2000.Jayshree Tea has six estates in Darjeeling city, which is considered to be a high quality tea area and fetched higher realisation of Rs 270 perkg compared to the average realisations of Rs 103 per kg in 2009. The company produces around 10% of total Darjeeling production. The three major tea exporting countries include India (980 million kg) followed by Kenya (350 million kg) and Sri Lanka (325 million kg). These together contribute 40% of the total global black tea exports. A production shortfall in key producing countries like Kenya and Sri Lankaled by prolonged dry spells has led to a drastic decline in tea production by 13% and 31.7%, YoY, respectively. This decline, coupled with anincrease in international demand, has lead to a rise in global tea prices by around 18-20% in July 2009. Since India accounts for approximately 14% of world exports this is likely to positively impact the margin on Indian tea exports.The company produces 1.28 million kg of Darjeeling tea, which is being exported to Germany, UK and West Asia. Exports contribute almost 15% to the company’s revenues. Rising global tea prices would benefit the company specifically. The company is also aspiring to increase its exports to Russia, which is a major consumer of orthodox tea. Tea prices have surged above Rs 130 per kg, almost 30% higher than last year. Major production decline in tea exporting countries like Kenya and Sri Lanka has resulted in soaring tea prices in international markets.Simultaneously, lower area under tea and bad monsoon led to lower production in India, aggravating the situation. We believe lower area under tea in the last four or five years would result in almost flat to negative production growth, going forward. This would keep tea prices firm.The company is expected to deliver decent growth going forward on the back of soaring tea prices and it merits a hold at these point of time.


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