Informist, Thursday, Apr 18, 2024
--Tea brokers: HUL bought 51.3 mln kg tea in FY24, up 19% on year
--Tea brokers: Lower auction prices lift HUL, Tata Consumer tea buys
--Tea brokers: HUL bought tea at 179.6 rupee/kg avg cost FY24, dn 13%
--Tea brokers: Tata Consumer bought 20.7 mln kg tea in FY24, up 14%
--Tea brokers: Tata Consumer FY24 average buy price 170 rupee/kg, dn 3%
--Tea brokers: Surplus in India, Kenya pulling dn tea auction prices
--Tea brokers: Kolkata Mar 23 auction price 124.4 rupee/kg, dn 17% YoY
--Tea brokers: Guwahati Mar 30 auction price 117.6 rupee/kg, dn 32% YoY
By Avishek Rakshit
KOLKATA - A sharp decline in bulk tea prices at auctions in Kolkata, Guwahati, and Siliguri prompted India's two largest packaged tea sellers--Hindustan Unilever Ltd and Tata Consumer Products Ltd--to procure more tea in the financial year ended March, tea brokers and industry officials say.
Hindustan Unilever--the leader in India's branded tea market--procured 51.3 mln kg of tea from the auction centres of Kolkata, Guwahati, and Siliguri in 2023-24 (Apr-Mar), 19% more than in 2022-23, according to tea brokers. Tata Consumer Products, which has the second-highest market share in branded tea, procured 20.7 mln kg of tea from the three auction centres, 14% higher on year.
The average procurement cost for Hindustan Unilever was 179.6 rupees per kg, down 13% from the previous year, while for Tata Consumer Products, it was 170 rupees per kg, down 3%. Hindustan Unilever had paid 205.7 rupees a kg on an average in 2022-23, while Tata Consumer Products had paid 175.2 rupees a kg, brokers said.
While it is not clear if the two companies will pass on the benefit of significantly lower raw material costs to consumers by cutting prices, if they don't, the savings are likely to boost their net profit and margins. Hindustan Unilever and Tata Consumer Products did not respond to queries.
"While Hindustan Unilever bought more tea from Guwahati and Siliguri, Tata Consumer Products bought more from the Kolkata and Guwahati auctions," a tea broker from Kolkata said.
PRICES, VOLUMES
According to tea brokers, Hindustan Unilever procured 35.8 mln kg leaf tea at auctions in the last financial year, up 26%, while Tata Consumer Products's leaf tea purchases were at 13.8 mln kg, up 5%. Hindustan Unilever also bought 15.5 mln kg of dust tea, up 5% on year, and Tata Consumer Products bought 6.8 mln kg dust tea, up 39% on year. Dust tea, the lowest grade of tea, is so called as it is made from broken tea leaves and stems.
At the average price, Hindustan Unilever's total cost on tea procurement from the auctions in east and northeast India was 9.2 bln rupees in 2023-24, up 4.5% on year. Similarly, Tata Consumer Products spent a total of 3.5 bln rupees on buying tea from these regions, up 9.4%. As both companies also procure tea from south India, their total expenditure on buying tea is higher.
The lower prices will result in large savings for both companies. For reference, had both bought tea in 2023-24 at 2022-23 prices, Hindustan Unilever would have ended up paying 1.3 bln rupees more, while Tata Consumer Products would have paid an additional 540 mln rupees, assuming the two companies bought the same quantity of tea.
Hindustan Unilever bought 8.2 mln kg more tea in 2023-24 than in the previous year, spending 348 mln rupees more. Tata Consumer, on the other hand, bought 2.6 mln kg more, but spent 157 mln rupees less.
Barring a few instances in December, tea prices at auctions have been falling since January 2023. At the Mar 30 auction, the average price in Guwahati was 117.6 rupees a kg, down 31.6% from a year ago. In Siliguri, it was 123.2 rupees a kg, down 38.2%; no auctions were held in Kolkata on that date. However, on Mar 23, when the last auction of 2023-24 was held in Kolkata, but not in Siliguri and Guwahati, the average price was 124.4 rupees a kg, down 17% on year, data from Tea Board India showed. Average prices comprise prices of leaf tea, fanning tea, and dust tea.
MARGIN-ACCRETIVE
A sector analyst tracking Tata Consumer and Hindustan Unilever said lower procurement costs would be margin-accretive for both these companies, but did not give an estimate of the likely improvement in margins. Tea and coffee sales in India account for 34-35% of the annual revenues of Tata Consumer Products. Hindustan Unilever does not provide the contribution of tea sales to its revenue.
Hindustan Unilever sells tea in India under the Brooke Bond and Lipton mother-brands. Its largest selling brand, Brooke Bond Red Label, is priced at 600 rupees a kg; the sub-brand Brooke Bond Taaza, which is in the budget category, is priced at 230 rupees a kg. Brooke Bond Taj Mahal, a premium brand, is sold at 560 rupees a kg for the leaf variant and 620 rupees a kg for the long leaf variant. The Lipton brand, which is focused on green tea and Darjeeling tea, is also sold at a premium. A pack of 100 tea bags, comprising 130 gm of Lipton green tea overall is priced at 625 rupees, and 1 kg of Lipton Darjeeling tea is priced at 970 rupees a kg.
For Tata Consumer Products, the line-up of tea brands is priced similar to Hindustan Unilever brands, and comprises two mother brands – Tata Tea and Tetley. A kg of Tata Tea Gold – the premium variant – is priced at 600 rupees, and the mid-range brand Tata Tea Premium is priced at 490 rupees a kg. The Tata Tea Agni brand, which is in the budget-mid price range, has different variants. Tata Tea Agni is priced at 340 rupees a kg and Tata Tea Agni Strong Leaf, which is one of the sub-brands under the Agni portfolio, is priced lower at 230 rupees a kg. A pack of 100 tea bags of Tetley Green Tea Classic, weighing 130 gm in total, is sold at 625 rupees. Tata Tea Agni and Tata Tea Premium are the largest selling brands for the company. However, Tata Consumer Products has been focusing heavily on premiumising its portfolio and pushing sales of brands such as Tata Tea Gold and 1868 by Tata Tea. The company also has other tea brands such as Teapigs, Good Earth, and Joekels, which are sold in export markets.
For the nine months ended December, Hindustan Unilever's net profit was 77.2 bln rupees, up 2.7% on year, and revenue was 466.9 bln rupees, up 2.9%. Its raw material cost, of which tea purchases is a part, was 146.5 bln rupees, down 4.3% on year. During the financial year ended March 2023, the company had reported a net profit of 101.2 bln rupees, up 14% on year, and revenue of 605.8 bln rupees, up 15.5%. Its raw material costs in that year were 202.1 bln rupees, up 22.9%.
For the same period, Tata Consumer Products posted a net profit of 9.3 bln rupees on revenue of 112.8 bln rupees. While revenue was up 11%, the net profit was flat. The company's raw material cost was 41.6 bln rupees, up 3.1% on year. In 2022-23, the company’s net profit was 12 bln rupees, up 28.6%, and revenue was 10.9% higher at 137.8 bln rupees. Raw material cost in 2022-23 was 53.8 bln rupees, up 9.6%.
At 0921 IST, shares of Tata Consumer Products were up 0.8% at 1,144.5 rupees, and those of Hindustan Unilever were flat at 2,221.9 rupees on the National Stock Exchange.
DUST TEA AUCTIONS
The higher purchases of tea by the country's dominant tea retailers comes in the wake of the industry shifting towards mandatory auction of dust tea from April, as mandated by Tea Board India.
"As mandatory procurement of dust tea will start this month onwards, it might affect the margins of Tata Consumer Products," said the sector analyst. The analyst reasoned that Tata Consumer Products procures a substantial part of tea directly from associate companies – Amalgamated Plantations Pvt Ltd and Kanan Devan Hill Plantations Co (P) Ltd - which helps it register better margins. Since such procurement is through direct deals, the selling price for these associate companies is not market-driven, the analyst said.
"But now, they (Tata Consumer Products) will have to mandatorily buy from the auctions and it (price) will be market-driven; hence, there could be some negative effect on the margins April onwards," the analyst said. Hindustan Unilever primarily buys tea from auctions.
According to the directive by Tea Board India, no private deals bypassing the auction mechanism will be allowed for dust tea. The new system will be tested till Jun 30, after which the Tea Board will decide on the road ahead.
KENYA SURPLUS
Tea brokers say that the drop in prices globally is because of a stock of around 150 mln kg of unsold tea with Kenya. The third-largest tea producer and a major global supplier, primarily competes with India in the crush, tear, and curl tea segment in export markets. The African country produced 570.3 mln kg of tea in 2023 but around 237 mln kg of tea was left unsold in the Mombasa tea auctions till December, which led to the surplus.
"Apart from the surplus in Kenya, the prices were lower in Kenya due to lower exports from that country and a weak currency as well," said a tea buyer at the auctions. "That had a bearing on India as well and overall, there is a surplus in India as well."
Although India is the world's second-largest tea producer with an output of nearly 1.4 bln kg in 2023, some retailers import tea from countries such as Nepal and Kenya due to the relatively lower prices. In January, tea imports by India stood at 2.8 mln kg, up 27% on year, latest available data from Tea Board India showed. India imported 246.5 mln rupees of tea in 2023-24, down 11.6% on year. Tea brokers attributed the lower prices to a fall in the currency of exporting countries, while some tea planters in India said imported teas were of lower quality and, hence, priced lower.
In India, tea production in Jan-Feb was 33.5 mln kg, up 11.3% year-on-year, data from Tea Board India showed. While production in West Bengal and Assam – the primary tea producing states – fell during this period, the crop was very good in Tamil Nadu, which produced 21.4 mln kg. This led to an overall surplus, brokers said. In Jan-Feb 2023, Tamil Nadu had produced 13.7 mln kg of tea. End
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