Global tea prices to remain firm on lower production

The tea industry is expected to end year 2009 with a production shortfall of 5 million kg-10 million kg in the domestic market and about 75 million kg-80 million kg in international markets

Tea prices in the domestic and international markets are expected to remain firm in the coming months as there are no signs of easing of the deficit situation globally, say analysts.

The year 2009 is expected to end with a production shortfall of 5 million kg-10 million kg in the domestic market and about 75 million kg-80 million kg in international markets. With no signs of easing of production shortfall, tea prices are expected to remain firm in the domestic and international markets in the coming months, said Sharekhan Ltd in a note.

World tea production has been hit mainly due to lower output and exports from Kenya and Sri Lanka. According to the India Tea Association, from January to September 2009, global tea production fell by 6.5% or 88.6 million kg from the same period last year.

The Tea Board of India (TBI) said that during the first half of FY10, tea production and exports declined 0.32% and 7.4%, respectively. However, during the same period, domestic tea prices increased by 21.2% to an average of Rs104.40 per kg. Export tea prices declined by 0.9% to an average of $2.9 per kg, TBI added.

During 2008, the country's domestic consumption and per capita consumption were 802 million kg and 701 gm per head, respectively. For the next year (2010), the figures are likely to be 837 million kg and 711 gm per head, said a report by the standing committee of experts on population projection and IIM-Calcutta.

Since August, share prices of companies like McLeod Russel India Ltd and Jay Shree Tea & Industries Ltd have risen by 63.3% and 59.4%, respectively. However, due to overall moderation in the markets and correction in share prices, current prices of these companies offer an entry point to investors.

"On high domestic and export realisation, we expect tea plantation companies such as Mcleod Russel and Jay Shree Tea to continue to maintain higher profitability in the coming quarters. With stock prices of these two companies having corrected by about 10%-15% from their recent highs, the current weakness in tea stocks and overall sedate market environment offer an entry point to those investors who have completely missed the rally in tea stocks earlier," added Sharekhan.

On Wednesday, McLeod Russel closed 2.2% up at Rs256.40 on the Bombay Stock Exchange while Jay Shree Tea shares declined 0.20% to Rs326.80.

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    Investor Interest   Exclusive
    Bhuruka Gases calls for EGM to buy back equity

    Minority shareholders of BGL are crying foul over the move. Next year, the company is planning to go for overseas trading operations in coal and bio-diesel, which could yield huge profits

    Karnataka-based Bhuruka Gases Ltd (BGL), a unit of the Bhoruka Group, is planning to buy out the entire stake of its minority shareholders in the company at Rs41 per share and has called for an extra-ordinary general meeting on 24th December for the same.

    “The company’s management is not interested in trading. Not more than 50 shares are traded in a day. The company has to pay unnecessary fees,” said R Srinivasan, legal manager and compliance officer, BGL.

    While the company says that it wishes to delist to cut costs, minority shareholders are crying foul, looking at what they call the good future business prospects of the company.

    “I am of the opinion that the promoters are using their majority shareholding to take away the ‘benefits of proposed prosperity’ of the company from the minority shareholders,” said Shreyansh Sanghani, a minority shareholder in BGL.

    According to media reports, BGL is planning to invest in overseas trading operations in coal and bio-diesel by next year, through Bhoruka Overseas Pte Ltd, its investment unit based in Singapore.

    BGL said that it is offering Rs41 per share to minority shareholders. Earlier in 2008, BGL’s auditors arrived at a valuation of Rs38.12 per share; however, its directors claimed to have offered Rs41 per share to minority shareholders. BGL’s book value is Rs35.85 per share. “We are paying a good market price of Rs41 today and the method we have adopted is as per SEBI’s delisting guidelines,” added Mr Srinivasan.

    However, the final offer price will be decided by the Karnataka High Court once BGL passes a resolution it its EGM next week.

    According to a filing by the company to the Bombay Stock Exchange in August 2008, BGL’s board had approved a letter (proposal) received from Bhuruka Gases Holdings Pvt Ltd expressing their desire to acquire the shares from the shareholders, in line with the SEBI (Delisting of Securities) Guidelines 2003.

    The company has not paid any dividend since 1995 citing losses due to increased competition and a hike in power costs. According to the director’s report, BGL did not make any dividend payout for the year ended 31 March 2009 due to its long-term growth and huge funds requirement. 

    In 1995, BGL was examined by the committee of the Board for Industrial and Financial Reconstruction (BIFR) due to continuing losses in power generation and increased competition.

    The BIFR committee suggested that BGL reduce its share capital by reducing its face value per share from Rs10 to Rs2.50. The Government of India has also given the company concessions in power and tax installments. The company also received an interest subsidy of 25%-30% from IDBI Ltd and ICICI Bank Ltd on outstanding amounts due since 1995.

    BGL has a track record of non-transparency in terms of disseminating information through stock exchanges. For example, a note (number 4) to the 2007-08 accounts, from the BSE site, said: “Merger proposal of Calibration Gas India Ltd, wholly owned subsidiary with the company, is since approved by the Honourable High Court of Karnataka and completion of other related formalities is under progress.”

    But another note (number 3) to the results of the first quarter ending 30 June 2008, said: “Merger application of Calibration Gas India Ltd, wholly owned subsidiary with the company, is pending before (the) Honourable High Court of Karnataka.”

    BGL shares were last traded on BSE with a closing price of Rs40 on 24 November 2008. Since then neither the BSE nor the Bangalore Stock Exchange, where the scrip was listed, has any information on BGL and its shares.

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