Wage hike may hit fin growth of bulk tea cos
Mumbai THE North Indian bulk tea players may witness contraction in financial performance in FY22 due to interim wage enhancement of plantation workers and a likely decline in prices in the second half of the year, according to a report. The Assam government had notified an interim enhancement of wages for tea plantation workers by Rs 50 per day with effect from February 22, 2021, till the finalisation of the revised minimum wages proposed earlier, Icra said in a report. However, the wage rate hike was stayed by the Gauhati High Court on March 16, while hearing a petition filed by the Indian Tea Association and several other bulk tea companies.
The court also allowed the tea companies to set aside the enhancement until the final hearing is concluded. Based on these instructions, the Indian Tea Association, by the end-March, decided to increase the daily wages in Assam by Rs 26 per day, which is in line with the wage rate increase announced in West Bengal in January. Further, the report said that while initial bulk tea prices are robust, a negative bias is likely from around August, once the teas of the peak production months are available.
The extent of the decline in prices in the second half of the year to determine the level of financial performance in FY22, it noted. "While the matter is sub judice, the increase in wage rates, as notified by the Assam government, would increase the cost of production by Rs 25 per kg for Assam gardens.
"Such a large increase has the potential to reverse the material improvement in financial performance that the industry had witnessed in FY21. While the current price trends are firm, any significant reversal in prices may lead to a deterioration in the financial health of the NI- based bulk tea companies," Icra Vice President and Sector Head, Corporate Sector Ratings, Kaushik Das said.
On the export front, Indian export volumes were down by 18 per cent in CY2020, with a higher decline witnessed in NI export (19 per cent). The same was primarily led by lower export of orthodox teas, owing to a 38 per cent drop in NI orthodox production in the last calendar year.