Rating agency ICRA expects the profitability of North Indian bulk tea players to witness significant improvement in FY2021, on the back of a steep increase already witnessed in H1FY2021 and significantly lower losses expected in H2 FY2021, given the expectations of a firm trend in tea prices.
"While North Indian bulk tea players report losses in the 2nd half of the year as the season peaks in October and November and the end season tea quality declines fetching lower realisation, ICRA expects a much lesser price decline in the current year, given the favourable demand-supply scenario. Thus, the losses at the operating level in H2FY2021 are expected to be significantly low as compared to the past five to six years, leading to a significant improvement in profitability in FY2021. Also, owing to low carryover stock from the current season, the tea prices are likely to remain firm in the near term-at least till the peak production starts in the next season from June-July 2021," ICRA has said in a research report.
According to the rating agency's research report, the credit metrics of the listed tea companies is expected to witness a significant improvement.
ICRA expects the interest cover and Total Debt/OPBDITA to be healthy at 3.5-4.0 times and 2.0 times respectively.
"However, this may not be representative of the overall debt metrics of all tea companies in ICRA's portfolio, because of a higher proportion of debt on the books of the unlisted companies. While debt coverage indicators, considering all companies in ICRA's sample set (including unlisted ones) are also expected to witness material improvement, on an absolute basis it is likely to remain subdued with an interest cover of 2.5-2.7 times and Total Debt/OPBDITA of 4.0 times respectively, estimated in FY2021," the rating agency has said.