39266368 Tea Industry Analysis
Content
FINANCIAL STATEMENT ANALYSIS
Paper No. : 203
PROJECT REPORT
On
Analysis of Tea Industry
Submitted to
Dr. V.K.Vasal
By
Priyanshi Gupta
Roll No. 2303
MFC-Part-1
1
Acknowledgement
I would like to pay my sincere thanks to Dr. V. K. Vasal, Faculty, University of Delhi, South
Campus for endowing me with the precious insights needed for working out this Project. He
has been very instrumental in communicating the core of this project study and thus without
his direction, the very inception of this work would not have been possible.
Priyanshi Gupta
2
Objective
The aim of this work is to analyze the financial statements of the four companies, in the Tea
Industry of India, through a few introductory techniques and hence arrive at some
interpretations about their financial health.
The parameters judged are numerous ranging from a firm’s short term health to the overall
long term stability.
The analysis has been carried out on the Financial Statements of the respective companies so
as to get appraised of the financial state of the whole group involved in the operations.
Due attempts have been made to standardize the terms, across all the financial statements, so
that the analysis gathers more meaning and yields the best possible results in spirit.
With the conclusion I endeavor to arrive at the optimal determination of the relatively best
company for financial investment considerations.
3
Contents
Introduction
Recent Developments
Current Scenario of Indian Tea Industry
Joonktollee Tea & Industries Ltd
Jay Shree Tea & Indutries Ltd.
Mcleod Russel India Ltd.
Rossell Tea Ltd
Financial Statement Analysis
Ratio Analysis
Cross sectional Analysis
Trend Analysis
Segmant Reporting
Road Ahead
References
4
Introduction
The tea industry in India is about 172 years old. It occupies an important place and plays a
very useful part in the national economy. The industry combines both agriculture and
industry.
Tea plantations in India are mainly located in rural hills and backward areas of North-eastern
and Southern States. Major tea growing areas of the country are concentrated in Assam, West
Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are
Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim,
Nagaland, Meghalaya, Mizoram, and Bihar. The competitors to India in tea export are Sri
Lanka, Kenya, China, Indonesia and Vietnam.
There are basically two types of tea sales in India - through Auctions and Private Sales, also
called as ex- garden sales. In Auction sales, tea is auctioned at auction centers through
brokers to buyers who either sell it to wholesalers / retailers or export to overseas markets.
Tea is generally placed in the Restricted category of the EXIM policy. Through special
Import License tea can be imported by paying import duty. Since August 1998, tea is being
freely imported from the SAARC countries. Under the EQU / EPZ units tea can be imported
for re exports after value addition.
The tea plantation industry is strictly guided by various statutory Orders through the Acts of
Parliament like - Tea Act, Essential Commodities Act, Plantation Labour Act, Factories Act,
PFA Act, Standards of Weights and Measures act etc.
Quality control strictly conforms to IS 9723 and Prevention of Food & Adulteration Act
(PFA). Disposal of tea waste is done through the tea waste control of 1959. Many gardens are
now taking quality certifications under ISO 9002:
Some statistical facts about the Indian Tea Industry:
The total turnover of the industry is around Rs. 10,000 crores.
Since independence, tea production has grown over 2505, while land area has grown
by 40%.
Total net foreign exchange earned per annum is around Rs.1847 crores.
5
Industry is labour intensive and employs over 1.1 million workers and generates
income for 10 million people indirectly. Women constitute 50% of the workforce.
802 M.Kgs or about 82% of total production of 981 M.Kgs of tea went for domestic
consumption.
Recent developments
6
Inspite of its importance, tea industry of India is going through a crisis phase since 1990’s.
The industry has witnessed many structural changes during recent years, which include –
emergence of small tea growers in place of large plantation and introduction of bought leaf
factories (BLF). The present crisis has led to the closure of many tea estates (e.g., 20 estates
in Kerala, 30 in West Bengal, about 70 in Assam have close down since the late 1990’s). In
early 2005 the tea industry witnessed major companies withdrawing from production and
concentrating on the packaging/ retailing sector (e.g. Tata. Tea, HLL etc in India).
In the market, the rising competition at domestic as well as international front has deepened
the crisis of tea industry of India. .
Shift in the composition of demand for tea in the importing countries has had unfavorable
effects on export earnings from tea in India.
The international market price of tea has
declined from US $ 2.09 to US $ 2.03 per kg in between 2005 and 2006. Though countries
like Sri Lanka, Kenya and Indonesia are growing fast in their export and higher price
realization, during the same period. Export of tea from India to some of the major importing
countries like Russia, UK, and USA are showing a sharp decline.
Although, per capita consumption of tea in India is amongst the lowest (64 grams), but in
volume terms India is the largest consumer. Since 1970, India has become the largest
absolute consumer of tea after UK. Larger domestic demand has given a new direction to the
tea industry in the recent years.
Major causes of the crisis
Despite India’s historical success with the tea industry, in recent years, the industry has faced
serious competition in the international and national market which has lead to the present
crisis. Tea prices in India are being driven down by many factors:
a) Decline in demand for Indian tea in the global market
b) Defects in auction system
c) Poor price realization
d) Defective market structure
e) Increase in cost of production
Recommendations for improvement
7
Despite being the largest producer and consumer of tea, the Indian plantation sector
lacks appropriate mapping of production and consumption levels. Due to absence of
accurate estimates the formulation of long term industry wide action plans have been
affected.
India has concentrated more on building up its large estates and has given less
attention to processing and improving the quality by proper blending and marketing–
for higher price realization of their products.
Unlike its key competitors, India does not have any powerful brand to support its
promotion drive in the international market.
Study done by the United Nations Food and Agriculture Organization (FAO, 2001)
has suggested the need for reducing the unit cost of production through productivity
gains, capacity building of small growers, streamlining marketing channels,
improving infrastructure, tailoring marketing activities to individual country’s
demand, propagating health benefits of tea and promotion of organic tea using the tea
mark. This is exactly what the domestic tea companies should do for their long term
survival.
Improvement of supply chain management inside the country and global tea
marketing network.
The tea industry in India has a legacy of corporate farming right from the day of
British rule. The current situation in the sector has given ample reason for a rethink
on whether corporate farming can really boost agriculture
International brands like Liptons, Brooke Bond of HUL and Tetly tea of Tata Tea; etc
are the market leaders and have great power in price determination in both domestic
and international market. This needs to be stopped and proper investigation is needed
to curb the wrong practices in the tea market by introducing new laws to regulate the
price movements.
It has been observed that the actual producer of tea has no direct link with the
ultimate consumer. Therefore, the producers do not understand the market demand /
choice of the customer, it is very important in today’s market economy for long term
sustainability of the industry. With the withdrawal of sales restriction, the growers
can directly go to the market by building their own brand. As the margin of profit is
very high at the present domestic retail market, Indian tea growers should invest and
take this opportunity for the promotion of their brand at the retail market.
8
Fresh capital inflow is needed right at this moment for the tea industry of India.
Investment in new plantations and production machineries must come immediately to
compete in the international market.
one of the most important steps from the government part shall be to introduce a
stronger competition law to curb the misuse of corporate buying power and promote
social objectives at the garden level.
Current Scenario of the Indian Tea Industry
9
Production
(956mkgs)
Tea is normally classified based on the processing, leaf size and grade. Fermentation is the
major process and creates two major classifications:
Green
Trend
(10.6Pricemkgs)
Darjeeling
(11.7 mkgs)
Orthodox
(65.5 mkgs)
CTC
(868.2mkgs)
Recently tea prices showed bouyancy, which started from 2006, after depressed prices for
almost a decade since 1999.A slump in global output, decline in production due to poor
monsoon rains, steady increase in domestic demand, range-bound export volumes and low
growth in production further drove prices upwards in 2009.
However India’s tea production had picked up in the last quarter of 2009 and initial signs are
pointing to better weather in 2010, signalling a possible change in the price trend. Even if
prices do not retrace too much, producers may have to live with subdued prices during the
year. It does appear that the two-year run of rising tea prices is losing steam.
Chart 1: Trend in Domestic Tea Prices (source: ICRA Research)
Production, consumption and Exports
10
A secular increase in domestic consumption on the one hand and muted increase in
production on the other, has been the main factor supporting the increase in tea prices from
2006 onwards. According to ICRA’s estimates, while the average growth in production
during the period 2003-07 was just 1.9% or so, domestic consumption would have increased
annually at around 3.5% during the same period. The steady increase in domestic demand,
range-bound export volumes and low ICRA Rating Feature Indian Tea Industry: Outlook
Positive for the Short to Medium Term ICRA Rating Services Page 3 of 8
growth in production absorbed the pipeline stock over the years and left virtually no carryforward stock at the end of the 2007 season.
Production and consumption of Tea in India
Particulars
200
200
200
200
200
200
200
200
2009
PRODUCTION (million
1
854
2
838
3
878
4
893
5
946
6
982
7
945
8
981
696.7
802
*
828(E
Kg)
CONSUMPTION
673
693
714
735
757
771
786
(million kg)
* production from January to Sepetmber - Estimated figure
)
Chart 2: Trend in India’s Production, Consumption and Exports of Tea
Source: ICRA Research
Exports
11
Exports play a vital role in maintaining the overall demand-supply balance in the domestic
market. Healthy export realisation is also crucial for domestic realisations as un-remunerative
prices in the export market may lead to exporters dumping the produce in the domestic
market, which in turn would exert a downward pressure on domestic prices. Tea exports from
India have remained range bound over the period 1997-2008 with some year-to-year
fluctuations seen in between.
Export of Tea from India
YEAR QUANTITY (Million Kg)
2005
199.05
2006
218.73
2007
178.75
2008
203.12
2009*
131.2
*Export from January to September
Value (Rs. Crores)
1830.98
2006.53
1810.11
2392.91
1777.04
UNIT PRICE (Rs/kg)
91.99
91.73
101.26
117.81
135.42
Chart 3: Trend in India’s Tea Exports
Source: ICRA Research
Import of Tea from India
The continuous fall in prices of tea, coupled with high cost of production has adversely
affected the economy of the tea plantations resulting in some tea gardens being abandoned or
under lock out in various states. The teas being imported are not necessarily inferior teas and
the practice of blending with Indian teas often serves the purpose of providing teas as per
customers choice and making them price-competitive in international markets.
Import of tea from India
12
YEAR QUANTITY (Million Kg)
2005
16.76
2006
23.81
2007
15.99
2008
20.28
2009*
15.82
*Export from January to August
Value (Rs. Crores)
98.51
119.41
104.60
161.97
132.09
UNIT PRICE (Rs/kg)
58.79
50.15
65.43
79.90
83.50
Profitability of bulk tea players
An increase of around 28% in tea prices on an average in 2008 has meant considerable
increase in the profitability of bulk tea players in FY2008-09, given that around 65% of their
costs are fixed in nature. Chart 6 brings out the positive impact of increasing tea prices on the
aggregate total income and profitability indicators2 of some of the large bulk tea players in
India3, which shows significant improvement over the past few years.
Chart 4: Trend in Aggregate Income and Profitability Indicators of Bulk Tea
Companies (Source: Bombay Stock Exchange)
Demand-Supply Gap
For the Indian tea industry, the main driver of demand is the domestic market, with domestic
consumption now growing at an estimated 3.5% annually, as against around 2.5% a decade
earlier. At the current growth rate, the domestic market would require an incremental 30 Mkg
or so annually, going forward.
As against that, tea supply has been growing at less than 2% p.a because it is difficult to
improve garden yield of tea even during favourable climatic conditions, and new plantations
13
need a long gestation period of at least 4-5 years. Therefore the demand-supply gap in India
is likely to persist at least over the medium term.
Industry Outlook
The tea industry has every reason to look ahead in 2010 with great deal of optimism and
confidence, according to the Tea Market Annual Report published by J Thomas and
Company Private Limited, the world's oldest and largest tea auctioneers.
14
With virtually no carry forward stock, and growing domestic demand to act as buffer against
the uncertainties of the global tea trade, price levels are expected to remain attractive, the
report observes.
Early cropping patterns indicate that demand supply equation is likely to be more balance in
2010. Both Kenya and Sri Lanka production is expected to exceed that of 2009 and
indications are that the March crop in North India will be higher than that of the last year
following some much needed rainfall.
While the supply situation may be more comfortable than the previous season, it is likely to
be absorbed by the domestic market where quality produce will continue to be in great
demand, the reports states.
Exports
Indian exports at the end of 2009 stood at 191.5 million kg, compared to 203.1 million kg in
2008, a decline of 11.6 million kgs. The strong domestic demand ensured that the exporters
were often out priced, particularly in first three quarters.
Lower orthodox production in North India was also another factor contributing to the decline
in exports. As a result, exports out of North India at 98.8 million kg recorded a decline of
17.4 million kg while exports out of South India at 92.7 million kg recorded a rise of 5.8
million kg. The per unit value increased from Rs 117.81 in 2008 to Rs 136.64 in 2009, a gain
of Rs 18.83.
Exports to Iraq saw a significant increase during the year with an additional 11.1 million kgs
over 2008. Shipments to Russia grew by 4.2 million kg and to Afghanistan by 1.8 million kg.
Exports to Egypt suffered a setback, the shortfall being 9.6 million kg. Offtake by Iran, UAE,
UK and the Continent also declined during the period.
Companies’ Overview
1. Joonktollee Tea
Joonktollee Tea Co. Ltd. Was promoted 134 years back to manage the affairs of a small Tea
Estate in Upper Assam. It is today synonymous with premium Black and Green Teas.
15
In the year 1954, the House of Bangurs acquired the managing agency and the Company and
brought them under their fold. The name of the Company was changed to “JOONKTOLLEE
TEA & INDUSTRIES LIMITED” (JTIL). Since then the company has been under the
management of the Bangurs. Over the years, the Company has grown in stature and size and is
a leader in producing quality teas and enjoying one of the best Assam CTC Mark in North
India.Company’s Estate now comprises of 1867.98 acres of land with 1202.82 acres under
plantation.
From a leading mark in the Premium Orthodox teas, the Company, changing with the times,
is now regarded as one of the Best Assam CTC mark and does have an unstinted track record
of the business with the brand. Its Green Teas are also one of its kinds.
The performance on the financial front has also been spectacular. The Company’s ordinary
capital of Rs.80,000/- has grown to Rs.323.36 Lacs. The Company has an uninterrupted
dividend record for over 50 years.
To have a large capital base and net worth, two South India based Plantation Companies, viz.
The Kalasa Tea Produce Company Limited and Cowcoody Estates Limited belonging to the
House of Bangurs stood merged with this Company w.e.f. 1st April, 2001. The area of
operation of the Company was enlarged and diversified, since apart from tea, the transferor
Companies also deal in other plantation crops, viz., coffee, pepper, cardamom, areca, vanilla.
With a view to consolidate the resources of the Company and to carry out the agro base
activities more conveniently and advantageously with a larger asset base the Company
entered into Scheme of Arrangement w.e.f. 1st October, 2006 under which a subsidiary and
six other Companies merged with the Company and certain assets were transferred to other
subsidiary Companies. The Hon’ble High Courts of judicature at Kolkata, Chennai and
Guwahati sanctioned the Scheme of Arrangement as per the terms consented by the
shareholders and the financial results of 31st March, 2008 were prepared after giving effect
of the aforesaid scheme.
On BSE as on 22 April 2010:
Dividend Yield (%)
Market Cap (Rs Mn)
P/E
0.89
542.77
12.84
16
EPS (Rs.)
13.07
Face Value (Rs.)
Volume
10
23239
Shareholding pattern:
Description ( As On
No of
No of
% of
December 2009 )
ShareHolders
Shares
Share
Demat
83.7
83.7
2693455
2693455
Promoter
27066
Indian Promoter
Total Promoter
16
16
75
27066
17
75
Non Promoter
Institutions
117843
FI/Bank/Insurance
Other
2
5
Total Institutions
7
593
118436
3.64
0.02
0
3.66
117843
Non-Institution
Bodies Corporate
82
45592
1.41
40197
NRIs/OCBs
8
31256
33168
0.97
926
Others
Total Non-
2391
8
40853
10.25
127041
Institution
2481
6
52697
12.63
168164
Total Non Promoter
2488
2
32336
16.3
286007
Grand Total
2504
47
100
2979462
2. Jayshree Tea & Industries Limited
18
Incorporated as Jay Shree Tea Gardens in Oct.'45 with two tea estates, the company changed
its name to Jay Shree Tea and Industries (JSTI) in 1960. It was promoted by B K Birla.
Started with an initial paid-up share capital of Rs 7.86 lac, it was raised to Rs 39.05 lac in
1947 and thereafter only a rights equity issue was made during 1960 in the ratio 1:5.
The company manages around 12 tea gardens in Assam, West Bengal, Tamilnadu and
Kerala. It has diversified over the years and manufactures plywood in Andamans and
superphosphates and sulphuric acid in West Bengal; and has interest in shipping, real estate
development, tubes and tyres. The company is packing its tea from different tea estates, in
polypouches and it is sold under brand names -- Sadabahar, Shaandar and Sangam.
JSTI also acquired Maitrayee Tea Project at Chopra near Islampur with 192 acres under tea
plantation to increase its presence in the area.
During 1999-2000, the company established a new factory named 'Aryaman Tea Estate' in
Jalpaiguri Dist, which has commenced production from Sep, 1999. The factory has the
capacity of 7 lac kgs made tea per annum. In June 2000, the B K Birla group's shareholding
in Jay Shree Tea & Industries has gone up to 44.61% from 40.15% following the completion
of the company's buy back offer for 12.30 lakh equity shares.
The company bought back 12.30 lac equity shares of Rs.10/- each at a price of Rs.120/-per
share in 2001-02 and subsequently the total Share Capital as on March 2002 was Rs.10.67
crores. The tea processing factory which is being set up at Ledo,Assam has commenced its
commercial production with a annual capacity of around 6 lac kg.
As the Supreme Court has banned the falling of trees in Andaman & Nicobar Islands,the
company's Plywood Operation is still under suspension. The 100% subsidiary company viz
Shiva's Group Ltd was amalgamated with the company with the prior approval from the
shareholders w.e.f 25.02.2002.
It also proposes to set up an International Outsourced Call centre at Kolkata. The company is
proposing to delist its equity shares from Delhi Stock exchange as there is no transactions.
19
On BSE, as on 22 April 2010:
Dividend Yield
(%)
Market Cap (Rs
Mn)
P/E
EPS (Rs.)
Face Value (Rs.)
Volume
1.01
3312.63
4.65
63.72
10
142257
Shareholding Pattern as in September 2009:
20
Description ( As On
No of
No of
% of
September 2009 )
ShareHolders
Shares
Share
Demat
14
14
4498169
4498169
40.25
40.25
3685170
3685170
12
717585
6.42
716185
FI/Bank/Insurance
31
381238
3.41
FII
Other
3
0
200000
200000
1.79
1.79
200000
200000
Total Institutions
46
1298823
11.62
1271276
Bodies Corporate
821
1655678
14.82
1609689
NRIs/OCBs
Others
Total Non-
82
9658
42605
3679064
0.38
32.92
40195
2699777
Institution
Total Non
10561
5377347
48.12
4349661
Promoter
Grand Total
10607
10621
6676170
11174339
59.75
100
5620937
9306107
Promoter
Indian Promoter
Total Promoter
Non Promoter
Institutions
Mutual Funds /
UTI
Non-Institution
3. Mcleod Russell
McLeod Russel has been growing tea in India since 1869. It is today the largest tea
producing company in the world.
It manages 47 tea estates in the Assam Valley and 6 tea estates in the Dooars region of West
Bengal. Every year its estates produce over 80 million kilograms of black tea, which is
marketed worldwide under the registered Elephant trade mark.
The company directly employs around 80,000 people, a large number of whom a women.
Mcleod Russel is the world’s largest tea producer.
21
As the largest Indian tea exporter we maintain strong connections with buyers in Europe, the
Middle East and North America. We have always enjoyed an excellent reputation for the
quality of our product and the integrity and reliability of our marketing and delivery systems.
McLeod Russel has a number of internationally recognised accreditations and certifications
including Fairtrade, Rainforest Alliance and HACCP. Its modern blending facility provides
the clients with both unique as well as bespoke bulk blended teas.
On BSE,as on 22 April 2010:
Dividend Yield
(%)
Market Cap (Rs
0.8
Mn)
P/E
EPS (Rs.)
Face Value (Rs.)
Volume
27276.37
10
24.91
5
174807
Shareholding Pattern as on September 2009:
Description ( As On
No of
No of
% of
December 2009 )
ShareHolders Shares
Share
Demat
Indian Promoter
24
22583056
20.63
22497684
Foreign Promoter
1
27067500
24.73
27067500
Total Promoter
Non Promoter
Institutions
Mutual Funds /
25
49650556
45.36
49565184
UTI
41
8624962
7.88
8621239
Promoter
22
FI/Bank/Insurance
Govt
6
1
4231733
112
3.87
FII
Other
70
97
27637288
28011747
25.25
25.59
27637288
27969054
Total Institutions
Non-Institution
215
40868554
37.34
40820326
Bodies Corporate
NRIs/OCBs
1416
601
4941880
360122
4.51
0.33
4854379
226601
Others
Total Non-
58658
13634623
12.46
10341710
Institution
Total Non
60675
18936625
17.3
15422690
Promoter
Grand Total
60890
60915
59805179
109455735
54.64
100
56243016
105808200
4. Rossell Tea Ltd.
Rossell Tea Ltd. (The Company) espouses the cause of long-term success in all areas of its
business and commits itself to achieve this through excellence in productivity, quality and
performance. The company will continue to evolve, learn and adapt for the common good of
its stakeholders. The Company is further committed to the well being of all employees in
particular and the society at large, in general.
The Company immediately after taking over the management of Dikom, Nokhroy and Borahi
T.Es., took effective steps for upgrading the quality further and at present all the Tea Estates
are well established quality marks in overseas markets. The saleable production at the time of
takeover was 2.7 Million Kgs of Black Tea, which after recent corporate restructuring and
three successive acquisitions is around 5.0 Million Kgs of Black Tea. At present, the
Company owns Dikom, Nokhroy, Nagrijuli, Bokakhat and Romai T.Es., all located in Assam.
23
After corporate restructuring, Borahi T.E. was demerged and transferred to another Company
viz. Jyoti Holdings Pvt. Ltd., which Company is no more under the management of Rossell
Tea Limited.
The present Share Capital of Rossell Tea Ltd. is Rs.63.14 Million divided into 6.314 Million
Equity Shares of Rs.10 each. Out of 6.314 Million Equity Shares, 4.653 Million Equity
Shares representing 73.67% of the Equity Share Capital is held by the Holding Company,
BMG Enterprises Ltd., Delhi. The Equity Shares of the Company are quoted at Calcutta and
Guwahati Stock Exchanges
On BSE,as on 22 April 2010:
Dividend Yield (%)
0.57
Market Cap (Rs Mn)
P/E
1927.67
27.69
EPS (Rs.)
Face Value (Rs.)
9.49
10
Volume
141
Shareholding pattern as on September 2009:
Description ( As On
No of
December 2009 )
ShareHolders Shares
Share
Demat
Promoter
Indian Promoter
6
5494245
74.86
5494245
6
5494245
74.86
5494245
2
16
1
2
1
22
30002
48263
30
1025000
1135000
1213295
0.41
0.65
0
13.97
15.47
16.53
30002
29651
0
1025000
1025000
1084653
Total Promoter
Non Promoter
No of
% of
Institutions
Mutual Funds /
UTI
FI/Bank/Insurance
Govt
FII
Other
Total Institutions
24
Non-Institution
Bodies Corporate
NRIs/OCBs
Others
Total Non-
72
9
5660
25579
240
605936
0.35
0
8.26
5918
180
125316
Institution
Total Non
5741
631755
8.61
131414
Promoter
Grand Total
5763
5769
1845050
7339295
25.14
100
1216067
6710312
FINANCIAL STATEMENTS ANALYSIS
Financial Statement analysis means analysis and regrouping of data contained in historical
financial statements. It serves the essential function of converting accounting data contained
in financial statements in to useful information which is always in scarce supply. After
analysis of financial statements, interpretation of analyzed information is done by decision
maker to forecast future profitability, financial strength and liquidity position of the business.
TYPES OF ANALYSIS:
Financial statements are analysed to establish certain crucial relationships which help us to
take sound decisions. Accounts for the year 2003-2004 and 2004-2005 have been studied in
this report.
Analysis consists of :
Financial Ratio Analysis
Common Size Statement
Time Series Analysis
FINANCIAL RATIO ANALYSIS
25
Ratio analysis is a very popular tool of financial analysis. Under this system of analysis,
financial statements have been analyzed by computing accounting ratios. Ratios indicate how
a business is performing and provide indications of trends and patterns. They can be
compared to the same ratios in previous years' accounts and the accounts of other businesses
operating in a similar environment. The ratios can be looked at from three perspectives:
-
Creditors
-
Investors
-
Shareholders
There are various parameters upon which various types of different analysis is done. They
include:
1.
Liquidity Analysis.
2.
Profitability Analysis.
3.
Solvency Analysis.
4.
Efficiency Analysis.
LIQUIDITY RATIOS
Liquidity is the ability to convert assets into cash or to obtain cash. It is important from the
point of view of meeting the firm’s short term obligations.
Current Ratio
It is the ratio of the current assets to current liabilities of the company. It is calculated to test
the short term solvency of a business and its ability to meet its short term commitments.
Besides measuring liquidity, it also measures the margin of safety available in case of
uncertainty of flow of funds.
It provides a measure of degree to which current assets cover current liabilities. The excess of
current assets over current liabilities provides a measure of safety margin available against
uncertainty in realization of current assets and flow of funds.
26
Quick ratio
An indicator of a company's short-term liquidity. The quick ratio measures a
company's ability to meet its short-term obligations with its most liquid assets. The higher the
quick ratio, the better the position of the company.
Quick Ratio= (Cash + Marketable securities + accounts receivable)/Current Liabilities
Liquidity Ratios
Joonktollee
Jayshree Tea
tea Ltd.
Limited
MarMar-
McLeod
Rossels Tea
russells
Company
Mar-
Mar-
Mar-
09
08
Mar-09
Mar-08
Mar-09
08
09
08
1.82
6.2
1.76
3.61
1.03
0.84
0.44
0.46
0.77
4.88
0.71
0.94
0.48
0.36
0.17
0.17
Current
Assets/Current
Liabilities
Quick Assets/Current
Liabilities
Analysis:
Current Ratio: We notice that in case of Current Ratio Joonktollee Tea and Jay Shree Tea
have a high current ratio whereas McLeod Russels and Rossell have a low ratio.
High ratio indicates that
the company may be high amount of receivable and large amount inventory piled up
which is a bad sign,
whereas it may also suggest that the company receives its payments well before the
expiry of the credit period as such indicating a strong credit policy of the company.
Thus a right proportion of current assets and current liabilities are required and the ideal
ratio is said to be 2:1.
Quick Ratio: Sometimes a company could be carrying heavy inventory as part of its current
assets, which might be obsolete or slow moving. Thus eliminating inventory from current
assets and then doing the liquidity test is measured by this ratio. The ratio is regarded as an
acid test of liquidity for a company. It expresses the true 'working capital' relationship of its
cash, accounts receivables, prepaid and notes receivables available to meet the company's
current obligations. Again when we look at the acid test ratio it indicates the actual indicator
27
of the current position. Again here we see that in McLeod Russels and Rossell maximum of
cash is held up in inventory.
PROFITABILITY RATIOS
Profitability ratios are probably the most important ratios studied by any analyst. They are
able to give a good overall picture of a company with respect to its peers. The most important
objectives for the business and, arguably therefore, the most important ratios, are those
concerned with profitability.
Net profit margin
Net profit margin divided by net revenues, often expressed as a percentage. This number is
an indication of how effective a company is at cost control. The higher the net profit margin
is, the more effective the company is at converting revenue into actual profit. The net profit
margin is a good way of comparing companies in the same industry, since such companies
are generally subject to similar business conditions. However, the net profit margins are also
a good way to to compare companies in different industries in order to gauge which
industries are relatively more profitable. also called net margin
Net Profit Margin =
Net Profit
Turnover
=
Profit before Interest and Taxation
Turnover
Return on Capital Employed: Net After Tax Profit divided by Net Worth, this is the 'final
measure' of profitability to evaluate overall return. This ratio measures return relative to
investment in the company. Put another way, Return on Net Worth indicates how well a
company leverages the investment in it. May appear higher for startups and sole
proprietorships due to owner compensation draws accounted as net profit.
Joonktollee tea
Ltd.
Jayshree
Rossels Tea
McLeod
Company
Tea Limited russells
MarMarMar-
Mar-09
08
09
08
Mar-09
MarMar-08
09
Return on Total
Capital Employed
Return on Assets
NP Ratio
Mar08
0.09
0.01
0.006
0.055
0.014
0.056
0.013
0.055
1
0.02
0.002
0.023
0.002
0.019
0.011
0.042
0.003
0.016
0.012
0.108
0.003
0.032
0.014
0.132
8
0.20
28
1
Analysis
Net Profit Margin: The Profit Margin of a company determines its ability to withstand
competition and adverse conditions like rising costs, falling prices or declining sales in the
future. The ratio measures the percentage of profits earned per dollar of sales and thus is a
measure of efficiency of the company. Thus we see to it that Rossell Tea has been able to
withstand maximum competition and thus its income after tax is on a higher proportion than
any other company.
Return on Assets: The Return on Assets of a company determines its ability to utitize the
Assets employed in the company efficiently and effectively to earn a good return. The ratio
measures the percentage of profits earned per dollar of Asset and thus is a measure of
efficiency of the company in generating profits on its Assets. Thus when we compare the
various data we find that the best utilisation of assets is being done by Rossell Tea.
ROCE is almost same Jayshree, McLeod and Rossels
LEVERAGE RATIOS
These ratios determine the financial leverage enjoyed by the firm and also look at the short
term solvency of the firm in terms of its interest paying capacity. Long Term Debt / Equity
ratios provide insight into the extent to which nonequity capital is used to finance the assets
of the firm.
Ratio = long term liabilities/ shareholders equity
The higher is the ratio, the higher the proportion of assets financed by non-shareholder
parties. Which components to include in the numerator or denominator of the ratios depend
on how one defines liabilities and shareholders equity.
Financial Leverage
Joonktollee Tea
Jayshree Tea
McLeod
Rossels Tea
ratios
Ltd.
Limited
russells
Company
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
08
07
09
08
09
08
09
08
29
Total Debts to Assets
Capitalization Ratio
Debt-Equity Ratio
Interest Coverage Ratio
0.296
0.245
0.325
1.761
0.331
0.295
0.418
2.033
0.581
0.482
0.929
2.516
0.529
0.481
0.926
2.953
0.354
0.145
0.354
2.564
0.026
0.176
0.41
2.42
0.206
0.156
0.184
5.996
0.205
0.141
0.164
18.178
ANALYSIS:
Rossell Tea Company is the least leveraged company with the lowest debt equity ratio, while
jay Shree Limited would fall on the higher end.
TURNOVER RATIOS
Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value of fixed
assets (on the balance sheet). It indicates how well the business is using its fixed assets to
generate sales.
Generally speaking, the higher the ratio, the better, because a high ratio indicates the business
has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may
indicate that the business is over-invested in plant, equipment, or other fixed assets.
Efficiency Ratio
Joonktolle tea
Jayshree Tea
McLeod Russel
Limited
Mar-
Rossels Tea
Company
Mar-08
Mar-09
Mar-08
Mar-09
Mar-08
Mar-09
Mar-08
44.93
2.08
143.48
10.49
26.98
136.08
72.81
140
0.38
0.29
0.98
0.73
0.43
0.35
0.39
0.42
14.55
13.88
6.09
9.5
32.46
23.16
104.58
60.45
09
Cash Turnover
Total Assets Turnover
Accounts Receivable
Turnover
Analysis:
Rossell Tea has the highest debtor turnover ratio indicating less chances of bad debt and more
liquid the nature of asset (debtor). This ratio is least in case of Jay Shree Tea which is also
below the industry average; this inefficiency increases the chance of default by the debtors.
30
Inventory turnover ratio of both Biocon & Cipla are below the industry average. This
indicates low inventory liquidity and high inventory carry cost. This may also indicate that
the company might have over bought or the value of the stock is overstated.
CROSS SECTIONAL ANALYSIS
In this analysis, the different financial variables of different companies have been compared
over a period of time of two years viz. 2006-2007 and 2007-2008. As such, it helps us to get
some sort of trend of various financial factors in the financial statements of a company.
Common Size Profit and Loss Account
Year
Share Capital
Joonktollee Tea
Jayshree Tea
McLeod russells
Rossels Tea
Ltd.
Mar-09
Mar-
Limited
Mar- Mar-
Mar-
Company
MarMar-
08
09
09
08
Mar-08
09
08
%
3.67
%
3.45
%
3.54
%
3.47
%
3.45
%
3.48
%
5.31
%
5.36
71.78
67.06
48.29
48.45
70.39
67.42
79.14
80.57
Reserves & Surplus
Net Worth
75.45
70.52
51.83
51.92
73.84
70.9
84.45
85.92
Secured Loans
21.7
20.9
41.19
39.63
24.27
19.55
11.94
4.92
Unsecured Loans
2.84
8.58
6.98
8.45
1.89
9.55
3.61
9.15
24.55
29.48
48.17
48.08
26.16
29.1
15.55
14.08
100
100
100
100
100
100
100
100
Gross Block
Less: Accum.
41.69
38.93
76.49
72.69
114.75
113.91
85.95
98.4
Depreciation
Net Block
18.76
16.59
26.76
25.72
24.38
22.95
7.79
7.93
22.93
22.34
49.74
46.97
90.37
90.96
78.16
90.47
Total Debt
Total Liabilities
31
Capital Work in
Progress
Investments
1.01
0.36
0.84
0.64
0.87
0.52
0.36
0.42
64.5
48.79
31.91
30.77
12.92
12.44
16.44
6.66
Current Assets,
Loans & Advances
Inventories
0
0
5.01
4.61
16.09
12.17
4.02
2.8
1.55
1.83
Sundry Debtors
2.81
2.22
21.59
9.15
1.6
1.8
0.4
0.75
0.91
14.81
0.92
8.28
1.93
0.31
0.57
0.32
10.28
12.3
11.3
8.84
8.28
8.77
8.72
6.44
0
0
4.8
3.49
21.9
8.2
7.34
5.84
5.02
6.76
2.59
1.94
7.71
7.01
9.35
8.6
1.32
1.26
11.62
28.51
20.29
23.23
-0.86
-0.77
4.89
1.31
0
0
0
0
0
0
0
0
100
100
100
100
100
100
100
100
Cash and Bank
Balance
Loans and Advances
Less: Current Liab.
& Prov.
Current Liabilities
Provisions
Net Current Assets
Miscellaneous
Expenses not w/o
Total Assets
Analysis
The percentage of debt to total assets for Rossell Tea. is lowest (15.55%) as compared to
other companies. On the other hand, JayShree Tea has the highest debt percentage in its
capital structure i.e.48.17% as the company is in expansion mode, so its been raising debt
from the market.
The net current assets for McLeod Russel is the in negative because of which the company
can have problems in meeting its short term obligations.Hence this company is not a good a
bet for short term creditors.
For Jay Shree Tea the inventory as a percentage of total assets is highest among all the
companies which shows cautious and conservative approach.
COMMON SIZE INCOME STATEMENT
Joonktolle Tea
& Ltd
Jayshree Tea
Limited
McLeod russells
Rossels Tea
Company
32
Year
INCOME :
Sales Turnover
Excise Duty
Other Income
Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost
Other Mfgr Expenses
Employee Cost
Selling & Admn
Expenses
Miscellaneous Expenses
PBDIT
Mar-
Mar-
Mar-09
Mar-
Mar-09
Mar-08
Mar-09
Mar-08
09
%
08
%
%
08
%
%
%
%
%
100
0.28
3.47
-0.92
102.28
100
0.35
7.98
-2.14
105.49
100
1.67
3.95
3.8
106.07
100
2.25
8.4
-0.67
105.48
100
0.28
4.09
0.55
104.36
100
0.35
9.37
-0.54
108.47
100
0
3.98
-0.03
103.95
100
0
28.57
-0.9
127.67
22.97
6.83
31.02
9.13
20.75
7.77
33.7
11.74
44.73
5.79
22.76
7.45
7.27
32.3
7.52
30.76
9.28
10.22
5.24
10.71
38.39
10.41
11.85
4.25
12.95
44.63
12.85
12.81
0.3
6.87
37.66
16.36
10.87
1.47
7.88
40.24
11.43
11.77
9.79
5.33
11.4
3.35
17.2
16.78
8.41
9.65
5.31
10.1
2.01
25.74
1.82
19.16
8.03
23.87
2.95
51.94
3.84
3.42
10.04
7.92
3.98
2.86
1.6
4.21
2.53
4.14
3.14
12.56
3.33
7.91
2.38
17.51
2.56
46.52
0.02
0
0.9
-0.83
4.12
0.22
0
-0.26
2.6
1.58
1.22
0.27
0.36
-0.1
10.81
0.23
0.19
0.29
4.03
3.17
3.22
0.23
1.96
-1.13
13.23
3.85
0.17
3.06
19.38
20.06
Interest & Financial
Charges
Depreciation
Profit Before Tax
Tax
Fringe benefit tax
Deferred Tax
Extra ordinary items
Profit after tax
9.77
4.58
8.25
5.87
2.86
0.33
0.17
0.14
-0.11
2.33
2.66
0.14
0.17
0
0.48
1.86
Analysis
The selling and administration expenses for McLeod Russel, though they are lower than the
previous year.
The net profit is the highest for Rossell Ltd. as compared to others in the Industry. The
depreciation charged is also highest for Joonktolle tea (4.58%) followed by McLeod Russel
(3.14% of Net Sales). The relative tax expense is highest for Rossell Ltd. for the 2008-09 and
lowest for Jay Shree Ltd.
33
Trend Analysis
This is a time series analysis whereby a study is done in order to interpret what has changed
in the company over a year. This can be done by comparing the balancesheet and profit and
loss statement of the company for two years.
Balance Sheet
SOURCES OF FUNDS:
Share Capital
Reserves Total
Joonktolle
Jayshree
McLeod
Rossell
Tea & Ltd
%
Tea Ltd.
%
Russel
%
%
-0.003
0.004
0.047
0.022
0
5.536
16.323
15.342
34
Total Shareholders Funds
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities
APPLICATION OF FUNDS :
Gross Block
Less : Accumulated Depreciation
Net Block
Capital Work in Progress
Investments
Current Assets, Loans & Advances
Inventories
Sundry Debtors
Cash and Bank
Loans and Advances
Less : Current Liabilities and
Provisions
Current Liabilities
Provisions
Net Current Assets
Miscellaneous Expenses not
written off
Total Assets
0.003
-0.026
-0.689
-0.219
-0.062
0.024
0.066
-0.153
0.028
0.026
5.264
25.516
-80
-9.116
1.08
15.404
184.828
-53.711
29.735
17.421
0.004
0.06
-0.037
1.618
0.24
0.079
0.067
0.086
0.352
0.064
1.827
7.353
0.432
68.659
4.948
2.571
15.418
1.445
0
189.682
0.021
0.188
-0.942
-0.217
0.356
1.421
-0.887
0.312
45.268
-9.716
538.125
-4.54
-0.465
-37.5
107.895
59.103
0.291
0.253
-0.618
1.74
0.128
-0.104
27.042
9.978
12.676
-12.688
22.819
338.961
-0.062
0.026
1.08
17.421
Income Statement
35
INCOME :
Sales Turnover
Excise Duty
Other Income
Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Administration
Expenses
Miscellaneous Expenses
Operating Profit
Interest
Depreciation
Profit Before Tax
Tax
Fringe Benefit tax
Deferred Tax
Extraordinary Items
Adjusted Net Profit
Diana Tea
Jayshree
McLeod
Company
Tea
Russel
%
Limited
%
%
Rossell
%
24.448
0
-45.887
-46.774
20.655
54.197
14.797
-27.502
-970.652
55.066
26.45
0.866
-44.747
-227.247
21.657
8.12
-84.934
-95.833
-11.97
37.77
9.333
14.549
-3.235
113.514
18.823
14.123
23.789
55.994
4.534
8.775
2.458
16.982
-78.205
-5.728
1.168
54.77
-0.16
6.97
97.938
27.572
47.28
-2.941
33.766
200
9.696
144.521
47.447
73.048
-2.453
56.84
-83.333
-128.571
55.556
-626.389
-149.157
301.386
39.816
69.894
60.378
19.34
100.675
563.399
73.228
58.824
-103.103
331.232
194.268
-50.308
50.658
0.735
-59.313
-9.756
44.444
-30.675
-106.305
-28.679
36
Segment reporting
The objective of this segment is to establish principles for reporting financial information,
about the different types of products and services an enterprise produces and the different
geographical areas in which it operates. Such information helps users of financial statements:
(a) Better understand the performance of the enterprise;
(b) Better assess the risks and returns of the enterprise; and
(c) Make more informed judgements about the enterprise as a whole.
Many enterprises provide groups of products and services or operate in geographical areas
that are subject to differing rates of profitability, opportunities for growth, future prospects,
and risks. Information about different types of products and services of an enterprise and its
operations in different geographical areas - often called segment information - is relevant to
assessing the risks and returns of a diversified or multi-locational enterprise but may not be
determinable from the aggregated data. Therefore, reporting of segment information is
widely regarded as necessary for meeting the needs of users of financial statements.
A. JOONKTOLLEE TEA COMPANY LIMITED
No disclosure regarding segment reporting
B. JAY SHREE TEA & INDUSTRIES LIMITED
Based on the guiding principles given in Accounting Standards on “Segment Reporting”
(AS-17) as prescribed by the Companies Accounting Standard Rules 2006, the Company’s
primary business segments are tea, chemicals & fertilisers business.
Segment wise Information for the year
ended 31st March, 2009
37
(A)
PRIMARY SEGMENT
1 Segment Revenue (Net
Sales/Income from each segment)
Tea
Chemicals & Fertilisers
Infotech
Others
Less : Inter-segmental Revenue
Total
2 Segment Results {Profit / (Loss)
before Tax & Interest}
a) Tea
b) Chemicals & Fertilisers
c) Infotech
d) Others
Total
Less : Interest (Net)
Add : Unallocable Income net of
unallocable expenditure
Total Profit / (Loss)
31.03.2009
(Rs. in ‘000)
31.03.2008
2,81,10,82
1,36,14,19
–
2,81,60
86,95
4,19,19,66
2,03,99,41
65,92,61
1,03,05
2,40,97
64,46
2,72,71,58
42,37,65
(3,11,92)
–
1,00,96
40,26,69
10,37,51
(13,23,10)
5,73,95
5,86,30
(1,11,09)
60,81
11,09,97
7,54,31
6,38,87
16,66,08
9,94,53
before Tax
3 Segment Assets (Including revaluation reserve) &
Segment Liabilities
a)
b)
c)
d)
e)
Tea
Chemicals & Fertilisers
Infotech
Others
Unallocable
Total
Assets
1,92,35,75
67,70,27
–
1,19,39
1,56,59,35
4,17,84,76
Liabilities
31,24,60
49,62,14
–
61,69
21,19,87
1,02,68,30
Assets
1,60,57,59
33,59,88
4,85,07
1,11,12
1,60,16,83
3,60,30,49
Liabilities
29,86,39
9,56,23
48,44
57,35
11,87,07
52,35,48
4 Capital expenditure including capital work-in-progress and depreciation (excluding on
revaluation reserve) for the year
Capital Exp.
a)
b)
c)
d)
e)
(B)
Tea
Chemicals & Fertilisers
Infotech
Others
Unallocable
Total
Secondary Segment
Segment Revenue
Depreciation
10,93,78
5,55,58
11,71,28
41,17
50,90
45,80
–
–
13,01
5,35
1,67
–
2,80,31
73,58
1,31,26
14,20,61
6,81,73
13,61,35
Domestic
Export
3,50,22,55
68,97,11
(2,18,57,18)
(54,14,40)
Capital Exp.
Depreciation
5,61,38
48,67
49,09
1,31
67,28
7,27,73
Total
4,19,19,66
(2,72,71,58)
Segment Assets
38
Capital Expenditure
Note:
4,14,39,13
(3,56,76,72)
3,45,63
(3,53,77)
4,17,84,76
(3,60,30,49)
14,20,61
(13,61,35)
–
(–)
14,20,61
(13,61,35)
i) The company has disclosed business segment as the Primary Segment.
Segment Revenue includes other income pertaining to the relevant
C. MCLEOD RUSSELS
No disclosure regarding segment reporting
D. ROSSEL TEA LIMITED
No disclosure regarding segment reporting
Conclusion
39
Though there has been a recovery in the prices of tea and exports have also started looking
up, with the emerging trends in the globalized economy, markets can no longer be protected.
The high cost of production is still a matter of concern for the Indian tea
industry. The Indian tea industry would have to gear itself up to counter the new forces
unleashed by globalization.
Budget 2010-11 gave the extension of concessional import duty on imported plantation
machinery, like tea bagging machines, till March 31, 2011 will help the industry in value
adding and hiking exports in the long run. The finance minister has also increased weighted
deduction on payments made to national laboratories, research associations, universities and
other institutions for scientific research from 125% to 175%. This will help organisations like
the Tea Research Association to take up better research and development activities, resulting
in production of better quality tea saplings.
With cyclical crisis in the Indian tea industry erasing fast, the current need was to shift from a
production oriented strategy and subsidy approach to market oriented strategic framework
with market economy outlook. There is a need to liberate the mindset of the industry from its
earlier mindset of 'disposal of tea' was changing to a new one --'marketing of tea,' which
implied a shift from 'subsidy' to capacity building approach.
Multinational tea companies are increasingly contracting with larger agro-processing
firms,who were able to effectively coordinate deliveries and quality standards from small
farmers through effective supply chain management, as in South India and Indonesia, Sharma
said.
Oversupply of tea and less demand has contributed to market imbalance in India. Strategies
have to be devised to improve the demand side, as so much effort has been put in improving
supply efficiency in the past.
Only financially sound tea producers would perhaps be able to take the risk of delayed
marketing and avail any possible opportunity arising out of future upward price movement in
the market.While productivity and quality have received some attention, cost reduction,
value addition and risk manageent needed a new focus.
40
References
Joonktollee Tea & Industries Ltd Annual Report 08-09
Mcleod Russel India Ltd. Annual Report 08-09
Rossell Tea Ltd Annual Report 08-09
Jay Shree tea & Industries Ltd. Annual Report 08-09
Foster, G., Financial Statement Analysis, Second Edition, Prentice Hall, NJ, 1986.
www.money.livemint.com
www.bseindia..com
www.moneycontrol.com
www.capitaline.com
41
42
Paper No. : 203
PROJECT REPORT
On
Analysis of Tea Industry
Submitted to
Dr. V.K.Vasal
By
Priyanshi Gupta
Roll No. 2303
MFC-Part-1
1
Acknowledgement
I would like to pay my sincere thanks to Dr. V. K. Vasal, Faculty, University of Delhi, South
Campus for endowing me with the precious insights needed for working out this Project. He
has been very instrumental in communicating the core of this project study and thus without
his direction, the very inception of this work would not have been possible.
Priyanshi Gupta
2
Objective
The aim of this work is to analyze the financial statements of the four companies, in the Tea
Industry of India, through a few introductory techniques and hence arrive at some
interpretations about their financial health.
The parameters judged are numerous ranging from a firm’s short term health to the overall
long term stability.
The analysis has been carried out on the Financial Statements of the respective companies so
as to get appraised of the financial state of the whole group involved in the operations.
Due attempts have been made to standardize the terms, across all the financial statements, so
that the analysis gathers more meaning and yields the best possible results in spirit.
With the conclusion I endeavor to arrive at the optimal determination of the relatively best
company for financial investment considerations.
3
Contents
Introduction
Recent Developments
Current Scenario of Indian Tea Industry
Joonktollee Tea & Industries Ltd
Jay Shree Tea & Indutries Ltd.
Mcleod Russel India Ltd.
Rossell Tea Ltd
Financial Statement Analysis
Ratio Analysis
Cross sectional Analysis
Trend Analysis
Segmant Reporting
Road Ahead
References
4
Introduction
The tea industry in India is about 172 years old. It occupies an important place and plays a
very useful part in the national economy. The industry combines both agriculture and
industry.
Tea plantations in India are mainly located in rural hills and backward areas of North-eastern
and Southern States. Major tea growing areas of the country are concentrated in Assam, West
Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are
Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim,
Nagaland, Meghalaya, Mizoram, and Bihar. The competitors to India in tea export are Sri
Lanka, Kenya, China, Indonesia and Vietnam.
There are basically two types of tea sales in India - through Auctions and Private Sales, also
called as ex- garden sales. In Auction sales, tea is auctioned at auction centers through
brokers to buyers who either sell it to wholesalers / retailers or export to overseas markets.
Tea is generally placed in the Restricted category of the EXIM policy. Through special
Import License tea can be imported by paying import duty. Since August 1998, tea is being
freely imported from the SAARC countries. Under the EQU / EPZ units tea can be imported
for re exports after value addition.
The tea plantation industry is strictly guided by various statutory Orders through the Acts of
Parliament like - Tea Act, Essential Commodities Act, Plantation Labour Act, Factories Act,
PFA Act, Standards of Weights and Measures act etc.
Quality control strictly conforms to IS 9723 and Prevention of Food & Adulteration Act
(PFA). Disposal of tea waste is done through the tea waste control of 1959. Many gardens are
now taking quality certifications under ISO 9002:
Some statistical facts about the Indian Tea Industry:
The total turnover of the industry is around Rs. 10,000 crores.
Since independence, tea production has grown over 2505, while land area has grown
by 40%.
Total net foreign exchange earned per annum is around Rs.1847 crores.
5
Industry is labour intensive and employs over 1.1 million workers and generates
income for 10 million people indirectly. Women constitute 50% of the workforce.
802 M.Kgs or about 82% of total production of 981 M.Kgs of tea went for domestic
consumption.
Recent developments
6
Inspite of its importance, tea industry of India is going through a crisis phase since 1990’s.
The industry has witnessed many structural changes during recent years, which include –
emergence of small tea growers in place of large plantation and introduction of bought leaf
factories (BLF). The present crisis has led to the closure of many tea estates (e.g., 20 estates
in Kerala, 30 in West Bengal, about 70 in Assam have close down since the late 1990’s). In
early 2005 the tea industry witnessed major companies withdrawing from production and
concentrating on the packaging/ retailing sector (e.g. Tata. Tea, HLL etc in India).
In the market, the rising competition at domestic as well as international front has deepened
the crisis of tea industry of India. .
Shift in the composition of demand for tea in the importing countries has had unfavorable
effects on export earnings from tea in India.
The international market price of tea has
declined from US $ 2.09 to US $ 2.03 per kg in between 2005 and 2006. Though countries
like Sri Lanka, Kenya and Indonesia are growing fast in their export and higher price
realization, during the same period. Export of tea from India to some of the major importing
countries like Russia, UK, and USA are showing a sharp decline.
Although, per capita consumption of tea in India is amongst the lowest (64 grams), but in
volume terms India is the largest consumer. Since 1970, India has become the largest
absolute consumer of tea after UK. Larger domestic demand has given a new direction to the
tea industry in the recent years.
Major causes of the crisis
Despite India’s historical success with the tea industry, in recent years, the industry has faced
serious competition in the international and national market which has lead to the present
crisis. Tea prices in India are being driven down by many factors:
a) Decline in demand for Indian tea in the global market
b) Defects in auction system
c) Poor price realization
d) Defective market structure
e) Increase in cost of production
Recommendations for improvement
7
Despite being the largest producer and consumer of tea, the Indian plantation sector
lacks appropriate mapping of production and consumption levels. Due to absence of
accurate estimates the formulation of long term industry wide action plans have been
affected.
India has concentrated more on building up its large estates and has given less
attention to processing and improving the quality by proper blending and marketing–
for higher price realization of their products.
Unlike its key competitors, India does not have any powerful brand to support its
promotion drive in the international market.
Study done by the United Nations Food and Agriculture Organization (FAO, 2001)
has suggested the need for reducing the unit cost of production through productivity
gains, capacity building of small growers, streamlining marketing channels,
improving infrastructure, tailoring marketing activities to individual country’s
demand, propagating health benefits of tea and promotion of organic tea using the tea
mark. This is exactly what the domestic tea companies should do for their long term
survival.
Improvement of supply chain management inside the country and global tea
marketing network.
The tea industry in India has a legacy of corporate farming right from the day of
British rule. The current situation in the sector has given ample reason for a rethink
on whether corporate farming can really boost agriculture
International brands like Liptons, Brooke Bond of HUL and Tetly tea of Tata Tea; etc
are the market leaders and have great power in price determination in both domestic
and international market. This needs to be stopped and proper investigation is needed
to curb the wrong practices in the tea market by introducing new laws to regulate the
price movements.
It has been observed that the actual producer of tea has no direct link with the
ultimate consumer. Therefore, the producers do not understand the market demand /
choice of the customer, it is very important in today’s market economy for long term
sustainability of the industry. With the withdrawal of sales restriction, the growers
can directly go to the market by building their own brand. As the margin of profit is
very high at the present domestic retail market, Indian tea growers should invest and
take this opportunity for the promotion of their brand at the retail market.
8
Fresh capital inflow is needed right at this moment for the tea industry of India.
Investment in new plantations and production machineries must come immediately to
compete in the international market.
one of the most important steps from the government part shall be to introduce a
stronger competition law to curb the misuse of corporate buying power and promote
social objectives at the garden level.
Current Scenario of the Indian Tea Industry
9
Production
(956mkgs)
Tea is normally classified based on the processing, leaf size and grade. Fermentation is the
major process and creates two major classifications:
Green
Trend
(10.6Pricemkgs)
Darjeeling
(11.7 mkgs)
Orthodox
(65.5 mkgs)
CTC
(868.2mkgs)
Recently tea prices showed bouyancy, which started from 2006, after depressed prices for
almost a decade since 1999.A slump in global output, decline in production due to poor
monsoon rains, steady increase in domestic demand, range-bound export volumes and low
growth in production further drove prices upwards in 2009.
However India’s tea production had picked up in the last quarter of 2009 and initial signs are
pointing to better weather in 2010, signalling a possible change in the price trend. Even if
prices do not retrace too much, producers may have to live with subdued prices during the
year. It does appear that the two-year run of rising tea prices is losing steam.
Chart 1: Trend in Domestic Tea Prices (source: ICRA Research)
Production, consumption and Exports
10
A secular increase in domestic consumption on the one hand and muted increase in
production on the other, has been the main factor supporting the increase in tea prices from
2006 onwards. According to ICRA’s estimates, while the average growth in production
during the period 2003-07 was just 1.9% or so, domestic consumption would have increased
annually at around 3.5% during the same period. The steady increase in domestic demand,
range-bound export volumes and low ICRA Rating Feature Indian Tea Industry: Outlook
Positive for the Short to Medium Term ICRA Rating Services Page 3 of 8
growth in production absorbed the pipeline stock over the years and left virtually no carryforward stock at the end of the 2007 season.
Production and consumption of Tea in India
Particulars
200
200
200
200
200
200
200
200
2009
PRODUCTION (million
1
854
2
838
3
878
4
893
5
946
6
982
7
945
8
981
696.7
802
*
828(E
Kg)
CONSUMPTION
673
693
714
735
757
771
786
(million kg)
* production from January to Sepetmber - Estimated figure
)
Chart 2: Trend in India’s Production, Consumption and Exports of Tea
Source: ICRA Research
Exports
11
Exports play a vital role in maintaining the overall demand-supply balance in the domestic
market. Healthy export realisation is also crucial for domestic realisations as un-remunerative
prices in the export market may lead to exporters dumping the produce in the domestic
market, which in turn would exert a downward pressure on domestic prices. Tea exports from
India have remained range bound over the period 1997-2008 with some year-to-year
fluctuations seen in between.
Export of Tea from India
YEAR QUANTITY (Million Kg)
2005
199.05
2006
218.73
2007
178.75
2008
203.12
2009*
131.2
*Export from January to September
Value (Rs. Crores)
1830.98
2006.53
1810.11
2392.91
1777.04
UNIT PRICE (Rs/kg)
91.99
91.73
101.26
117.81
135.42
Chart 3: Trend in India’s Tea Exports
Source: ICRA Research
Import of Tea from India
The continuous fall in prices of tea, coupled with high cost of production has adversely
affected the economy of the tea plantations resulting in some tea gardens being abandoned or
under lock out in various states. The teas being imported are not necessarily inferior teas and
the practice of blending with Indian teas often serves the purpose of providing teas as per
customers choice and making them price-competitive in international markets.
Import of tea from India
12
YEAR QUANTITY (Million Kg)
2005
16.76
2006
23.81
2007
15.99
2008
20.28
2009*
15.82
*Export from January to August
Value (Rs. Crores)
98.51
119.41
104.60
161.97
132.09
UNIT PRICE (Rs/kg)
58.79
50.15
65.43
79.90
83.50
Profitability of bulk tea players
An increase of around 28% in tea prices on an average in 2008 has meant considerable
increase in the profitability of bulk tea players in FY2008-09, given that around 65% of their
costs are fixed in nature. Chart 6 brings out the positive impact of increasing tea prices on the
aggregate total income and profitability indicators2 of some of the large bulk tea players in
India3, which shows significant improvement over the past few years.
Chart 4: Trend in Aggregate Income and Profitability Indicators of Bulk Tea
Companies (Source: Bombay Stock Exchange)
Demand-Supply Gap
For the Indian tea industry, the main driver of demand is the domestic market, with domestic
consumption now growing at an estimated 3.5% annually, as against around 2.5% a decade
earlier. At the current growth rate, the domestic market would require an incremental 30 Mkg
or so annually, going forward.
As against that, tea supply has been growing at less than 2% p.a because it is difficult to
improve garden yield of tea even during favourable climatic conditions, and new plantations
13
need a long gestation period of at least 4-5 years. Therefore the demand-supply gap in India
is likely to persist at least over the medium term.
Industry Outlook
The tea industry has every reason to look ahead in 2010 with great deal of optimism and
confidence, according to the Tea Market Annual Report published by J Thomas and
Company Private Limited, the world's oldest and largest tea auctioneers.
14
With virtually no carry forward stock, and growing domestic demand to act as buffer against
the uncertainties of the global tea trade, price levels are expected to remain attractive, the
report observes.
Early cropping patterns indicate that demand supply equation is likely to be more balance in
2010. Both Kenya and Sri Lanka production is expected to exceed that of 2009 and
indications are that the March crop in North India will be higher than that of the last year
following some much needed rainfall.
While the supply situation may be more comfortable than the previous season, it is likely to
be absorbed by the domestic market where quality produce will continue to be in great
demand, the reports states.
Exports
Indian exports at the end of 2009 stood at 191.5 million kg, compared to 203.1 million kg in
2008, a decline of 11.6 million kgs. The strong domestic demand ensured that the exporters
were often out priced, particularly in first three quarters.
Lower orthodox production in North India was also another factor contributing to the decline
in exports. As a result, exports out of North India at 98.8 million kg recorded a decline of
17.4 million kg while exports out of South India at 92.7 million kg recorded a rise of 5.8
million kg. The per unit value increased from Rs 117.81 in 2008 to Rs 136.64 in 2009, a gain
of Rs 18.83.
Exports to Iraq saw a significant increase during the year with an additional 11.1 million kgs
over 2008. Shipments to Russia grew by 4.2 million kg and to Afghanistan by 1.8 million kg.
Exports to Egypt suffered a setback, the shortfall being 9.6 million kg. Offtake by Iran, UAE,
UK and the Continent also declined during the period.
Companies’ Overview
1. Joonktollee Tea
Joonktollee Tea Co. Ltd. Was promoted 134 years back to manage the affairs of a small Tea
Estate in Upper Assam. It is today synonymous with premium Black and Green Teas.
15
In the year 1954, the House of Bangurs acquired the managing agency and the Company and
brought them under their fold. The name of the Company was changed to “JOONKTOLLEE
TEA & INDUSTRIES LIMITED” (JTIL). Since then the company has been under the
management of the Bangurs. Over the years, the Company has grown in stature and size and is
a leader in producing quality teas and enjoying one of the best Assam CTC Mark in North
India.Company’s Estate now comprises of 1867.98 acres of land with 1202.82 acres under
plantation.
From a leading mark in the Premium Orthodox teas, the Company, changing with the times,
is now regarded as one of the Best Assam CTC mark and does have an unstinted track record
of the business with the brand. Its Green Teas are also one of its kinds.
The performance on the financial front has also been spectacular. The Company’s ordinary
capital of Rs.80,000/- has grown to Rs.323.36 Lacs. The Company has an uninterrupted
dividend record for over 50 years.
To have a large capital base and net worth, two South India based Plantation Companies, viz.
The Kalasa Tea Produce Company Limited and Cowcoody Estates Limited belonging to the
House of Bangurs stood merged with this Company w.e.f. 1st April, 2001. The area of
operation of the Company was enlarged and diversified, since apart from tea, the transferor
Companies also deal in other plantation crops, viz., coffee, pepper, cardamom, areca, vanilla.
With a view to consolidate the resources of the Company and to carry out the agro base
activities more conveniently and advantageously with a larger asset base the Company
entered into Scheme of Arrangement w.e.f. 1st October, 2006 under which a subsidiary and
six other Companies merged with the Company and certain assets were transferred to other
subsidiary Companies. The Hon’ble High Courts of judicature at Kolkata, Chennai and
Guwahati sanctioned the Scheme of Arrangement as per the terms consented by the
shareholders and the financial results of 31st March, 2008 were prepared after giving effect
of the aforesaid scheme.
On BSE as on 22 April 2010:
Dividend Yield (%)
Market Cap (Rs Mn)
P/E
0.89
542.77
12.84
16
EPS (Rs.)
13.07
Face Value (Rs.)
Volume
10
23239
Shareholding pattern:
Description ( As On
No of
No of
% of
December 2009 )
ShareHolders
Shares
Share
Demat
83.7
83.7
2693455
2693455
Promoter
27066
Indian Promoter
Total Promoter
16
16
75
27066
17
75
Non Promoter
Institutions
117843
FI/Bank/Insurance
Other
2
5
Total Institutions
7
593
118436
3.64
0.02
0
3.66
117843
Non-Institution
Bodies Corporate
82
45592
1.41
40197
NRIs/OCBs
8
31256
33168
0.97
926
Others
Total Non-
2391
8
40853
10.25
127041
Institution
2481
6
52697
12.63
168164
Total Non Promoter
2488
2
32336
16.3
286007
Grand Total
2504
47
100
2979462
2. Jayshree Tea & Industries Limited
18
Incorporated as Jay Shree Tea Gardens in Oct.'45 with two tea estates, the company changed
its name to Jay Shree Tea and Industries (JSTI) in 1960. It was promoted by B K Birla.
Started with an initial paid-up share capital of Rs 7.86 lac, it was raised to Rs 39.05 lac in
1947 and thereafter only a rights equity issue was made during 1960 in the ratio 1:5.
The company manages around 12 tea gardens in Assam, West Bengal, Tamilnadu and
Kerala. It has diversified over the years and manufactures plywood in Andamans and
superphosphates and sulphuric acid in West Bengal; and has interest in shipping, real estate
development, tubes and tyres. The company is packing its tea from different tea estates, in
polypouches and it is sold under brand names -- Sadabahar, Shaandar and Sangam.
JSTI also acquired Maitrayee Tea Project at Chopra near Islampur with 192 acres under tea
plantation to increase its presence in the area.
During 1999-2000, the company established a new factory named 'Aryaman Tea Estate' in
Jalpaiguri Dist, which has commenced production from Sep, 1999. The factory has the
capacity of 7 lac kgs made tea per annum. In June 2000, the B K Birla group's shareholding
in Jay Shree Tea & Industries has gone up to 44.61% from 40.15% following the completion
of the company's buy back offer for 12.30 lakh equity shares.
The company bought back 12.30 lac equity shares of Rs.10/- each at a price of Rs.120/-per
share in 2001-02 and subsequently the total Share Capital as on March 2002 was Rs.10.67
crores. The tea processing factory which is being set up at Ledo,Assam has commenced its
commercial production with a annual capacity of around 6 lac kg.
As the Supreme Court has banned the falling of trees in Andaman & Nicobar Islands,the
company's Plywood Operation is still under suspension. The 100% subsidiary company viz
Shiva's Group Ltd was amalgamated with the company with the prior approval from the
shareholders w.e.f 25.02.2002.
It also proposes to set up an International Outsourced Call centre at Kolkata. The company is
proposing to delist its equity shares from Delhi Stock exchange as there is no transactions.
19
On BSE, as on 22 April 2010:
Dividend Yield
(%)
Market Cap (Rs
Mn)
P/E
EPS (Rs.)
Face Value (Rs.)
Volume
1.01
3312.63
4.65
63.72
10
142257
Shareholding Pattern as in September 2009:
20
Description ( As On
No of
No of
% of
September 2009 )
ShareHolders
Shares
Share
Demat
14
14
4498169
4498169
40.25
40.25
3685170
3685170
12
717585
6.42
716185
FI/Bank/Insurance
31
381238
3.41
FII
Other
3
0
200000
200000
1.79
1.79
200000
200000
Total Institutions
46
1298823
11.62
1271276
Bodies Corporate
821
1655678
14.82
1609689
NRIs/OCBs
Others
Total Non-
82
9658
42605
3679064
0.38
32.92
40195
2699777
Institution
Total Non
10561
5377347
48.12
4349661
Promoter
Grand Total
10607
10621
6676170
11174339
59.75
100
5620937
9306107
Promoter
Indian Promoter
Total Promoter
Non Promoter
Institutions
Mutual Funds /
UTI
Non-Institution
3. Mcleod Russell
McLeod Russel has been growing tea in India since 1869. It is today the largest tea
producing company in the world.
It manages 47 tea estates in the Assam Valley and 6 tea estates in the Dooars region of West
Bengal. Every year its estates produce over 80 million kilograms of black tea, which is
marketed worldwide under the registered Elephant trade mark.
The company directly employs around 80,000 people, a large number of whom a women.
Mcleod Russel is the world’s largest tea producer.
21
As the largest Indian tea exporter we maintain strong connections with buyers in Europe, the
Middle East and North America. We have always enjoyed an excellent reputation for the
quality of our product and the integrity and reliability of our marketing and delivery systems.
McLeod Russel has a number of internationally recognised accreditations and certifications
including Fairtrade, Rainforest Alliance and HACCP. Its modern blending facility provides
the clients with both unique as well as bespoke bulk blended teas.
On BSE,as on 22 April 2010:
Dividend Yield
(%)
Market Cap (Rs
0.8
Mn)
P/E
EPS (Rs.)
Face Value (Rs.)
Volume
27276.37
10
24.91
5
174807
Shareholding Pattern as on September 2009:
Description ( As On
No of
No of
% of
December 2009 )
ShareHolders Shares
Share
Demat
Indian Promoter
24
22583056
20.63
22497684
Foreign Promoter
1
27067500
24.73
27067500
Total Promoter
Non Promoter
Institutions
Mutual Funds /
25
49650556
45.36
49565184
UTI
41
8624962
7.88
8621239
Promoter
22
FI/Bank/Insurance
Govt
6
1
4231733
112
3.87
FII
Other
70
97
27637288
28011747
25.25
25.59
27637288
27969054
Total Institutions
Non-Institution
215
40868554
37.34
40820326
Bodies Corporate
NRIs/OCBs
1416
601
4941880
360122
4.51
0.33
4854379
226601
Others
Total Non-
58658
13634623
12.46
10341710
Institution
Total Non
60675
18936625
17.3
15422690
Promoter
Grand Total
60890
60915
59805179
109455735
54.64
100
56243016
105808200
4. Rossell Tea Ltd.
Rossell Tea Ltd. (The Company) espouses the cause of long-term success in all areas of its
business and commits itself to achieve this through excellence in productivity, quality and
performance. The company will continue to evolve, learn and adapt for the common good of
its stakeholders. The Company is further committed to the well being of all employees in
particular and the society at large, in general.
The Company immediately after taking over the management of Dikom, Nokhroy and Borahi
T.Es., took effective steps for upgrading the quality further and at present all the Tea Estates
are well established quality marks in overseas markets. The saleable production at the time of
takeover was 2.7 Million Kgs of Black Tea, which after recent corporate restructuring and
three successive acquisitions is around 5.0 Million Kgs of Black Tea. At present, the
Company owns Dikom, Nokhroy, Nagrijuli, Bokakhat and Romai T.Es., all located in Assam.
23
After corporate restructuring, Borahi T.E. was demerged and transferred to another Company
viz. Jyoti Holdings Pvt. Ltd., which Company is no more under the management of Rossell
Tea Limited.
The present Share Capital of Rossell Tea Ltd. is Rs.63.14 Million divided into 6.314 Million
Equity Shares of Rs.10 each. Out of 6.314 Million Equity Shares, 4.653 Million Equity
Shares representing 73.67% of the Equity Share Capital is held by the Holding Company,
BMG Enterprises Ltd., Delhi. The Equity Shares of the Company are quoted at Calcutta and
Guwahati Stock Exchanges
On BSE,as on 22 April 2010:
Dividend Yield (%)
0.57
Market Cap (Rs Mn)
P/E
1927.67
27.69
EPS (Rs.)
Face Value (Rs.)
9.49
10
Volume
141
Shareholding pattern as on September 2009:
Description ( As On
No of
December 2009 )
ShareHolders Shares
Share
Demat
Promoter
Indian Promoter
6
5494245
74.86
5494245
6
5494245
74.86
5494245
2
16
1
2
1
22
30002
48263
30
1025000
1135000
1213295
0.41
0.65
0
13.97
15.47
16.53
30002
29651
0
1025000
1025000
1084653
Total Promoter
Non Promoter
No of
% of
Institutions
Mutual Funds /
UTI
FI/Bank/Insurance
Govt
FII
Other
Total Institutions
24
Non-Institution
Bodies Corporate
NRIs/OCBs
Others
Total Non-
72
9
5660
25579
240
605936
0.35
0
8.26
5918
180
125316
Institution
Total Non
5741
631755
8.61
131414
Promoter
Grand Total
5763
5769
1845050
7339295
25.14
100
1216067
6710312
FINANCIAL STATEMENTS ANALYSIS
Financial Statement analysis means analysis and regrouping of data contained in historical
financial statements. It serves the essential function of converting accounting data contained
in financial statements in to useful information which is always in scarce supply. After
analysis of financial statements, interpretation of analyzed information is done by decision
maker to forecast future profitability, financial strength and liquidity position of the business.
TYPES OF ANALYSIS:
Financial statements are analysed to establish certain crucial relationships which help us to
take sound decisions. Accounts for the year 2003-2004 and 2004-2005 have been studied in
this report.
Analysis consists of :
Financial Ratio Analysis
Common Size Statement
Time Series Analysis
FINANCIAL RATIO ANALYSIS
25
Ratio analysis is a very popular tool of financial analysis. Under this system of analysis,
financial statements have been analyzed by computing accounting ratios. Ratios indicate how
a business is performing and provide indications of trends and patterns. They can be
compared to the same ratios in previous years' accounts and the accounts of other businesses
operating in a similar environment. The ratios can be looked at from three perspectives:
-
Creditors
-
Investors
-
Shareholders
There are various parameters upon which various types of different analysis is done. They
include:
1.
Liquidity Analysis.
2.
Profitability Analysis.
3.
Solvency Analysis.
4.
Efficiency Analysis.
LIQUIDITY RATIOS
Liquidity is the ability to convert assets into cash or to obtain cash. It is important from the
point of view of meeting the firm’s short term obligations.
Current Ratio
It is the ratio of the current assets to current liabilities of the company. It is calculated to test
the short term solvency of a business and its ability to meet its short term commitments.
Besides measuring liquidity, it also measures the margin of safety available in case of
uncertainty of flow of funds.
It provides a measure of degree to which current assets cover current liabilities. The excess of
current assets over current liabilities provides a measure of safety margin available against
uncertainty in realization of current assets and flow of funds.
26
Quick ratio
An indicator of a company's short-term liquidity. The quick ratio measures a
company's ability to meet its short-term obligations with its most liquid assets. The higher the
quick ratio, the better the position of the company.
Quick Ratio= (Cash + Marketable securities + accounts receivable)/Current Liabilities
Liquidity Ratios
Joonktollee
Jayshree Tea
tea Ltd.
Limited
MarMar-
McLeod
Rossels Tea
russells
Company
Mar-
Mar-
Mar-
09
08
Mar-09
Mar-08
Mar-09
08
09
08
1.82
6.2
1.76
3.61
1.03
0.84
0.44
0.46
0.77
4.88
0.71
0.94
0.48
0.36
0.17
0.17
Current
Assets/Current
Liabilities
Quick Assets/Current
Liabilities
Analysis:
Current Ratio: We notice that in case of Current Ratio Joonktollee Tea and Jay Shree Tea
have a high current ratio whereas McLeod Russels and Rossell have a low ratio.
High ratio indicates that
the company may be high amount of receivable and large amount inventory piled up
which is a bad sign,
whereas it may also suggest that the company receives its payments well before the
expiry of the credit period as such indicating a strong credit policy of the company.
Thus a right proportion of current assets and current liabilities are required and the ideal
ratio is said to be 2:1.
Quick Ratio: Sometimes a company could be carrying heavy inventory as part of its current
assets, which might be obsolete or slow moving. Thus eliminating inventory from current
assets and then doing the liquidity test is measured by this ratio. The ratio is regarded as an
acid test of liquidity for a company. It expresses the true 'working capital' relationship of its
cash, accounts receivables, prepaid and notes receivables available to meet the company's
current obligations. Again when we look at the acid test ratio it indicates the actual indicator
27
of the current position. Again here we see that in McLeod Russels and Rossell maximum of
cash is held up in inventory.
PROFITABILITY RATIOS
Profitability ratios are probably the most important ratios studied by any analyst. They are
able to give a good overall picture of a company with respect to its peers. The most important
objectives for the business and, arguably therefore, the most important ratios, are those
concerned with profitability.
Net profit margin
Net profit margin divided by net revenues, often expressed as a percentage. This number is
an indication of how effective a company is at cost control. The higher the net profit margin
is, the more effective the company is at converting revenue into actual profit. The net profit
margin is a good way of comparing companies in the same industry, since such companies
are generally subject to similar business conditions. However, the net profit margins are also
a good way to to compare companies in different industries in order to gauge which
industries are relatively more profitable. also called net margin
Net Profit Margin =
Net Profit
Turnover
=
Profit before Interest and Taxation
Turnover
Return on Capital Employed: Net After Tax Profit divided by Net Worth, this is the 'final
measure' of profitability to evaluate overall return. This ratio measures return relative to
investment in the company. Put another way, Return on Net Worth indicates how well a
company leverages the investment in it. May appear higher for startups and sole
proprietorships due to owner compensation draws accounted as net profit.
Joonktollee tea
Ltd.
Jayshree
Rossels Tea
McLeod
Company
Tea Limited russells
MarMarMar-
Mar-09
08
09
08
Mar-09
MarMar-08
09
Return on Total
Capital Employed
Return on Assets
NP Ratio
Mar08
0.09
0.01
0.006
0.055
0.014
0.056
0.013
0.055
1
0.02
0.002
0.023
0.002
0.019
0.011
0.042
0.003
0.016
0.012
0.108
0.003
0.032
0.014
0.132
8
0.20
28
1
Analysis
Net Profit Margin: The Profit Margin of a company determines its ability to withstand
competition and adverse conditions like rising costs, falling prices or declining sales in the
future. The ratio measures the percentage of profits earned per dollar of sales and thus is a
measure of efficiency of the company. Thus we see to it that Rossell Tea has been able to
withstand maximum competition and thus its income after tax is on a higher proportion than
any other company.
Return on Assets: The Return on Assets of a company determines its ability to utitize the
Assets employed in the company efficiently and effectively to earn a good return. The ratio
measures the percentage of profits earned per dollar of Asset and thus is a measure of
efficiency of the company in generating profits on its Assets. Thus when we compare the
various data we find that the best utilisation of assets is being done by Rossell Tea.
ROCE is almost same Jayshree, McLeod and Rossels
LEVERAGE RATIOS
These ratios determine the financial leverage enjoyed by the firm and also look at the short
term solvency of the firm in terms of its interest paying capacity. Long Term Debt / Equity
ratios provide insight into the extent to which nonequity capital is used to finance the assets
of the firm.
Ratio = long term liabilities/ shareholders equity
The higher is the ratio, the higher the proportion of assets financed by non-shareholder
parties. Which components to include in the numerator or denominator of the ratios depend
on how one defines liabilities and shareholders equity.
Financial Leverage
Joonktollee Tea
Jayshree Tea
McLeod
Rossels Tea
ratios
Ltd.
Limited
russells
Company
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
08
07
09
08
09
08
09
08
29
Total Debts to Assets
Capitalization Ratio
Debt-Equity Ratio
Interest Coverage Ratio
0.296
0.245
0.325
1.761
0.331
0.295
0.418
2.033
0.581
0.482
0.929
2.516
0.529
0.481
0.926
2.953
0.354
0.145
0.354
2.564
0.026
0.176
0.41
2.42
0.206
0.156
0.184
5.996
0.205
0.141
0.164
18.178
ANALYSIS:
Rossell Tea Company is the least leveraged company with the lowest debt equity ratio, while
jay Shree Limited would fall on the higher end.
TURNOVER RATIOS
Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value of fixed
assets (on the balance sheet). It indicates how well the business is using its fixed assets to
generate sales.
Generally speaking, the higher the ratio, the better, because a high ratio indicates the business
has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may
indicate that the business is over-invested in plant, equipment, or other fixed assets.
Efficiency Ratio
Joonktolle tea
Jayshree Tea
McLeod Russel
Limited
Mar-
Rossels Tea
Company
Mar-08
Mar-09
Mar-08
Mar-09
Mar-08
Mar-09
Mar-08
44.93
2.08
143.48
10.49
26.98
136.08
72.81
140
0.38
0.29
0.98
0.73
0.43
0.35
0.39
0.42
14.55
13.88
6.09
9.5
32.46
23.16
104.58
60.45
09
Cash Turnover
Total Assets Turnover
Accounts Receivable
Turnover
Analysis:
Rossell Tea has the highest debtor turnover ratio indicating less chances of bad debt and more
liquid the nature of asset (debtor). This ratio is least in case of Jay Shree Tea which is also
below the industry average; this inefficiency increases the chance of default by the debtors.
30
Inventory turnover ratio of both Biocon & Cipla are below the industry average. This
indicates low inventory liquidity and high inventory carry cost. This may also indicate that
the company might have over bought or the value of the stock is overstated.
CROSS SECTIONAL ANALYSIS
In this analysis, the different financial variables of different companies have been compared
over a period of time of two years viz. 2006-2007 and 2007-2008. As such, it helps us to get
some sort of trend of various financial factors in the financial statements of a company.
Common Size Profit and Loss Account
Year
Share Capital
Joonktollee Tea
Jayshree Tea
McLeod russells
Rossels Tea
Ltd.
Mar-09
Mar-
Limited
Mar- Mar-
Mar-
Company
MarMar-
08
09
09
08
Mar-08
09
08
%
3.67
%
3.45
%
3.54
%
3.47
%
3.45
%
3.48
%
5.31
%
5.36
71.78
67.06
48.29
48.45
70.39
67.42
79.14
80.57
Reserves & Surplus
Net Worth
75.45
70.52
51.83
51.92
73.84
70.9
84.45
85.92
Secured Loans
21.7
20.9
41.19
39.63
24.27
19.55
11.94
4.92
Unsecured Loans
2.84
8.58
6.98
8.45
1.89
9.55
3.61
9.15
24.55
29.48
48.17
48.08
26.16
29.1
15.55
14.08
100
100
100
100
100
100
100
100
Gross Block
Less: Accum.
41.69
38.93
76.49
72.69
114.75
113.91
85.95
98.4
Depreciation
Net Block
18.76
16.59
26.76
25.72
24.38
22.95
7.79
7.93
22.93
22.34
49.74
46.97
90.37
90.96
78.16
90.47
Total Debt
Total Liabilities
31
Capital Work in
Progress
Investments
1.01
0.36
0.84
0.64
0.87
0.52
0.36
0.42
64.5
48.79
31.91
30.77
12.92
12.44
16.44
6.66
Current Assets,
Loans & Advances
Inventories
0
0
5.01
4.61
16.09
12.17
4.02
2.8
1.55
1.83
Sundry Debtors
2.81
2.22
21.59
9.15
1.6
1.8
0.4
0.75
0.91
14.81
0.92
8.28
1.93
0.31
0.57
0.32
10.28
12.3
11.3
8.84
8.28
8.77
8.72
6.44
0
0
4.8
3.49
21.9
8.2
7.34
5.84
5.02
6.76
2.59
1.94
7.71
7.01
9.35
8.6
1.32
1.26
11.62
28.51
20.29
23.23
-0.86
-0.77
4.89
1.31
0
0
0
0
0
0
0
0
100
100
100
100
100
100
100
100
Cash and Bank
Balance
Loans and Advances
Less: Current Liab.
& Prov.
Current Liabilities
Provisions
Net Current Assets
Miscellaneous
Expenses not w/o
Total Assets
Analysis
The percentage of debt to total assets for Rossell Tea. is lowest (15.55%) as compared to
other companies. On the other hand, JayShree Tea has the highest debt percentage in its
capital structure i.e.48.17% as the company is in expansion mode, so its been raising debt
from the market.
The net current assets for McLeod Russel is the in negative because of which the company
can have problems in meeting its short term obligations.Hence this company is not a good a
bet for short term creditors.
For Jay Shree Tea the inventory as a percentage of total assets is highest among all the
companies which shows cautious and conservative approach.
COMMON SIZE INCOME STATEMENT
Joonktolle Tea
& Ltd
Jayshree Tea
Limited
McLeod russells
Rossels Tea
Company
32
Year
INCOME :
Sales Turnover
Excise Duty
Other Income
Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost
Other Mfgr Expenses
Employee Cost
Selling & Admn
Expenses
Miscellaneous Expenses
PBDIT
Mar-
Mar-
Mar-09
Mar-
Mar-09
Mar-08
Mar-09
Mar-08
09
%
08
%
%
08
%
%
%
%
%
100
0.28
3.47
-0.92
102.28
100
0.35
7.98
-2.14
105.49
100
1.67
3.95
3.8
106.07
100
2.25
8.4
-0.67
105.48
100
0.28
4.09
0.55
104.36
100
0.35
9.37
-0.54
108.47
100
0
3.98
-0.03
103.95
100
0
28.57
-0.9
127.67
22.97
6.83
31.02
9.13
20.75
7.77
33.7
11.74
44.73
5.79
22.76
7.45
7.27
32.3
7.52
30.76
9.28
10.22
5.24
10.71
38.39
10.41
11.85
4.25
12.95
44.63
12.85
12.81
0.3
6.87
37.66
16.36
10.87
1.47
7.88
40.24
11.43
11.77
9.79
5.33
11.4
3.35
17.2
16.78
8.41
9.65
5.31
10.1
2.01
25.74
1.82
19.16
8.03
23.87
2.95
51.94
3.84
3.42
10.04
7.92
3.98
2.86
1.6
4.21
2.53
4.14
3.14
12.56
3.33
7.91
2.38
17.51
2.56
46.52
0.02
0
0.9
-0.83
4.12
0.22
0
-0.26
2.6
1.58
1.22
0.27
0.36
-0.1
10.81
0.23
0.19
0.29
4.03
3.17
3.22
0.23
1.96
-1.13
13.23
3.85
0.17
3.06
19.38
20.06
Interest & Financial
Charges
Depreciation
Profit Before Tax
Tax
Fringe benefit tax
Deferred Tax
Extra ordinary items
Profit after tax
9.77
4.58
8.25
5.87
2.86
0.33
0.17
0.14
-0.11
2.33
2.66
0.14
0.17
0
0.48
1.86
Analysis
The selling and administration expenses for McLeod Russel, though they are lower than the
previous year.
The net profit is the highest for Rossell Ltd. as compared to others in the Industry. The
depreciation charged is also highest for Joonktolle tea (4.58%) followed by McLeod Russel
(3.14% of Net Sales). The relative tax expense is highest for Rossell Ltd. for the 2008-09 and
lowest for Jay Shree Ltd.
33
Trend Analysis
This is a time series analysis whereby a study is done in order to interpret what has changed
in the company over a year. This can be done by comparing the balancesheet and profit and
loss statement of the company for two years.
Balance Sheet
SOURCES OF FUNDS:
Share Capital
Reserves Total
Joonktolle
Jayshree
McLeod
Rossell
Tea & Ltd
%
Tea Ltd.
%
Russel
%
%
-0.003
0.004
0.047
0.022
0
5.536
16.323
15.342
34
Total Shareholders Funds
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities
APPLICATION OF FUNDS :
Gross Block
Less : Accumulated Depreciation
Net Block
Capital Work in Progress
Investments
Current Assets, Loans & Advances
Inventories
Sundry Debtors
Cash and Bank
Loans and Advances
Less : Current Liabilities and
Provisions
Current Liabilities
Provisions
Net Current Assets
Miscellaneous Expenses not
written off
Total Assets
0.003
-0.026
-0.689
-0.219
-0.062
0.024
0.066
-0.153
0.028
0.026
5.264
25.516
-80
-9.116
1.08
15.404
184.828
-53.711
29.735
17.421
0.004
0.06
-0.037
1.618
0.24
0.079
0.067
0.086
0.352
0.064
1.827
7.353
0.432
68.659
4.948
2.571
15.418
1.445
0
189.682
0.021
0.188
-0.942
-0.217
0.356
1.421
-0.887
0.312
45.268
-9.716
538.125
-4.54
-0.465
-37.5
107.895
59.103
0.291
0.253
-0.618
1.74
0.128
-0.104
27.042
9.978
12.676
-12.688
22.819
338.961
-0.062
0.026
1.08
17.421
Income Statement
35
INCOME :
Sales Turnover
Excise Duty
Other Income
Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Administration
Expenses
Miscellaneous Expenses
Operating Profit
Interest
Depreciation
Profit Before Tax
Tax
Fringe Benefit tax
Deferred Tax
Extraordinary Items
Adjusted Net Profit
Diana Tea
Jayshree
McLeod
Company
Tea
Russel
%
Limited
%
%
Rossell
%
24.448
0
-45.887
-46.774
20.655
54.197
14.797
-27.502
-970.652
55.066
26.45
0.866
-44.747
-227.247
21.657
8.12
-84.934
-95.833
-11.97
37.77
9.333
14.549
-3.235
113.514
18.823
14.123
23.789
55.994
4.534
8.775
2.458
16.982
-78.205
-5.728
1.168
54.77
-0.16
6.97
97.938
27.572
47.28
-2.941
33.766
200
9.696
144.521
47.447
73.048
-2.453
56.84
-83.333
-128.571
55.556
-626.389
-149.157
301.386
39.816
69.894
60.378
19.34
100.675
563.399
73.228
58.824
-103.103
331.232
194.268
-50.308
50.658
0.735
-59.313
-9.756
44.444
-30.675
-106.305
-28.679
36
Segment reporting
The objective of this segment is to establish principles for reporting financial information,
about the different types of products and services an enterprise produces and the different
geographical areas in which it operates. Such information helps users of financial statements:
(a) Better understand the performance of the enterprise;
(b) Better assess the risks and returns of the enterprise; and
(c) Make more informed judgements about the enterprise as a whole.
Many enterprises provide groups of products and services or operate in geographical areas
that are subject to differing rates of profitability, opportunities for growth, future prospects,
and risks. Information about different types of products and services of an enterprise and its
operations in different geographical areas - often called segment information - is relevant to
assessing the risks and returns of a diversified or multi-locational enterprise but may not be
determinable from the aggregated data. Therefore, reporting of segment information is
widely regarded as necessary for meeting the needs of users of financial statements.
A. JOONKTOLLEE TEA COMPANY LIMITED
No disclosure regarding segment reporting
B. JAY SHREE TEA & INDUSTRIES LIMITED
Based on the guiding principles given in Accounting Standards on “Segment Reporting”
(AS-17) as prescribed by the Companies Accounting Standard Rules 2006, the Company’s
primary business segments are tea, chemicals & fertilisers business.
Segment wise Information for the year
ended 31st March, 2009
37
(A)
PRIMARY SEGMENT
1 Segment Revenue (Net
Sales/Income from each segment)
Tea
Chemicals & Fertilisers
Infotech
Others
Less : Inter-segmental Revenue
Total
2 Segment Results {Profit / (Loss)
before Tax & Interest}
a) Tea
b) Chemicals & Fertilisers
c) Infotech
d) Others
Total
Less : Interest (Net)
Add : Unallocable Income net of
unallocable expenditure
Total Profit / (Loss)
31.03.2009
(Rs. in ‘000)
31.03.2008
2,81,10,82
1,36,14,19
–
2,81,60
86,95
4,19,19,66
2,03,99,41
65,92,61
1,03,05
2,40,97
64,46
2,72,71,58
42,37,65
(3,11,92)
–
1,00,96
40,26,69
10,37,51
(13,23,10)
5,73,95
5,86,30
(1,11,09)
60,81
11,09,97
7,54,31
6,38,87
16,66,08
9,94,53
before Tax
3 Segment Assets (Including revaluation reserve) &
Segment Liabilities
a)
b)
c)
d)
e)
Tea
Chemicals & Fertilisers
Infotech
Others
Unallocable
Total
Assets
1,92,35,75
67,70,27
–
1,19,39
1,56,59,35
4,17,84,76
Liabilities
31,24,60
49,62,14
–
61,69
21,19,87
1,02,68,30
Assets
1,60,57,59
33,59,88
4,85,07
1,11,12
1,60,16,83
3,60,30,49
Liabilities
29,86,39
9,56,23
48,44
57,35
11,87,07
52,35,48
4 Capital expenditure including capital work-in-progress and depreciation (excluding on
revaluation reserve) for the year
Capital Exp.
a)
b)
c)
d)
e)
(B)
Tea
Chemicals & Fertilisers
Infotech
Others
Unallocable
Total
Secondary Segment
Segment Revenue
Depreciation
10,93,78
5,55,58
11,71,28
41,17
50,90
45,80
–
–
13,01
5,35
1,67
–
2,80,31
73,58
1,31,26
14,20,61
6,81,73
13,61,35
Domestic
Export
3,50,22,55
68,97,11
(2,18,57,18)
(54,14,40)
Capital Exp.
Depreciation
5,61,38
48,67
49,09
1,31
67,28
7,27,73
Total
4,19,19,66
(2,72,71,58)
Segment Assets
38
Capital Expenditure
Note:
4,14,39,13
(3,56,76,72)
3,45,63
(3,53,77)
4,17,84,76
(3,60,30,49)
14,20,61
(13,61,35)
–
(–)
14,20,61
(13,61,35)
i) The company has disclosed business segment as the Primary Segment.
Segment Revenue includes other income pertaining to the relevant
C. MCLEOD RUSSELS
No disclosure regarding segment reporting
D. ROSSEL TEA LIMITED
No disclosure regarding segment reporting
Conclusion
39
Though there has been a recovery in the prices of tea and exports have also started looking
up, with the emerging trends in the globalized economy, markets can no longer be protected.
The high cost of production is still a matter of concern for the Indian tea
industry. The Indian tea industry would have to gear itself up to counter the new forces
unleashed by globalization.
Budget 2010-11 gave the extension of concessional import duty on imported plantation
machinery, like tea bagging machines, till March 31, 2011 will help the industry in value
adding and hiking exports in the long run. The finance minister has also increased weighted
deduction on payments made to national laboratories, research associations, universities and
other institutions for scientific research from 125% to 175%. This will help organisations like
the Tea Research Association to take up better research and development activities, resulting
in production of better quality tea saplings.
With cyclical crisis in the Indian tea industry erasing fast, the current need was to shift from a
production oriented strategy and subsidy approach to market oriented strategic framework
with market economy outlook. There is a need to liberate the mindset of the industry from its
earlier mindset of 'disposal of tea' was changing to a new one --'marketing of tea,' which
implied a shift from 'subsidy' to capacity building approach.
Multinational tea companies are increasingly contracting with larger agro-processing
firms,who were able to effectively coordinate deliveries and quality standards from small
farmers through effective supply chain management, as in South India and Indonesia, Sharma
said.
Oversupply of tea and less demand has contributed to market imbalance in India. Strategies
have to be devised to improve the demand side, as so much effort has been put in improving
supply efficiency in the past.
Only financially sound tea producers would perhaps be able to take the risk of delayed
marketing and avail any possible opportunity arising out of future upward price movement in
the market.While productivity and quality have received some attention, cost reduction,
value addition and risk manageent needed a new focus.
40
References
Joonktollee Tea & Industries Ltd Annual Report 08-09
Mcleod Russel India Ltd. Annual Report 08-09
Rossell Tea Ltd Annual Report 08-09
Jay Shree tea & Industries Ltd. Annual Report 08-09
Foster, G., Financial Statement Analysis, Second Edition, Prentice Hall, NJ, 1986.
www.money.livemint.com
www.bseindia..com
www.moneycontrol.com
www.capitaline.com
41
42
