Investment World
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Tea
Industry & Economy
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Tea
Tea: This cup runs over
THE valuation of tea majors such as Tata Tea, Goodricke, Jayshree and Warren Tea might show some gains in the short term on the back of the cut in excise duty to Rs 1 per kg from Rs 2 per kg and the rise in Customs duty to the much preferred level of 100 per cent. The reduction of excise duty will halve the excise burden of tea companies. It will mostly benefit companies such as Tata Tea, Warren Tea and Jayshree Tea whose incomes are predominantly derived from bulk tea that attracts excise duty. This reduction should ease pressure on the operating margins of the bulk tea segments of individual companies, which have been suffering as a result of the low prices. Another move that will hold good for tea stocks is the increase in Customs duty from 70 per cent to the industry-recommended 100 per cent. This move will discourage imports that grew steadily last year.
However, since most of the imports are re-exported, there will not be a direct impact on the companies in the domestic market. It might improve the export prospects of domestic tea. This will have a positive impact on the perception of tea sector stocks for the short term.
BL Research Bureau
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