39266368 tea industry analysis

FINANCIAL STATEMENT ANALYSISPaper No. : 203

PROJECT REPORTOnAnalysis of Tea Industry

Submitted to Dr. V.K.Vasal

ByPriyanshi GuptaRoll No. 2303MFC-Part-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

ObjectiveThe 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 firms 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.

Contents

IntroductionRecent DevelopmentsCurrent Scenario of Indian Tea IndustryJoonktollee Tea & Industries LtdJay Shree Tea & Indutries Ltd.Mcleod Russel India Ltd.

Rossell Tea Ltd

Financial Statement Analysis Ratio Analysis Cross sectional Analysis Trend AnalysisSegmant ReportingRoad AheadReferences

IntroductionThe 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. 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 developmentsInspite of its importance, tea industry of India is going through a crisis phase since 1990s. 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 1990s). 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 Indias 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 systemc) Poor price realizationd) Defective market structure e) Increase in cost of production

Recommendations for improvement 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 marketingfor 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 countrys 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 todays 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. 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 IndustryTea is normally classified based on the processing, leaf size and grade. Fermentation is the major process and creates two major classifications:

Price TrendRecently 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 Indias 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 ExportsA 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 ICRAs 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 carry-forward stock at the end of the 2007 season.Production and consumption of Tea in IndiaParticulars 200120022003200420052006200720082009

PRODUCTION (million Kg)854838878893946982945981696.7*

CONSUMPTION (million kg)673693714735757771786802828(E)

* production from January to Sepetmber - Estimated figureChart 2: Trend in Indias Production, Consumption and Exports of Tea

Source: ICRA Research

ExportsExports 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 IndiaYEARQUANTITY (Million Kg)Value (Rs. Crores)UNIT PRICE (Rs/kg)

2005199.051830.98 91.99

2006218.732006.53 91.73

2007178.751810.11101.26

2008203.122392.91117.81

2009*131.21777.04135.42

*Export from January to SeptemberChart 3: Trend in Indias Tea Exports

Source: ICRA ResearchImport of Tea from IndiaThe 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 IndiaYEARQUANTITY (Million Kg)Value (Rs. Crores)UNIT PRICE (Rs/kg)

200516.7698.5158.79

200623.81119.4150.15

200715.99104.6065.43

200820.28161.9779.90

2009*15.82132.0983.50

*Export from January to AugustProfitability of bulk tea playersAn 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 GapFor 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 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.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.ExportsIndian 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 TeaJoonktollee 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.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.Companys 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 Companys 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 Honble 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 (%)0.89

Market Cap (Rs Mn)542.77

P/E12.84

EPS (Rs.)13.07

Face Value (Rs.)10

Volume23239

Shareholding pattern:Description ( As On December 2009 )No of ShareHoldersNo of Shares% of ShareDemat

Promoter

Indian Promoter16270667583.72693455

Total Promoter16270667583.72693455

Non Promoter

Institutions

FI/Bank/Insurance21178433.64

Other55930.020

Total Institutions71184363.66117843

Non-Institution

Bodies Corporate82455921.4140197

NRIs/OCBs8312560.97926

Others239133168810.25127041

Total Non-Institution248140853612.63168164

Total Non Promoter248852697216.3286007

Grand Total250432336471002979462

2. Jayshree Tea & Industries LimitedIncorporated 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.

On BSE, as on 22 April 2010:Dividend Yield (%)1.01


P/E4.65

EPS (Rs.)63.72

Face Value (Rs.)10

Volume142257

Shareholding Pattern as in September 2009:Description ( As On September 2009 )No of ShareHoldersNo of Shares% of ShareDemat

Promoter

Indian Promoter14449816940.253685170

Total Promoter14449816940.253685170

Non Promoter

Institutions

Mutual Funds / UTI127175856.42716185


FII32000001.79200000

Other02000001.79200000


Non-Institution


NRIs/OCBs82426050.3840195

Others9658367906432.922699777



Grand Total10621111743391009306107

3. Mcleod RussellMcLeod 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 worlds largest tea producer.As the largest Indian tea exporter we maintain strong connections with buyers in Europe, the Middle Eastand 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 (%)0.8


P/E10

EPS (Rs.)24.91

Face Value (Rs.)5

Volume174807

Shareholding Pattern as on September 2009:Description ( As On December 2009 )No of ShareHoldersNo of Shares% of ShareDemat

Promoter

Indian Promoter242258305620.6322497684

Foreign Promoter12706750024.7327067500

Total Promoter254965055645.3649565184

Non Promoter

Institutions

Mutual Funds / UTI4186249627.888621239


Govt1112

FII702763728825.2527637288

Other972801174725.5927969054


Non-Institution


NRIs/OCBs6013601220.33226601

Others586581363462312.4610341710



Grand Total60915109455735100105808200

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. 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 ExchangesOn BSE,as on 22 April 2010:

Dividend Yield (%)0.57


P/E27.69

EPS (Rs.)9.49

Face Value (Rs.)10

Volume141

Shareholding pattern as on September 2009:

Description ( As On December 2009 )No of ShareHoldersNo of Shares% of ShareDemat

Promoter

Indian Promoter6549424574.865494245

Total Promoter6549424574.865494245

Non Promoter

Institutions

Mutual Funds / UTI2300020.4130002


Govt13000

FII2102500013.971025000

Other1113500015.471025000


Non-Institution


NRIs/OCBs92400180

Others56606059368.26125316



Grand Total576973392951006710312

FINANCIAL STATEMENTS ANALYSISFinancial 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 ANALYSISRatio 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 RATIOSLiquidity is the ability to convert assets into cash or to obtain cash. It is important from the point of view of meeting the firms short term obligations. Current RatioIt 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. Quick ratio An indicator of a company's short-term liquidity.The quick ratiomeasuresa company'sability to meetits short-term obligations withits most liquid assets. The higher the quick ratio,thebetter the position of thecompany.Quick Ratio= (Cash + Marketable securities + accounts receivable)/Current LiabilitiesLiquidity RatiosJoonktollee tea Ltd.Jayshree Tea LimitedMcLeod russellsRossels Tea Company

Mar-09Mar-08Mar-09Mar-08Mar-09Mar-08Mar-09Mar-08

Current Assets/Current Liabilities1.826.21.763.611.030.840.440.46

Quick Assets/Current Liabilities0.774.880.710.940.480.360.170.17

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 of the current position. Again here we see that in McLeod Russels and Rossell maximum of cash is held up in inventory.PROFITABILITY RATIOSProfitability 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 marginNet 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 marginNet Profit Margin =Net Profit=Profit before Interest and Taxation

TurnoverTurnover

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 Tea LimitedMcLeod russellsRossels Tea Company


Return on Total Capital Employed0.010.0060.0550.0140.0560.0130.0550.091

Return on Assets0.0020.0020.0110.0030.0120.0030.0140.028

NP Ratio0.0230.0190.0420.0160.1080.0320.1320.201

AnalysisNet 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 RosselsLEVERAGE RATIOSThese 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 equityThe 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 ratiosJoonktollee Tea Ltd.Jayshree Tea LimitedMcLeod russellsRossels Tea Company


Total Debts to Assets

0.2960.3310.5810.5290.3540.0260.2060.205

Capitalization Ratio0.2450.2950.4820.4810.1450.1760.1560.141

Debt-Equity Ratio0.3250.4180.9290.9260.3540.410.1840.164

Interest Coverage Ratio1.7612.0332.5162.9532.5642.425.99618.178

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 RATIOSFixed 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 teaJayshree Tea LimitedMcLeod RusselRossels Tea Company


Cash Turnover44.932.08143.4810.4926.98136.0872.81140

Total Assets Turnover0.380.290.980.730.430.350.390.42

Accounts Receivable Turnover14.5513.886.099.532.4623.16104.5860.45

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.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 ANALYSISIn 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 AccountJoonktollee Tea Ltd.Jayshree Tea LimitedMcLeod russellsRossels Tea Company

YearMar-09Mar-08Mar-09Mar-08Mar-09Mar-08Mar-09Mar-08

%%%%%%%%

Share Capital 3.673.453.543.473.453.485.315.36

Reserves & Surplus 71.7867.0648.2948.4570.3967.4279.1480.57

Net Worth75.4570.5251.8351.9273.8470.984.4585.92

Secured Loans 21.720.941.1939.6324.2719.5511.944.92

Unsecured Loans 2.848.586.988.451.899.553.619.15

Total Debt24.5529.4848.1748.0826.1629.115.5514.08

Total Liabilities100100100100100100100100

Gross Block 41.6938.9376.4972.69114.75113.9185.9598.4

Less: Accum. Depreciation18.7616.5926.7625.7224.3822.957.797.93

Net Block22.9322.3449.7446.9790.3790.9678.1690.47

Capital Work in Progress1.010.360.840.640.870.520.360.42

Investments 64.548.7931.9130.7712.9212.4416.446.66

Current Assets, Loans & Advances00

Inventories 5.014.6116.0912.174.022.81.551.83

Sundry Debtors 2.812.2221.599.151.61.80.40.75

Cash and Bank Balance0.9114.810.928.281.930.310.570.32

Loans and Advances 10.2812.311.38.848.288.778.726.44

Less: Current Liab. & Prov.00

Current Liabilities 4.83.4921.98.27.345.845.026.76

Provisions 2.591.947.717.019.358.61.321.26

Net Current Assets11.6228.5120.2923.23-0.86-0.774.891.31

Miscellaneous Expenses not w/o 00000000

Total Assets100100100100100100100100

AnalysisThe 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 STATEMENTJoonktolle Tea & LtdJayshree Tea LimitedMcLeod russellsRossels Tea Company

YearMar-09Mar-08Mar-09Mar-08Mar-09Mar-08Mar-09Mar-08

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INCOME :

Sales Turnover 100100100100100100100100

Excise Duty0.280.351.672.250.280.3500

Other Income 3.477.983.958.44.099.373.9828.57

Stock Adjustments -0.92-2.143.8-0.670.55-0.54-0.03-0.9

Total Income102.28105.49106.07105.48104.36108.47103.95127.67

EXPENDITURE :

Raw Materials 22.9720.7544.7332.35.244.250.31.47

Power & Fuel Cost6.837.775.797.5210.7112.956.877.88

Other Mfgr Expenses 31.0233.722.7630.7638.3944.6337.6640.24

Employee Cost 9.1311.747.459.2810.4112.8516.3611.43

Selling & Admn Expenses 9.7911.47.2710.2211.8512.8110.8711.77

Miscellaneous Expenses 5.333.358.415.312.011.828.032.95

PBDIT17.216.789.6510.125.7419.1623.8751.94

Interest & Financial Charges 9.778.253.843.4210.047.923.982.86

Depreciation4.585.871.62.533.143.332.382.56

Profit Before Tax2.862.664.214.1412.567.9117.5146.52

Tax0.330.140.020.221.220.233.223.85

Fringe benefit tax0.170.17000.270.190.230.17

Deferred Tax0.1400.9-0.260.360.291.963.06

Extra ordinary items-0.110.48-0.832.6-0.14.03-1.1319.38

Profit after tax2.331.864.121.5810.813.1713.2320.06

AnalysisThe 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.

Trend AnalysisThis 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 SheetJoonktolle Tea & LtdJayshree Tea Ltd.McLeod RusselRossell

%%%%

SOURCES OF FUNDS:

Share Capital -0.0030.047016.323

Reserves Total 0.0040.0225.53615.342

Total Shareholders Funds0.0030.0245.26415.404

Secured Loans -0.0260.06625.516184.828

Unsecured Loans -0.689-0.153-80-53.711

Total Debt-0.2190.028-9.11629.735

Total Liabilities-0.0620.0261.0817.421

APPLICATION OF FUNDS :

Gross Block 0.0040.0791.8272.571

Less : Accumulated Depreciation 0.060.0677.35315.418

Net Block -0.0370.0860.4321.445

Capital Work in Progress1.6180.35268.6590

Investments 0.240.0644.948189.682

Current Assets, Loans & Advances

Inventories 0.0210.35645.268-0.465

Sundry Debtors 0.1881.421-9.716-37.5

Cash and Bank-0.942-0.887538.125107.895

Loans and Advances -0.2170.312-4.5459.103

Less : Current Liabilities and Provisions

Current Liabilities 0.2911.7427.042-12.688

Provisions 0.2530.1289.97822.819

Net Current Assets-0.618-0.10412.676338.961

Miscellaneous Expenses not written off

Total Assets-0.0620.0261.0817.421

Income StatementDiana Tea CompanyJayshree Tea LimitedMcLeod RusselRossell

%%%%

INCOME :

Sales Turnover 24.44854.19726.458.12

Excise Duty014.7970.866

Other Income -45.887-27.502-44.747-84.934

Stock Adjustments -46.774-970.652-227.247-95.833

Total Income20.65555.06621.657-11.97

EXPENDITURE :

Raw Materials 37.77113.51455.994-78.205

Power & Fuel Cost9.33318.8234.534-5.728

Employee Cost 14.54914.1238.7751.168

Other Manufacturing Expenses -3.23523.7892.45854.77

Selling and Administration Expenses 6.979.69616.982-0.16

Miscellaneous Expenses 97.938144.52139.816194.268

Operating Profit27.57247.44769.894-50.308

Interest 47.2873.04860.37850.658

Depreciation-2.941-2.45319.340.735

Profit Before Tax33.76656.84100.675-59.313

Tax200-83.333563.399-9.756

Fringe Benefit tax73.22844.444

Deferred Tax-626.38958.824-30.675

Extraordinary Items -128.571-149.157-103.103-106.305

Adjusted Net Profit55.556301.386331.232-28.679

Segment reportingThe 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 LIMITEDNo disclosure regarding segment reportingB. JAY SHREE TEA & INDUSTRIES LIMITEDBased on the guiding principles given in Accounting Standards on Segment Reporting (AS-17) as prescribed by the Companies Accounting Standard Rules 2006, the Companys primary business segments are tea, chemicals & fertilisers business. Segment wise Information for the year ended 31st March, 2009

(A)PRIMARY SEGMENT(Rs. in 000)

1 Segment Revenue (Net Sales/Income from each segment)31.03.200931.03.2008

Tea2,81,10,822,03,99,41

Chemicals & Fertilisers1,36,14,1965,92,61

Infotech1,03,05

Others2,81,602,40,97

Less : Inter-segmental Revenue86,9564,46

Total4,19,19,662,72,71,58

2 Segment Results {Profit / (Loss) before Tax & Interest}

a)Tea42,37,655,73,95

b)Chemicals & Fertilisers(3,11,92)5,86,30

c)Infotech(1,11,09)

d)Others1,00,9660,81

Total40,26,6911,09,97

Less : Interest (Net)10,37,517,54,31

Add : Unallocable Income net of unallocable expenditure(13,23,10)6,38,87

Total Profit / (Loss) before Tax16,66,089,94,53

3 Segment Assets (Including revaluation reserve) & Segment Liabilities

AssetsLiabilitiesAssetsLiabilities

a)Tea1,92,35,7531,24,601,60,57,5929,86,39

b)Chemicals & Fertilisers67,70,2749,62,1433,59,889,56,23

c)Infotech4,85,0748,44

d)Others1,19,3961,691,11,1257,35

e)Unallocable1,56,59,3521,19,871,60,16,8311,87,07

Total4,17,84,761,02,68,303,60,30,4952,35,48

4 Capital expenditure including capital work-in-progress and depreciation (excluding on revaluation reserve) for the year

Capital Exp. DepreciationCapital Exp. Depreciation

a)Tea10,93,785,55,5811,71,285,61,38

b)Chemicals & Fertilisers41,1750,9045,8048,67

c)Infotech13,0149,09

d)Others5,351,671,31

e)Unallocable2,80,3173,581,31,2667,28

Total14,20,616,81,7313,61,357,27,73

(B)Secondary SegmentDomesticExportTotal

Segment Revenue3,50,22,5568,97,114,19,19,66

(2,18,57,18)(54,14,40)(2,72,71,58)

Segment Assets

4,14,39,133,45,634,17,84,76

(3,56,76,72)(3,53,77)(3,60,30,49)

Capital Expenditure14,20,6114,20,61

Note:(13,61,35)()(13,61,35)

i) The company has disclosed business segment as the Primary Segment.

Segment Revenue includes other income pertaining to the relevantC. MCLEOD RUSSELSNo disclosure regarding segment reportingD. ROSSEL TEA LIMITEDNo disclosure regarding segment reporting

ConclusionThough 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 teaindustry. 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.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

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39266368 tea industry analysis

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