[Ed. Note – This article does not meet our new editorial guidelines, nor does the company mentioned meet our investment criteria. It will be removed from the site in the future.]
McLeod Russel India Limited (BSE:532654) is a midcap (33710 million rupees) India-based company belonging to the Williamson Magor group. It is India’s largest exporter of tea and also the largest tea planter and producer in the world, with tea estates in Assam and West Bengal as well as in Vietnam, Uganda and Rwanda. The company has strong connections with large buyers in Europe, the Gulf region and USA. It has enjoyed a good reputation for the quality of the product and the reliability of the distribution and delivery systems. Its modern blending facility at Kolkata and Dubai ensures the customers with both unique high quality as well as bulk blended standard teas. It is a Public Limited Company listed on different stock exchanges in India.
Williamson Magor & Co. Limited (BSE: 519224), which promoted McLeod Russel India, originally was a multi divisional Company with interests in Tea, Jute and Engineering, etc. It became a NBFC, after all the producing divisions were hived off to several Group Companies. Now it remains a holding Company. The Group is popularly known as Williamson Magor Group (WM Group). The shares of the Company are listed on BSE and NSE.
Some Companies belonging to this group are (among others):
- Eveready Industries India Limited (BSE: 531108)
- McNally Bharat Engineering Co. Limited (BSE: 532629)
- Kilburn Engineering Limited (BSE 522101)
- Overseas Companies: Borelli Tea Holdings Limited, (UK), Phu Ben Tea Company Limited, (Vietnam), McLeod Russel Uganda Limited, Gisovu Tea Co. Limited, (Rwanda), McLeod Russel Middle East DMCC (Dubai).
Tea Industry in India
The tea industry in India depends on export demand and market prices; high global production brings down the prices to some extent.
Like other Indian companies, McLeod Russel got the advantage of higher tea prices in FY13, but lower output in its plantations due to bad weather condition affected its profits. Since production costs rose due to higher wage and energy costs, its net profit stayed flat.
Output from its global plantations in FY14 is expected to be higher because of good weather conditions. McLeod Russel’s outlook for this year appears more optimistic. Current weather conditions point to the possibility that global output in 2013-14 is likely to be higher, which is good but higher volume naturally affects market prices, too.
The company has built a modern blending facility to provide the customers with a “bespoke blending service.” This state of the art facility on the main state highway at Nilpur borders the flagship Pertabghur Tea Estate, located on the north bank of the Brahmaputra River.
Nilpurhas a capacity to blend 40 tonnes of tea a day. The facility operates a two bulk blending line that can blend both Orthodox and CTC tea varieties and has the capability to process unique blends for our Western European, Asian and North American customers.
Packing of the bulk blends can be done in many forms and the unit offers various packaging options to suit the needs of all customers. Nilpur, which can operate two shifts daily, currently employs 30 staff and workers. The factory has adequate warehousing facilities to hold the equivalent of twenty 40ft containers of stock.In May 2008, Nilpur obtained the globally recognized HACCP accreditation. This has facilitated the supply of bespoke blends to any customer who requires this certification for their own internal audit procedures. Further, a comprehensive quality control program helps ensure that blend standards are matched to the exacting level demanded by our customers.
“Most of our estates have obtained accreditations with HACCP, Fairtrade, Rainforest Alliance, Ethical Tea Partnership and are also GMP/SAP & EU MRL compliant. By offering this bespoke blending service in a modern food grade environment, we add further value to the range of services we provide our patrons.” says the company press release.
Dubai blending facility
McLeod Russel Middle East DMCC was established at the Dubai Tea Trading Centre (DTTC) with a view to service the customers with bespoke blends, in the Jebel Ali Free Zone. Dubai emerged as a leading business hub and is also a growing centre for the tea trade due to its proximity to both the tea growing areas as well as the tea consuming regions.
The DTTC offers the following facilities:
• Teabag packing (Temperature- controlled tea bag packaging)
• Loose Tea Packing
• Blending: a two tonne blending system that can carry out blends of both CTC and Orthodox teas.
Trading arm in Kenya
The company has incorporated a trading arm in Kenya to procure and supply African tea to the company’s Dubai blending unit. The Dubai blending unit is the second such facility for the company. McLeod Russel India has a blending unit at Kolkata. These units serve the global blended tea market for the company. Borelli Tea Holdings Ltd, the wholly owned subsidiary of the company, has established McLeod Russel Africa Ltd in May 2013.
McLeod Russel India has stated that tea prices are ruling soft at present but it expects the trend to change. It expects prices to remain high because of a combination of a lower inventory and a strong growth in consumption, particularly high quality and Orthodox tea segment. In FY13 -14, a combination of high output and a normal increase in costs are positive factors for profitability, and cost per kg could come down due to better expected crop yield.
A good tea plantation crop also reduces dependence on buying outside tea leaves for blending and processing. But the impact of higher crop output on costs and prices is a variable to be watched very closely. A small decline in price should be easy to absorb with higher quantity sales.
The company has an equity capital of Rs 557.3 million. Book value Rs 121.
|Period||Q4 of FY2012-13 3 month||Q4 of FY2011-12 3 months||FY2012-13 12 months||FY2011-12 12 months|
|Income million rupees||3347||2607||13780||12380|
|Finance cost million rupees||99.4||125.2||448||472|
|EBIDTA million rupees||(930)||(1130)||2923||3044.2|
|Net Profit million rupees||(1470)||(1570)||2257||2203|
|EPS Rs (on face value of 5 rupees)||(13.4)||(14.38)||20.62||20.12|
Return on net worth of 21% is the highest in tea industry. FIIs have a high stake of 33% in this company. Promoter’s stake is 45.7%.
Current market price is 308 rupees, discounting the EPS of 20.6, 14.9 times
Industry PE ratio is 20. Price/Book value ratio is 2.5
McLeod Russel India Limited is expected to do well due to favorable weather conditions and good price realizations scenario. Considering present PE of 14.9 and industry PE of 20, McLeod India ltd can be held at current price for long term. It can be accumulated during dips during market volatility. Since it has good export earnings, rupee depreciation will impact its earnings positively.
(Sources: www.bseindia.com, and company website www.mcleodrussel.com)