Annexure - 7 to the Report of the Board of Directors
Rossell Tea
a. Industry Structure and Development
The total world tea production in 2022 was around 6,398 million kgs, of
which the main producers are China - 3,090 million kgs, India - 1,365 million kgs,
followed by Kenya with a production of 530 million kgs, and Sri Lanka with a production of
251 million kgs.
All countries recorded a decrease over 2021 levels except India and
China.
Exports from India during the Calendar year 2022 was 227 million kgs in
comparison to 196 million kgs last year, higher by 31 million kgs (15%). The year 2022 was
very challenging. While the world economies were trying to recover from the aftermath of
the Covid pandemic, recession and financial instabilities hit many countries hard due to
the ongoing Ukraine & Russia war. Conflict in Middle East and other regions, sanctions
imposed on countries and natural calamities added to the woes. In spite of these
adversities, India could still manage to export 31 million kgs more than the previous
year. This mainly came about in the backdrop of the Sri Lankan crisis, which led to much
lower production. The main gains for India came from exports to UAE and CIS, which
together contributed 98% of the total Indian Tea Export growth.
Weather continues to play a vital role in Tea production. We have been
witnessing extreme weather conditions in the last decade with prolonged Hot/Dry weather,
followed by extremely wet and overcast conditions with low temperatures. Occurrence of
thunder storms and Hail storms has also increased. Climate change has impacted tea
production particularly the older tea areas. This year was extremely wet with the highest
rainfall recorded in the last 6 years.
The Company continues to upgrade its assets in the fields by uprooting,
rejuvenation and replanting, as well as in the factories. All the Companys capital
expenditure programs were completed on schedule and put to use.
Workers are our greatest assets and we are continuously improving their
living and working environment through better hygiene, sanitation, housing and water
supply.
Furthermore, even the Central and State Government have taken up number
of schemes at the Estates for sanitation, housing, water supply, electric supply,
education, medicals and roads which have benefitted the workmen.
The State Government has even announced that they would be taking over
the Hospitals and the Primary schools in due course, this when implemented will lower our
social costs to some extent.
b. Opportunities and Threats Production
The Global Black Tea production excluding China during 2022 was lower
by around 79 million kgs or 2.33%. Production dropped in Sri Lanka, Kenya, Malawi, Uganda,
Bangladesh and Tanzania with only India showing a growth in production, which was higher
by 22 million kgs (1.7%).
Sri Lanka has started season 2023 on a marginally lower note as
compared to 2022 and is 4.58 million kgs behind in production till March 2023. Sri Lankas
Tea Industry is expected to overcome economic-related challenges in the medium term, if
the recovery experienced in the early part of 2023 is an indicator. However, forecasts
suggest that the economy will contract by an additional 4.2% in 2023. Tea production
however, is expected to improve in the months ahead and, the April crop is higher than the
previous year by 2 million kgs.
Production in India till end March 2023 was 106.78 million Kgs., 5.60
million kgs (5.53%) higher compared to the previous year. April crop is, however, likely
to be significantly lower.
Opportunities
We are recognized internationally and in domestic markets as one of the
Best Assam Quality Tea producers, with all requisite compliances, both in the CTC and
Orthodox categories. Therefore, we are ideally placed to receive premiums for our quality
produce from both international and domestic buyers. Five out of our 6 Estates are RA
certified and all are FSSC compliant.
We have the flexibility to convert from Orthodox to CTC and vice versa
depending on prevailing market dynamics. Future prospects for good quality CTC remain very
positive.
In addition, Exchange rates are favorable this year for better Rupee
returns from exports.
The Assam Tea Industries Special Incentives Scheme, 2020 (ATISIS) which
was earlier announced for 3 years till 31st March, 2023, has been extended for another 3-5
years by the Government of Assam. This will benefit the Tea Industry in Assam in the
following manner:
a) The Assam Agricultural Income Tax holiday has been extended till the
Financial Year 2024-2025. Since 60% of the Profits earned in Plantation is subject to
Agricultural Income Tax levied by the State Government, no income tax shall be payable on
60% of the Profits earned by your Company as all the Estates are located in Assam. This
will enable your Company to plough back higher post-tax profits for development projects.
b) Interest Subvention, which is provided under the Scheme as
reimbursement of 3% Interest paid on Working Capital to Banks shall now be available for
further 5 years till the financial year 20 27-2 0 28. This will reduce the interest cost
to a great extent.
c) The Orthodox subsidy has been enhanced for Financial Year 2022-2023
to 12 per kg.and thereafter this Subsidy shall continue on Orthodox Production at 10
per Kg. till the Financial Year 20 27-20 28. Your Company is having dual manufacturing
capabilities and switch to higher Orthodox Production, if the Market conditions are
favourable for Orthodox. This would add to the Profitability of the Company.
Thus, all these incentives would help in reducing the Cost of
Production and thereby improve upon the Profitability of the Company.
We currently have a finite production which, at times falls short of
the growing demand for Tea from our foreign buyers. Growth in our production base can
result in tapping into added value, as well as rationalization in costs by economies of
scale. This is an opportune time for us to grow organically through acquisitions.
Threats
Owing to the global climatic changes, weather patterns continue to be
erratic and unpredictable. Tea being an agricultural product, is dependent on weather
which directly affects crop and quality.
Price of Tea in the Domestic market is governed by supply and demand,
and overproduction leads to drop in prices.
Input costs have increased earlier due to the pandemic and now with the
Ukraine/Russia conflict. High inflation across the globe is leading to subdued demand at
present.
Iran, one of the major Indian Orthodox buyers is currently going
through severe financial crisis, with inflation at an all- time high at 48% and likely to
even go up further.
Increasing production and relatively low prices in Africa are creating
pressure, particularly in the CTC category as markets are tending towards more procurement
from Africa. Fortunately in India, Good and Best quality CTC prices are high driven by
premium domestic markets and Rossell teas fall into this category.
Climate Change
In the last decade this phenomena has become very important and has
impacted the Agricultural outputs of various products including that of Tea.
Temperatures have generally been on the rise and distribution of
rainfall has become erratic and unpredictable. There are prolonged dry spells coupled with
long periods of excessive wet conditions leading to droughts and flooding in different
areas.
Owing to the climatic changes pest activity has increased and we are
also seeing new pests and diseases that have not been encountered before.
In tea growing areas of Assam we are witnessing intense heat or
continuous rainfall, both of which are creating impediments to anticipated production of
quality and quantity. .
However, at Rossell Tea we practice sustainable agriculture with
practices of irrigation, drainage, shade planting etc., along with stringent controls and
monitoring of pesticide usage, which alleviates the impacts. We are also creating water
bodies to mitigate against drought, in addition to rainwater harvesting during the rains.
Consumption
The overall consumption in the Indian subcontinent is more or less
static with only approx. 3% growth coming primarily from the increase in population. The
per capita consumption of 850 gms continues to be rather low.
High inflation and recession in most countries is leading to less
demand particularly in rural areas and in stressed and conflict regions across the globe.
Quality
The Companys stated policy and practice is to produce the best
possible quality of CTC and Orthodox Tea. With consistent delivery on this front, we have
built brand equity for the company and therefore, remain a benchmark for the industry in
the international as well as domestic market for both Orthodox and CTC Teas.
Fully compliant and safe teas with RA certification also give us an
edge over the others and make us eligible to export our teas where EU MRL compliance and
RA certifications are required.
Markets
The demand for better quality produce is currently concentrated around
UK, Germany, Middle East countries and in some parts of USA, who are well known to pay
premiums for better quality produce from India. The traditional markets in CIS Countries
and certain other parts of Europe and Japan appear to be somewhat saturated and have
become very price sensitive.
Rossell Tea maintains its clientele in UK, Germany, and the Middle East
countries, furthermore the Company continues to explore new markets and customers in
Canada and USA.
c. Segment-wise Business Performance
The Tea manufactured at our estates during the financial year,
including production from bought leaf, was 56.60 lakh kgs as against 52.08 lakh kgs in the
previous year, an increase of 8.57%. The Tea manufactured at our Estates from own leaf
during the year was 51.99 lakh kgs as against 48.88 lakh kgs in the previous year, an
increase of 6.36%.
All India production improved from 1,343.06 million kgs to 1,365.23
million kgs an increase of 1.65 %.
Our crop production has been steadily increasing in the last 4-5 years
due to the uprooting and replantation programme done over the years with the younger
plants now yielding higher, and more importantly, due to improved and even more focused
agricultural practices.
Export during the year was 6.32 lakh kgs as compared to the previous
years quantity of 6.83 lakh kgs. The lower exports were owing to the fact that no direct
exports were made to Iran this year due to the payment problems on account of the
sanctions. Also a lot of Tea importing countries who import medium quality tea are
shifting their buying to Africa due to cheaper tea availability. The major cause, however,
was the Inflationary pressures being experienced across the globe, leading to lower
demand.
The Division has recorded highest ever Average Price realization of
290.29 as against 270.86 for the previous year, an increase by 7.18%.
Our product mix, efficiencies and productivity helped in alleviating
the higher costs to a great extent. Input costs of fuel, fertilizers, chemicals, packing
materials, etc. were high owing to the Ukraine/Russia conflict.
The Revenue of the Division has increased from 14,645 Lakhs to
16,890 Lakhs which is the highest ever achieved by the Division registering an increase of
15%
d. Outlook
The year 2023 has started with conducive growing conditions in Assam
and West Bengal resulting in good cropping during the period of January to March 2023
wherein the production in North India stands at 66 million kgs as compared to 54 million
kgs last year.
Production in Sri Lanka for January to March 2023 period is lower by
4.8 million kgs from last year and compared to 2021 is 16 million kgs lower. Kenya is
marginally behind by 2 million kgs till end February.
The latest available report indicates that the production in East
Africa is overall improving and the cropping is favorable, but there has been a decline in
quality which has resulted in the latest auction witnessing selective demand at easier
rates, with substantial quantity of 35% of the offerings remaining unsold. To-date price
average at Mombasa auctions is $2.16 as compared to $2.42 last year.
In Sri Lanka due to shortage of Teas on offer, the average price at the
auctions has appreciated substantially and is around 130 per kg more than the prevailing
orthodox prices in India. As per the latest information available even at the last auction
held in Colombo, the market was very strong with aggressive buying from most of the
importers in spite of the ongoing conflict between Russia and Ukraine.
In India the Orthodox market has been very sluggish. Iran, which is the
largest importer of Indian orthodox tea has not been issuing fresh orders since December
2022 as inflation has hit their economy severely. Inflation is around 48% and the
sanctions have crippled economy.
Moreover, seeing the firm market for orthodox teas in 2022 a large
number of producers in India maximized orthodox production in the 1st flush of 2023
resulting in over 3 million kgs more of Orthodox production.
The CTC market which had started on a slightly subdued note initially
due to carry forward stocks and lower demand should start perking up from June in the
light of a lower April crop and improved quality of tea.
To conclude, good quality CTC should continue to sell at remunerative
prices and anything below good is likely to decline. The Orthodox category will remain
subdued though there will be improved demand and prices during the 2nd flush from the
continent.
We at Rossell Tea continue to be in touch with all our customers in UK,
Germany and the Middle East and have already been able to generate interest from the
Middle East and the UK buyers. We are happy to state that we have concluded a contract for
a substantial quantity of our CTC produce from Romai TE with the most reputed buyer,
Taylors of Harrogate - UK at an average which is higher than the previous year. Another
contract has been made with Ekaterra for supply of tea to Egypt. We are optimistic that
with progress of the season, we would be able to procure more export orders from Germany,
UAE, UK and Saudi Arabia.
CTC prices are expected to be similar to last year. The unprecedented
windfall gains received by Orthodox teas last year are likely to be pared down
The big challenge will be to rein in the escalating costs, particularly
wages and fuel.
Our endeavor during 2023 will be to sustain our results as one of the
most profitable Tea Companies in Assam, in spite of the inflation/recession in various
parts of the world, less offtake of Orthodox by Iran, fluctuating and very erratic weather
conditions and cost increases owing to the wages and input cost.
e. Risks and Concerns
Trade route and payment methodology with Iran, which is a major buyer
of Assam Orthodox is still not established. This has a direct bearing on the prices of
Orthodox teas prevailing in the Auctions.
Ongoing war between Russia & Ukraine and "global
recession" would play an important role on the purchasing power of the consumers.
This is already impacting the demand and Tea prices across the globe.
Weather continues to play an important role in the success or failure
of any agro-horticultural produce including Tea Plantations. The EL-NINO effect is being
felt in India with high temperatures.
Good agricultural practices and timely intervention can mitigate the
loss to a great extent. Planting trees and augmenting irrigation to counter droughts and
having adequate drainage for countering floods are some measures being adopted.
There are some external factors which are of concern and these are
being addressed with the relevant authorities through the Industry associations and
bodies:
• Exports to Iran, in view of the US sanctions and withdrawal of
the waiver to India for importing Iranian oil is leading to payment-related problems. No
fresh contracts have been received by the Merchant exporters from Dec 2022 for Orthodox
Teas leading to very low prices. The Industry is working closely with the Government to
circumvent this.
• Exports are also likely to be impacted due to the sluggishness
in Global Trade in view of the conflict and also the very high inflation being experienced
worldwide.
• CTC exports from India are likely to come under pressure due to
the lower prices in Kenya.
Rossell Techsys
a. Industry Structure and Development
The Global Aerospace and Defense industry continues to be on the path
to recovery despite the challenges from the dynamic geopolitical-economic situation,
conflicts, changing global equations, rising internal political uncertainties across the
western world. The business outlook continues to be positive, but companies are adopting
caution in planning. The International Monetary Fund, in its recent guidance termed the
situation as "rocky recover/ in 2023 but rising in 2024. This also includes India,
but with higher percentile points in recovery.
The geo-political-economic situation has given rise to a sense of
insecurity among Nations and is necessitating increases in GDP spend across many
countries, especially in the western world. According to the Stockholm International Peace
Research Institute (SIPRI), the total military spend has reached an all-time high of $2.24
trillion. The United States which accounts for close to 40% of the military spend,
increased its spend by an additional 1%, The global GDP percentage spend in military
expenditure grew by a whopping 34% in comparison to previous years. Finland become the
31st country to join NATO with an increase in defense spending to an extent of 36%. Even a
small country like Lithuania has increased defense spending by 27%. Japans military spend
grew by close to 6%, Germany increased spend by 1.6%. India grew its defense spend by
close to 6%.
On the domestic front, India is pushing all OEMs to respect and honor
the "Make in India" vision. This coupled with the recent government policies are
driving defense manufacturing to record levels. The annual growth is expected to be
greater than 12%, well poised to meet the $25B manufacturing target by 2025. India is also
poised for the fastest growth in the commercial aerospace world. Air India and Indigo have
placed orders for close to 1,000 planes totaling a whopping $150B+ in spend. This coupled
with the Government of India push to open out more airports across the length and breadth
of the country, has enormous potential for increased spend in commercial aviation,
including the integrated eco-systems for maintenance, ground support, and other direct and
indirect ancillary and service industries.
The Global Supply Chain has seen an enormous impact on account of the
geo-political- economic imbalances, accentuated by the ongoing Russia-Ukraine conflict and
the changing political equations between countries. Ukraine and Russia are two countries
that source major metals such as titanium, nickel as well as process these raw materials
for use globally. These are used in various parts in the Aerospace and Defense Segment, an
area that the Division has been operating in for the last decade. Prices of raw material
have skyrocketed, due to various factors, a major factor being predatory mergers and
acquisitions, especially by Private Equity Firms, literally making the supply chain
unviable and seriously challenging the Aerospace and Defense industry. The Division is
cognizant of this and has taken measures proactively of creating alternates in material
and sources. The long-term outlook for the Division remains very bright, due to the sheer
number of opportunities that it is working on, increased customers and a more balanced
geographic customer spread.
In line with its forward-looking philosophy, the Division continues to
look beyond the near term, capitalizing on its strong brand and credibility. It recommends
organic and inorganic growth domestically as well as globally, in existing as well as in
adjacent competency areas and based on opportunities presented by its customers. For
inorganic growth, the Division is looking out for right size prospects, globally, and in
an opportunistic manner. In the FY 2023-2024, the company is aiming to expand its
capability organically as well as inorganic, to open out additional revenue opportunities
in the coming years.
b. Opportunities and Threats:
The Division has been able to successfully navigate, in most cases,
near-term challenges, such as the supply chain, on price and lead time. During the near
term, the Division is cognizant of the need to increase higher value added services to its
customers. The Division desires to stay ahead of the curve and continue to invest
strategically during this time.
c. Segment wise Business performance
The total revenue for the fiscal year 2022-2023 stands at 18,636.57
Lakhs, an increase of around 22% over the previous fiscal year 2021-2022. The Division
added confirmed orders worth 23,700 Lakhs and confirmed strategic agreements worth
around 1,60,000 Lakhs.
d. Outlook
The overall outlook of the Division looks positive and encouraging. It
is keeping a keen eye on execution, focusing on quality improvements, efficiency
improvements, optimization, automation, and hiring and retaining high caliber human
capital. The Division is focusing on diversification and expansion, to take hold of the
rising opportunities. As the Division scales, it is also ensuring that it retains its
global operating culture.
e. Risks and Concerns
The Division is cognizant of price increases in raw material from
directed, sole source and obsolescent sources of supply. Most of the contracts / strategic
agreements are long term in nature and, hence, the Division is looking out for ways and
means to create alternate sources, as it has successfully done in the past, both locally
and overseas, to de-risk this aspect on raw material. The Division has firm fixed price
commitments pegged at a single forex rate during the term of the contract. It has hedged
the forex, based on experience, and is well protected against forex fluctuations. With
employment opportunities booming, attrition has increased, however, the Division has
changed its hiring and retention strategy to retain its best and most valuable human
capital so that the effects of attrition are minimal. The Division has also significantly
improved its processes, minimizing people dependency.
Rossell India Limited
f. Internal Control System and their Adequacy
There are adequate Internal Control systems at all levels of Management
of the Company. They are reviewed from time to time and improved upon, where required.
The Internal Audit is carried out by competent professionals. The Audit
Committee of the Board looks into Auditors observations, which are deliberated upon and
necessary instructions issued to the concerned Division for taking corrective measures
forthwith.
g. Financial and Operational Performance
Besides the continuous emphasis on quality up gradation of products and
services, prudent cost management has been the objective of all the Divisions of the
Company.
The Operating Profit before depreciation and interest (EBITDA) in
respect of Rossell Tea Division for the year was 3,001.47 lakhs as against 2,673.43
lakhs (without extraordinary item) in the previous year.
At the same time the Operating Profit before depreciation and interest
(EBITDA) in respect of Rossell Techsys Division for the year was 3,127.04 lakhs as
against 2,623.16 lakhs in the previous year.
With the overall improvement in Key Financial Ratios for the year, the
financial base of your Company remains strong and it shall be further strengthened with
better operating and financial performance in the years ahead.
h. Human Resources Development
Human resources are most valuable assets of the Company -at corporate
level as well as at Divisions/ Estates.
Industrial relations at all the Divisions of the Company remains
excellent. Your Company employs 5,478 personnel on its Permanent roll.
i. Significant Changes in the Financial Ratios
| Key Financial Ratios |
FY 2022- 2023 |
FY 2021- 2022 |
% of Change |
Reason for Change, if the change is more than 25% |
| Debtors Turnover Ratio |
8.62 |
9.38 |
-8.10% |
- |
| Inventory Turnover Ratio |
18.63 |
12.81 |
+45.43% |
Sales have been higher and level of average inventory are
down |
| Interest Coverage Ratio |
3.63 |
4.33 |
-16.17% |
- |
| Current Ratio |
1.12 |
1.03 |
+8.74% |
- |
| Debt Equity Ratio |
0.56 |
0.62 |
-9.68% |
- |
| Operating Profit % |
16.20% |
19.02% |
-14.83% |
- |
| Net Profit Margin % |
7.85% |
10.17% |
-22.81% |
- |
| Return on Net Worth |
10.27% |
12.88% |
-20.26% |
- |
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