iifl-logo

Rossell India Ltd Management Discussions

65.85
(7.32%)
Apr 2, 2025|03:56:47 PM

Rossell India Ltd Share Price Management Discussions

Management Discussion and Analysis

Rossell Tea

a. Industry Structure and Development

The total worldwide tea production in 2023 was around 6,604 million kgs, of which the main producers are China - 3,250 million kgs, India - 1,368 million kgs, followed by Kenya with a production of 570 million kgs and Sri Lanka with a production of 256 million kgs.

All countries recorded an increase over 2022 levels except Indonesia & Uganda.

According to the Tea Board statistics released for the period January to December 2023, Indian Tea exports stood at 227.91 million kilograms, compared to 231.08 million kilograms the previous year, reflecting a decrease of 3.17 million kilograms. The exports from North India totaled 137.55 million kilograms, a decrease of 9.78 million kilograms compared to the previous year. The export to Iran, the major importer of Orthodox tea, was 5.92 million kilograms, significantly lower than the previous years 22.21 million kilograms, marking a decline of 73%. 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. The occurrence of thunderstorms and hail storms has also increased. Climate change has impacted tea production particularly the old tea areas. This year recorded the lowest rainfall in the last 5 years with some areas in Assam recording the lowest in the last 30 years. Temperatures on the other hand were about 1-2 degrees higher than the normal.

This year was unique for Assam, with low prices and reduced production leading to financial losses for the majority of companies in the industry. The orthodox price realization was abysmally low compared to the previous year by 22%. Rossell Tea continues to upgrade its assets, be it the fields by uprooting, rejuvenation and replanting; and also the factories. All the Companys capital expenditure programs were completed on schedule and put to use. Our workers are our greatest assets and we are continuously improving their living and working environment through better hygiene, sanitation, housing and water supply. All our Estates are availing benefits of Govt. schemes for sanitation, housing, water supply, electric supply, roads and some medical related benefits.

b. Opportunities and Threats Production

The Global black tea production during 2023 was higher by around 122 million kgs or 1.88 %. Production was higher in all producing countries barring Indonesia and Uganda. China and Kenya recorded the highest gains.

Sri Lanka has started season 2024 on a marginally lower note as compared to 2023 and is 1.35 million Kgs behind in production till March.

Kenya and other African countries are recording high production and Kenya alone is ahead in crop by 26.77 million. Kgs till end February.

There is a huge stock of teas piled up and remaining unsold in Mombasa.

Production in India till end March 2024 was 96.10 million Kgs., 13.69 million kgs (12.47%) lower as compared to the previous year. The April crop is, however, likely to be significantly better.

Orthodox production this year is significantly lower and even Sri Lanka is trailing in crop, hence the prices for this variety are much higher as there is demand from the CIS and Middle East.

The CTC tea prices have also been higher on the backdrop of lower crop in March, 2024.

We expect the CTC prices for the best category of teas to be higher this year.

Opportunities

We are recognized internationally and in the domestic market as one of the best Assam quality tea producer with required residue compliance, both in the CTC and Orthodox categories. Therefore, we would be able to receive a premium for our quality produce, from both international and domestic buyers. Four out of our 6 estates are RA certified and all estates are FSSC compliant.

Additionally, with increased testing in the domestic market there is a higher demand for compliant teas.

We have the flexibility to switch from Orthodox to CTC and vice a versa, to some extent, depending on the market dynamics. Also, as the exchange rates are high this year, exporting tea will be advantageous.

According to provisions in the Assam Govt. Budget 2023-2024, the Government is providing water supply to almost all workers colonies. Electric supply schemes are also being implemented. There are also proposals for the Government to take over education and medical facilities on the Tea Estates in a phased manner.

Recently, all our estates received ambulances from the Assam Govt.

The Assam Tea Industries Special Incentives Scheme, 2020 (ATISIS), which was earlier announced for 3 years till 31st March, 2023, has now been extended by 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 20 26-2 0 27. 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 2 0 27-20 2 8. This will reduce the interest cost to a great extent.

C) The Orthodox Subsidy shall continue on Orthodox Production at Rs.10 per Kg. till the Financial Year 2027-2028. 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 have a limited production base and at times cannot meet the requirements of our foreign buyers. Also, our costs remain high due to this low production base, hence it is clearly an opportunity to acquire more estates and grow.

Threats

Owing to the global climatic changes, weather conditions continue to be very erratic and unpredictable. Tea being an Agri Product is dependent on the weather conditions and if we witness any erratic weather condition, then both our crop and quality are likely to suffer. The climate change also brings in new pest and disease for which certain chemicals which might not be permitted by the importing countries, must be sprayed under compulsion. If such situation arises, then there would be less exportable teas available from our Company, even if we have orders/enquiries from the overseas buyers.

The high production and low prices in Africa are posing a threat particularly in the CTC category as buyers are shifting to more procurement from Africa.

Price of tea in the Domestic market is purely governed by supply and demand, an overproduction leads to drop in prices.

Iran, one of the major Indian Orthodox buyers is currently going through financial crisis, with inflation at an all-time high owing to the sanctions. There has been no order placed for Indian Teas since Dec 2022.

Fully compliant and safe teas with RA certification shall also give us an edge over the others and will make us eligible to export our teas where EU MRL compliance and RA certifications are required.

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.

In 2023 we experienced the lowest rainfall in the last 6 years with some areas recording a deficit of over 30%.

Owing to deforestation and the climatic changes the pest activity has increased considerably 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. This is also intensifying the sudden pest attack.

However, at Rossell Tea we practice sustainable agriculture with practices of irrigation, drainage, shade planting etc. which partially reduces the impacts. We are also creating water bodies to mitigate against drought and harvest rainwater during the rainy season.

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 the conflict areas 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 are today a benchmark for the industry in the international as well as domestic market for both Orthodox and CTC teas.

However, with other producers in the industry improving their quality, the competition is becoming more intense. Competitive prices have to be quoted for retaining our overseas clients, who were primarily acquired over the last decade.

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 shall maintain its clientele in UK, Germany and the Middle East countries but competitive pricing will play a critical role in obtaining business. The Company continues to explore new markets and customers in Canada and USA.

Our endeavor during 2024 will be to try and sustain our results as one of the best profit- making Tea Company in Assam. By offering our compliant and safe product and maintaining our quality we are confident of gaining market share in the international market.

c. Segment-wise Business Performance

Tea manufactured at our estates from own leaf during the Financial Year was 46.64 lakh kgs as against 51.99 lakh kgs in 2022-2023, lower by 5.35 lakh kgs or 10.29%.

Made tea from outsourced leaf was 5.03 lakh kgs compared to 4.61 lakh kgs in the previous year and our total tea production at 51.67 lakh kgs.

Production was impacted due to inadequate rainfall this year as extreme weather conditions were experienced especially in Upper Assam where 4 of our estates are located. Some areas recorded a deficit of over 30% rainfall and the lowest in the last 30 years. Increased pest incidence and restriction on use of chemicals due to MRLs is another factor impacting production.

All India production improved from 1,365 million kgs to 1,368 million kgs an increase of 0.2 %.

Exports for Rossell Tea during the year was 9.22 lakh kgs as compared to the previous years quantity of 6.32 lakh kgs. The higher exports were due to the fact that we were able to export more teas to UK, UAE, Germany and Canada.

Price realization for our teas at Rs.274.26 was lower than the previous years average of Rs.290.29 per kg by 5.52%. This was on the backdrop of significantly lower orthodox prices due to the muted demand.

Input costs of fuel, fertilizers, chemicals, packing materials, etc. were higher. The daily rated workers wages increased by 7.76% from 1st October 2023. Our product mix, efficiencies and productivity helped in obviating the costs to some extent.

The total income of the Division at Rs.150.81 Crores versus the previous years income of Rs.168.90 crores which was the highest ever achieved by the Division.

d. Outlook

The year 2024 has started with adverse growing conditions mainly inadequate rainfall in Assam and West Bengal resulting in poor cropping during the period of January to March 2024 wherein the production in North India stands at 48 million kgs as compared to 69 million kgs last year. Extreme and varying climatic conditions are impacting crop and production.

Production in Sri Lanka for the January to March 2024 period is lower by 2 million kgs from last year. Production in Africa is on the rise and Kenya is significantly higher by 26 million kgs till end February. The latest available report indicates that the production in East Africa is galloping but there has been a decline in quality which has resulted in a substantial quantity of over 45% of the offerings remaining unsold. To-date price average at Mombasa auctions is $2.11 as compared to $2.16 last year. It is estimated that there is around 180 million kgs stockpiled in Africa. In Sri Lanka due to shortage of teas on offer, the average price at the auctions has shot up substantially and is around Rs.120 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 despite the ongoing conflict between Russia and Ukraine and West Asia. Sri Lanka has entered a barter system with Iran for its Tea exports against procurement of Oil.

In India the Orthodox market which was very sluggish and subdued in 2023 opened quite firm on the backdrop of lower production in India & Sri Lanka. Moreover, seeing the dismal market for orthodox teas in 2023 a large number of producers in India have reverted back to CTC in the first flush of 2024 resulting in lower Orthodox production of 2.2 million kgs.

The CTC market too has opened strong owing to lower crop production. Also, what is being noticed this year as more teas are getting tested is that compliant and good quality teas are getting a premium. This clearly is advantageous for us. Good quality and compliant CTC would continue to sell at remunerative prices and anything below good will decline in prices as arrivals increase. The Orthodox category will remain firm as there is demand and production is low and we expect prices will be better than last year and in line with 2022.

We at Rossell Tea despite the adversity - weather conditions and increase in costs continue to be in touch with all our customers in UK, Germany and the Middle East. We are happy to state that for the first time we have been able to conclude a contract for March/ April teas from Romai TE with the most reputed buyer, Taylors of Harrogate, UK at remunerative prices and the firm contract from May to October is likely to be signed off soon. Also, we are likely to sign an additional contract with Taylors of Harrogate to supply some Orthodox teas from Dikom. Another milestone is being achieved as Nagrijuli is being added to their list of suppliers and to begin with 5 containers are being contracted. Another contract has been made with Ahmad Tea for the supply of 1.60 lakh kgs tea from Dikom, Kharikatia and Nagrijuli.

We are very hopeful that as the season progresses, we will be able to procure more export orders from Germany, UAE, UK, and Saudi Arabia. The Indian Tea Industry is faced with several issues, some of them are highlighted hereunder:

• Climate change & vagaries of nature/extreme weather is affecting the production and quality.

• Low per capita consumption of tea.

• Increasing production in the STG segment, over supply of average/medium quality of tea.

• Exports dropping in favor of countries like Africa, Nepal, Vietnam etc.

• There is likelihood of either minimum wages or living wage being announced towards the end of the year.

To summarize, we anticipate the production being lower than last year due to adverse weather conditions and the increased testing of teas will restrict the use of chemicals. CTC prices may be somewhat similar to last year but marginally better for us owing to our compliance and quality. The orthodox prices will be better than the previous year. The biggest challenge will be to protect the crop and rein in the escalating costs particularly wages and fuel.

e. Risks and Concerns

The ongoing war between Russia and Ukraine and "global recession" will play an important role on the purchasing power of the consumers. This is already impacting the demand and tea prices across the globe. The conflict in several countries in West Asia and shipping disruption in the Red Sea is impacting the supply chain to a great extent and shipping costs have surged.

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 and extreme weather conditions.

Good agricultural practices and timely intervention can obviate and mitigate the loss to some extent. Planting trees and augmenting irrigation to counter droughts and adequate drainage for countering floods are some measures being adopted.

Buyers in the Domestic and International markets are clamoring and insisting on compliant and safe teas. Domestically there is a challenge on getting all the small growers to use only approved chemicals, this may also lead to lower production.

There are some external factors which are of concern, and these are being addressed with the concerned authorities through the Industry associations and bodies:

• Exports are also likely to be impacted due to the sluggishness in Global Trade in view of the conflicts and the very high inflation being experienced worldwide.

• CTC exports are likely to be impacted due to the high prices in the Domestic market and conversely lower prices in Kenya. A lot of global buying is shifting to Africa because of its location.

• Disruption in shipping through the Red Sea is also leading to supply chain woes and higher shipping costs.

There is need to produce quality tea to average higher price realisations and this continues to be a priority for the Company. 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, and rising internal political uncertainties across the globe. The business outlook is cautiously positive, but companies are adopting caution in planning.

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 became 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 massive $150B+ in spend. This coupled with the Government of India push to open 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, to the extent it can. 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.

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.

The major opportunity seen today is in expanding geographically rather than remaining concentrated to a single country. The reason being that most countries would like to safeguard their military interests starting with the supply chain and have as much as local manufacture as possible. Already, some competing companies have started diversifying geographically. The company too, would do well to take advantage of this global need.

As most of the customers for the company are from the western world, the USA in particular, it is only natural to invest in the subsidiary that the company has and perform more activities, including manufacture. Towards this end, the subsidiary company has registered with the Department of Defense Trade Controls (DDTC) and has set up basic infrastructure to meet the needs of ITAR and EAR programs. Further, it has also taken steps to register directly with the USG government to take advantage of the small business benefits that the US government provides in the form of directed business. Such business will be supported by the company in India, at the back end.

c. Segment wise Business performance

The total Operational revenue for the financial year 2023-2024 stands at Rs.216.88 Crores, an increase of around 16.32% over the previous fiscal year 2022-2023. The Division added confirmed orders worth Rs.638.00 Crores and confirmed strategic agreements worth around Rs.2,800 Crores.

The company has seen interest from the domains of Space, Land, High power electric vehicles, transportation and sea. It is estimated that each of these segments will follow the natural life cycle for growth and reach its full potential in the next 3 to 5 years. Till then the company shall continue to nurture such opportunities for growth.

On the capability side, the company has experienced increased interest in automatic test systems and systems integration of systems and assemblies. This shall enable the company to move in the direction of forward and vertical integration of domains as well as competencies.

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.

It is essential that in order to tap the potential of the business, the company make significant capital investment. During the pandemic and post the pandemic, the company has been conservative and has adopted a minimal risk approach to capital investments. This approach needs to change in FY 2024-25 and during the next three fiscal years. Such investment, in geographic expansion as well as inorganic capability enhancement is expected to reap huge benefits riding atop the strong brand image of the company. Customers are keenly looking forward to such expansion.

e. Risks and Concerns

The unbridled price rises, delayed lead times, are often brought about by mergers and acquisitions. Many Private Equity firms have sensed this insecurity of the end customers and have resorted to take advantage of this weakness to maximize their profits. Such price rises can be managed better by companies with high buying power and with volume business.

Post the pandemic, it has become more difficult to get people back to work, physically on the shop floor. As the world economic order goes through correction, this threat is seen for the short and near term with confidence that economic correction will eventually address people availability. Further, 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 process robustness minimizing people dependency.

f. Internal Control System and their Adequacy

There are adequate Internal Control systems at all levels of Management of the Company. They are reviewed periodically 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 appropriate directives are issued to the concerned Division for taking corrective measures forthwith.

g. Financial and Operational Performance

Besides the continuous emphasis on quality enhancement 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) of the Rossell Tea Division for the year was Rs.1,198.59 lakhs as against Rs.3,007.59 lakhs in the previous year.

At the same time the Operating Profit before depreciation and interest (EBITDA) of the Rossell Techsys Division for the year was Rs.3,553.36 lakhs as against Rs.3,127.04 lakhs in the previous year.

With the strong financial fundamentals over 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, subject to the impact of demerger process being in progress at this stage.

h. Human Resources Development

Human resources are the most valuable assets of the Company - at corporate level as well as at Divisions/ Estates.

Industrial relations at both the Divisions of the Company remain excellent. Your Company employs 5,619 personnel on its permanent roll.

i. Significant Changes in the Financial Ratios

Key Financial Ratios FY 2023-2024 FY 2022- 2023 % of Change Reason for Change, if the change is more than 25%
Debtors Turnover Ratio 6.45 8.62 -25.27% Higher level of debtors
Inventory Turnover Ratio 23.76 18.63 +27.53% Lower average inventory
Interest Coverage Ratio 2.12 3.63 -41.60% Interest outgo has gone up, while Profit before tax has declined
Current Ratio 1.10 1.12 -1.79% -
Debt Equity Ratio 0.65 0.56 +16.07%
Operating Profit % 12.27% 16.20% -24.26% -
Net Profit Margin % 3.68% 7.85% -53.12% Lower Profits for the year
Return on Net Worth 4.52% 10.27% -55.99% Lower Profits for the year

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

Knowledge Center
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Capital Services Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Loading...

Follow us on

facebooktwitterrssyoutubeinstagramlinkedintelegram

2025, IIFL Capital Services Ltd. All Rights Reserved

ATTENTION INVESTORS

RISK DISCLOSURE ON DERIVATIVES

Copyright © IIFL Capital Services Limited (Formerly known as IIFL Securities Ltd). All rights Reserved.

IIFL Securities Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

ISO certification icon
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.