Mumbai/Calcutta, Feb 25: Even as some analysts have put the Tata Tea scrip "on hold" in anticipation of a negative El Nino impact, the market, at large, is still bullish on it. This has led to a steady rise in the scrip over the past 10 trading sessions.The views are contrary. Analysts say that if the El Nino hits southern India in May this year, it could severely affect the bottomline of the company.El Nino is the single most disruptive climatic influence on the earth, which can cause devastation of crops.
Analysts add that Tata Tea produces 30 million kg of tea from its south-based tea gardens (which is about 50 per cent of their total produce) and, hence, will be adversely affected due to the climatic influences. About 15 per cent of the sales of Tata Tea is spent by the company on the employees which would continue to remain on the books despite the drop in the output of the company.
``Apart from the loss of sales from drop in output there will be significant drop in margins due to higher fixedcosts,'' said a research analyst with a leading foreign research outfit. As a result, they expect the stock to underperform over the next 2-3 months until the fears over El Nino are resolved.
Market participants, however, feel differently. And this has been reflected in the price of the scrip which has been rising quite steadily.It has risen from a level of Rs 407 on February 12 to a high of Rs 438 on February 25.
The steady rise in the share price has been attributed to numerous reasons, which includes FII buying at the counter. According to market sources, Jardine Fleming, Credit Lyonnais and Morgan Stanley have been rumoured to have placed large buy orders to the tune of 50 lakh shares at the counter over the past few sessions. When contacted, company officials said that they do not fear any negative impact of the El Nino on the company's performance and are not concerned with the scrip movement which is driven mostly by speculation.
They added that the effect would not only be visible on the teasector but on other sectors as well.
``Tata Tea has always reaped the benefit of marketing its tea produce directly from the gardens instead of picking up the produce through the auction,'' said a BSE broker.
``However, if the government puts restrictions on such marketing practises and makes it compulsory for the company to enter the auction procedure, it could provide an edge to the competitors,'' he explained.
Moreover, given the fact that Lever has a strong brand equity in the packed tea business and has a market share of over 50 per cent of the packet tea segment in India, the market belief that the HLL brand is likely to gain strength at the cost of Tata Tea is fast catching up.
Analysts say that Tata Tea has also increased its advertisement budget to Rs 32 crore in the first quarter of 1997, but its market share has remained stagnant.
Copyright(c)1998 Indian Express Newspapers (Bombay) Ltd.
