Prior to the results, the stock was up by 50 per cent to Rs 401 in anticipation of better third-quarter results. This optimistic view was based on the higher volume of exports reported by the industry in the first half and a promise of more of the same. But unfortunately, most of the profits earned for the nine-month period represented the first-quarter earnings, while the earnings in the next two quarters have been poor. Of a total nine-month profit of Rs 123 crore, the third-quarternet profit was just Rs 28 crore. Further, the third-quarter net profit is lower by 10.13 per cent YoY, while the nine-month net profit is higher by 50 per cent YoY.

Even worse is the operating margin for the third quarter, which has dipped by half. For the first six months, the operating margin was 47 per cent, while for the third-quarter, it has dipped to 23 per cent. The fall in margins can largely be attributed to the fall in tea prices as a result of a bumper tea crop in the north. The movement in tea prices has gone from a growth of 58 per cent YoY at the beginning of the financial year to a fall of 3.34 per cent by the beginning of the third quarter. The industry also claims that the excise of 8 per cent on packaged tea has hurt growth and resulted in lower profitability in the third quarter. But analysts tracking the sector claim that there has been a definite shift among consumers to packaged tea, and the excise of 8 per cent has not really affected earnings.

The news that pushed demand for teastocks in the last quarter of 1998 was the announcement of the huge increase in the quantum of tea exports to Russia, which will be felt more keenly in the next financial year. Of an estimated production of tea of 865 million kg in the current year, 100 million kg will be exported to Russia, representing 11.5 per cent of the total '98-99 production. Besides, this quantity is only a minimum annual export commitment, and Indian industry will be free to increase exports. This was good news for the industry that did not export much to Russia last year. Further, since the season extends from October to September, the beneficial impact should continue well into the next financial year. Tea exports as of the first half of the current year were higher by 19 per cent, though export growth had faltered a little in the third quarter. Exports to Pakistan have been lower than usual, but exports to Iran and the other CIS countries have been good.

Consequently, the expectation in the stock market was that domestic teaperformance would return near the first-quarter levels. Tea prices were high throughout the first half, but had started declining since the beginning of the second half. Further, it has become clear to speculators that tea exports to Russia is a contentious issue. The agreement to sell tea is between the two governments, and the payment details are yet to be worked out.

As far as the individual stocks are concerned, Tata Tea, Goodricke Group and George Williamson showed the maximum movement in response to the perceived positive developments. In the last one-and-a-half months, Goodricke's stock has collapsed by 15.65 per cent. Rossell Industries, which reported growth in the third quarter, has seen a fall in the stock by 11 per cent to Rs 24. Even AFT Industries has collapsed by 16 per cent within a month, and has seen the most severe fall yet. Bishnauth Tea, which announced mediocre results, has also fallen by 5.4 per cent.

Only the Tata Tea stock is showing some resilience, despite the fact that themanagement has indicated that the last-quarter earnings will be a repetition of the third quarter.