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TCP Ltd.

13 Oct 2020

Pr icing power in tea to negate impact on margins

TCP Ltd.

Motilal Oswal

In FY19, TCP sold 124m kg, accounting for 11% of Indias total tea consumption. This led to an increase in North India weighted average tea prices by 61% YoY over Apr- Sep20 to INR261/kg (v/s INR162/kg for the same period last year). According to the Tea Board of India, all India weighted average tea prices have increased by 50% YoY to INR224/kg (v/s INR149/kg last year). In 1QFY21, TCPs India tea business witnessed expansion in EBIT margin of 620bp to 21.5% driven by favorable commodity costs and lower discretionary expenditure; the company took a price hike (value growth of 7% in 1QFY21) on the back of an increase in tea prices and carry-forward of low cost inventory, which was sold in 1QFY21 (was acquired by TCP in Aug-December19). As per our channel checks, TCPs India tea business took price hike of 15-20% during May-Sep20.

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