Auction prices of tea have risen ~30% on-year this fiscal because of production disruption following the Covid-19 lockdowns and steady domestic demand.

As a result, the Ebidta (earnings before interest, tax, depreciation and amortisation) margin of 44 tea companies1 rated by CRISIL Ratings (accounting for ~12% of the industry’s revenue) is expected to increase 300 basis points to 11% on-year. That, and better capital structure will lead to an improvement in their credit profiles.

Domestic demand for tea is expected to remain steady at ~1,100 million kg this fiscal. A decline in ‘out-of-home’ consumption (through the hotel / restaurant /café, or HORECA, segment), which accounted for ~10% of domestic demand, has been largely offset by a rise in ‘at-home’ consumption.

On the other hand, exports, which contributed to ~18% of overall volume in fiscal 2020, de-grew by 20% as production of high-quality tea leaves, or first flush, was wasted due to pandemic-led disruption in the first quarter.