Price-sensitivity limits domestic realisations
CRISIL Research expects prices at tea auctions across the country to close calendar 2018 at Rs 145-146 per kg on average, 3-4% higher on-year, compared with a compound annual growth rate (CAGR) of 1.4% logged over calendar 2012-2017. Despite this, the players’ margins are expected to be impacted adversely as the export-driven uptick would not be enough to offset a significant increase in labour cost.
In 2019, the auction prices are seen range-bound, with a marginal improvement to ~Rs 147 per kg, given the price-sensitive market.
Tea is sold in India through auction centres. The buyers are either private stockists who sell loose tea or large players who further process it and sell as branded packaged tea.
With ~50% share of the domestic market, loose tea caters to price-sensitive consumers and is available at Rs 150-160 per kg. This limits the ability of private stockists to pay higher procurement price.
Branded tea commands a high price differential of Rs 140-150 per kg over loose tea, and any further widening of this gap run the risk of downtrading by consumers.