Recommendation From Tea & Coffee Sectors

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon 

Jay Shree Tea & Industries Ltd. 

BSE Code: 509715
CMP: Rs 76.60
FV: Rs 5
BSE Volume: 11,979

LEND A REFRESHING FLAVOUR TO YOUR PORTFOLIO 

HERE IS WHY
Well-diversified business operations
Strong track record of dividend payments
Improving financial performance 

Jay Shree Tea & Industries Ltd. is a well-diversified company engaged in the segments of tea, chemicals, fertilizers, sugar, real estate and education. It is recognized as the third largest tea producer in the world and is part of the B. K Birla Group. It possesses 27 tea estates across India and owns some more in East Africa. 

On the quarterly front, the total income from operations climbed to Rs 177.96 crore in Q2FY19 from Rs 158.39 crore in Q2FY18, thereby rising 12.35 per cent. EBITDA scaled up to Rs 44.07 crore in Q2FY19 from Rs 35.36 crore in Q2FY18, thereby registering a growth of 24.63 per cent. Net profit rose to Rs 35.47 crore in Q2FY19 from Rs 25.58 crore in Q2FY18, posting a growth of 38.66 per cent. Basic EPS soared to Rs 12.28 in Q2FY19 from Rs 8.86 in Q2FY18. The operating profit margin improved to 22.11 per cent in Q2FY19, up from 18.52 per cent in Q2FY18. Consequently, net profit margin surged 19.93 per cent in Q2FY19 from 16.15 per cent in Q2FY18. 

On the consolidated annual front, the total income from operations increased to Rs 757.69 crore in FY18 from Rs 751.60 crore in FY17, ta meagre increase of 0.81 per cent. EBITDA stood at Rs 12.25 crore in FY18 as against Rs 51 crore in FY17, thereby declining 75.98 per cent. However, net profit showcased a tremendous improvement of 3,579.56 per cent as it scaled up to Rs 34.22 crore in FY18 from Rs 0.93 crore in FY17. This is a substantial improvement as the company was incurring net losses in FY16 and FY15. The EPS rose to Rs 15.31 in FY18 from Rs 0.41 in FY17. Net cash flows from operating activities dropped substantially to Rs 10.4748 crore in FY18 from Rs 50.7906 crore in FY17, thereby plunging 79.37 per cent. At the end of the year, the company held net cash of Rs 16.3414 crore as against Rs 13.9552 in FY17. 

During FY17-18, tea accounted for 83 per cent of gross turnover while chemicals & fertilizers accounted for 17 per cent. The promoter shareholding dropped to 53.19 per cent in Q3FY19 from 54.38 per cent in Q2FY19 and 55.02 per cent in Q1FY19. This is because Manav Investment and Trading Co. Ltd., a promoter group company, is diluting its stake in the company. 

The outlook for the tea segment looks bright. While the overall Indian tea production reached an all-time high in FY18, it is spiraling downward in FY19. Darjeeling, renowned for producing the world’s costliest teas, reported a drop in output to 89.5 per cent owing to ethnic strife. The company struck an export deal worth US$ 1 million with the Chinese company COFCO for the export of black tea. Furthermore, the demand for Assam CTC (crush, tear, curl) black tea is rising. A major concern is the higher wage rates for tea estate workers, which are exerting pressure on the margins. 

The chemical segment continues to struggle due to increasing cost of imported raw materials without a corresponding increase in sales price, led by rupee depreciation against the dollar. The government has recognised the importance of superphosphate and has increased the subsidy by Rs 568 per MT. By virtue of these factors, we recommend our reader-investors to BUY this stock

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