We expect that our EBITDA margins will go up to 10-11% by end of the fiscal: Kamal Baheti, Mcleod Russel

We expect that our EBITDA margins will go up to 10-11% by end of the fiscal: Kamal Baheti, Mcleod Russel
Kamal Baheti, Wholetime Director and CFO, Mcleod Russel, spoke about McLeod’s Q2FY19 results, mechanism of price rise and global demand of tea among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts: 

Q: What is your outlook on demand and supply of global tea in FY19?
A: Production of extra 40 million kilograms tea in Kenya, which faced drought conditions last year, has helped in increasing tea supply in the export market. Extra production and supply have subdued the demand in the international markets and low prices of Kenya are having an impact on India’s export business at present. But, one can’t compare the tea of Kenya with tea of Assam and that’s why Indian export value will remain similar to last year numbers. However, prices will remain soft.  

Q: What are your views on pricing and do you think that tea prices can be increased in the recent future, if yes, and then what can be its quantum? 
A: See we are bulk sellers of tea and the prices are discovered through an auction mechanism. There is a crop drop of 15 million kilograms in South India. The crop drop of 15 million kilograms in South India has been backed by the increase/uptake in North India. This indicates that the supply chain is similar to last year. However, we need to increase our supply by 25-30 million kilograms to support the annual consumption, which grows by 2-3 per cent annually. We don’t have that extra tea and this unavailability leads to price formation and its shortage is felt at the start of the next season. We expect there will be a price hike before the end of the season till March 2019. It will also open new passages for next year. But I feel that the Indian prices will go up in next one year. 

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Q:  McLeod Russel’s exceptional item profit (Rs 147 crore) is higher than the actual profit (Rs 112 crore). What led to this fall in profit and what are your expectations for remaining part of the fiscal?
A: Second quarter always remains a positive quarter for McLeod Russel. However, we were not able to secure profitability this year even after selling our tea assets. Secondly, there was a price hike of Rs 10/kg in last six months and certain cost-cutting measures were also implemented but there was a wage hike for our employees. However, we expect that results of FY19 are going to be better than the results of FY18. Our EBITDA margin will also go up to 10-11 per cent from 7-8 per cent.