Unlisted Shares

Stagnant Revenue Growth: Despite operating in the tea industry for over 100 years, the company's revenue growth has remained nearly stagnant, fluctuating between Rs.15 crore and Rs.25 crore. Consequently, it has been unable to secure a significant market share in India.

Threat from Oil Drilling: Indian Oil Corporation Limited (IOCL) is seeking to acquire additional land from the company for oil drilling. If this occurs, the company may lose another 2 to 3 hectares, in addition to the 10 hectares already taken by IOCL over the past decade. This will negatively impact the company's production and revenues.

Liquidity Risk: The company has been unable to improve its current ratio, maintaining an average of 34.4% over the past five years, significantly below the industry standard of 158.0%. This poses a threat to the company's short-term liquidity.

Investment Thesis: The company faced a revenue decline and reported a loss of Rs. 71 lakhs in FY24, primarily due to reduced production. Additionally, the average tea price dropped as demand from key markets like Iran, Russia, and the UAE weakened, and an oversupply of Kenyan teas, which compete with India's CTC teas, put further pressure on prices.

Currently, the stock is trading at Rs. 77 per share with a price-to-sales (P/S) ratio of 0.4x, suggesting it may be undervalued compared to the industry's median P/S ratio of 1.3x. However, there are other factors which strongly suggest taking an exit from the respective company. There are some challenges to consider.

The company's largest expense, employee benefits, accounts for around 82% of total costs and is largely fixed due to government-mandated labor wages. These wages have increased twice consecutively and are expected to rise again, which could further squeeze the company's profitability. In addition, crop production has declined due to dry weather and the government's ban on certain pesticides. However, the company invested nearly Rs. 2 cr. in FY24 in bearer plants and irrigation systems to boost production.

Our suggestion is based on the company's weak liquidity, inability to consistently generate stable profits, and ongoing margin pressures over the past 5 years. These factors raise concerns about the company’s ability to sustain long-term growth and profitability.