Tea companies increasingly opt for loan moratorium to improve cash flow
Anticipating a higher need for cash following the second wave, struggling tea companies are increasingly opting for the loan moratorium offered by the RBI, which they say will help improve cash flow.
The requirement came after plantation companies lost around 110 million kilograms (mkg) of tea between March and May, or around 85% of typical production during that period. The loss of production led to a loss of income as the harvest season in northern India began and severely affected the cash flow of businesses.
“We need considerable cash to keep second crop production normal or least affected. Deferring interest payments to banks is a way to strengthen the company’s liquidity position,” said Vivek Goenka, executive director of Warren Tea.
Usually in May-July, tea companies need higher cash flow to prepare the bushes for the second harvest. This crop is the largest in Assam and the second largest in West Bengal. Estates generally employ additional temporary workers to increase production during this period.
A healthy second harvest provides plenty of room for tea companies to improve their turnover and their cash position.
Usually, Assam teas of this season are sold at exorbitant prices. For example, last year, one kg of Golden Butterfly tea from Dikom Tea Estate fetched Rs 75,000, while Maijan Orthodox Golden Tea created a record of Rs 70,501 per kg. Manohari Gold Estate in Assam also sold teas at Rs 50,000 per kg.
Considering the weather conditions and the fact that the government of Assam allows 100% deployment of labor to the tea estates, the plantation companies are optimistic about the second harvest this year. West Bengal, however, has so far only allowed the deployment of 50% of the workforce in tea plantations.
Like Warren Tea, Jay Shree Tea and Industries also opted for the loan moratorium.
“On the one hand, bank credit dried up in the sector and on the other hand, there were practically no gains during the first harvest (March-mid-May). In the face of these constraints, what else can be done but opt for the moratorium,” said DP Maheshwari, Managing Director and CEO of Jay Shree Tea an Industries.
Rating agencies have already downgraded the ratings of various tea companies, which sources say has influenced the flow of credit to tea companies.
Various factors such as successive losses of certain companies, repayment obligations, lower revenue projections and overall stress of the group have been taken into account in the rating reviews, except for the overall stress in the tea sector , which has had an impact on the financial health of tea companies.
“In such a scenario, tea companies are increasingly opting for the loan moratorium even though they understand that the final repayment will be higher as the interest will be accrued during the moratorium period,” Sanjay Bansal, Chairman of the said Ambootia Tea Group.
However, tea prices have improved due to the scarcity and tea companies believe that a quality product can help them pay the extra amount that will be incurred during the moratorium period.
Sources in Guwahati said average prices have already climbed Rs 20-30 from last year and higher quality teas are being sold at Rs. 30-50 more than last year’s prices. .
- The moratorium on loans helps to improve the liquidity situation
- Due to the loss of production, the cash flow of tea companies has been severely affected
- Tea companies need good cash flow in May to prepare tea bushes and pay extra workers
- Tea companies expect prices to be healthy, which will help with loan repayments