Industry Update

April 30, 2012

Stock Returns(%)

Tea Sector Update

1M 19.4 13.7 2.9

Harisson Malayalam Jayshree Tea Mc Leod Russel Stock Ratings Harrison Malayalam CMP TP Upside Market Cap like McLeod Russel and Jayshree Tea to improve their revenues and Jayshree Tea CMP TP Upside Market Cap earnings.

McLeod Russel CMP TP Upside Market Cap Price movement (Stock (RHS) v/s Nifty (LHS)) 6,000

4,500

3,000

1,500

Nifty Analysts name Sanjay Manyal

McLeod

sanjay.manyal@icicisecurities.com Parineeta Poddar

parineeta.poddar@icicisecurities.com mkg in CY10. The unit value of imports was marginally higher at |92.84/kg from |92.26/kg.

Recommendations
The tea companies in India would benefit substantially from the perking consumption demand for Indian tea in the global markets, especially Dubai, Pakistan and European countries. Hence, we believe that companies which occupy a dominant position in the industry, Mc Leod Russel (largest bulk tea producer in the world) and Jayshree Tea

(produces Darjeeling tea which is a premium quality tea in the world) would be the leading beneficiaries. Hence, we maintain a positive outlook and target price on these stocks.

ICICI Securities Ltd | Retail Equity Research

Industry Update Domestic Scenario Tea Production in India to remain at similar levels
India produced 988.3 mkg of tea in CY11 (against an expectation of ~1 billion kg), 2.3% higher than the production in CY10 which stood at 966.0 mkg. Production from North India stood at 747.4 mkg against 723.0 mkg in CY10 and from South India stood at 240.9 mkg against 243.4 mkg in CY10. Though the production was higher YoY, tea producing companies had estimated the production to be ~1 bn kg. The dry weather in October-November, 2011 and early onset of winters impacted crop production in the last quarter of CY11. Exhibit 1: Tea Production in India in 2010 and 2011 (in million kg)

Though tea production was higher in CY11, it was January below industrys expectation of 1000 mkg; owing to the February vagaries of nature. March April May June July August September

October November December TOTAL Source: Tea Board of India, ICICIdirect.com Research

Tea production in the North India till March, 2012 has been lower by ~55% to ~20 mkg against ~46 mkg in the corresponding period last year. The production in April, 2012 is expected to be lower by ~20% YoY. With the production of the first flush constituting only (in March-April) of tea 10% of the total production for the year, a clear

estimation for the years total production is difficult. However, tea companies are expecting the production to be at similar levels as CY11, with consumption increasing at ~2-3% during the year.

Tea Prices to remain firm

Tea prices in CY 11 remained firm in the country led by the shortfall in the system to meet the growing demand. In CY11, tea production in India stood at ~985 mkg, exports were ~190 mkg , consumption demand was ~860 mkg along with a lower opening inventory (exhausted by Feburary, 2012). Hence, a higher demand in the domestic market along with the drop in crop production in the last quarter of CY11 kept the tea prices up Average wage hike in Assam has been to the tune byof ~|7-8/kg in CY11 over CY10. |14/kg and in West Bengal it has been ~34%. Going ahead, with tea production expected to remain at 2011 levels and

consumption expected to be higher by ~2-3% (according to Tea Board of India), tea prices are expected to move up by ~|12-14/kg during the year. The movement in prices would further be supported by the hike in wages of tea workers and increase in costs of diesel, coal & electricity.

ICICI Securities Ltd | Retail Equity Research Page 2

Industry Update
Exhibit 2: Tea Prices in India (|/kg) Month

January February Though tea prices in North India remained flat YoY, March south Indian tea prices moved up on the back of higherApril realization from exports. May

June July August September October November December *2011 prices are provisional and all India prices are excluding Amritsar auction Source: Tea Board of India, ICICIdirect.com Research

Higher Tea Exports expected in CY12

India is the second largest tea producer in the world and is an exporter to Egypt, Pakistan, United Kingdom, Iraq, Iran and Russia. The total exports in CY11 stood at 192.9 mkg, lower by ~13% YoY with realization/kg being higher by ~7% YoY. The uptrend in prices was on the back of higher demand of quality tea from Assam and Darjelling supported by its lower production during the year. Also, with the largest exporting

countries (Kenya & Sri Lanka) recording a drop in production in CY11, there was a higher demand of exports from India thereby driving up the prices. We believe that the exports volume and prices in CY12 would be higher than CY11 on the back of increasing demand for quality tea (Darjelling tea) and a lower production of black tea expected in the tea exporting countries (Kenya & Sri Lanka). Pakistan (importing ~22 mkg in CY11) and Dubai (importing ~20 mkg in CY11) have already demanded higher quantity and better quality of black tea from India due to the increasing consumption demand in there and with the aim to decrease their dependence on Sri Lanka and Kenya for imports.

Exhibit 3: Tea Exports from India in million kg (mkg) Month 2011 January February March April May June July August September October November December TOTAL 18.5 12.7 14.6 11.4 11.3 12.3 15.3 19.4 21.0 19.7 17.5 19.3 192.9 Source: Tea Board of India ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 3

Industry Update
Exhibit 4: Country wise Tea Exports from India Country Indian companies have identified Russia and Middle-eastern countries as a source of rising demand for their tea. West Europe East Europe America West Asia & North Africa Asia other than the west Africa other than the North Australia & Oceania Source: Tea Board of India, ICICIdirect.com Research

The total tea imports in India declined by ~7% to 18.6 mkg against 20.04 mkg in CY10. The unit value of imports was marginally higher at |92.84/kg from |92.26/kg. India is the largest consumer of tea and

imports tea leaves for re-export only. Hence, a dip in imports is an indication of lower re-exports.

ICICI Securities Ltd | Retail Equity Research Page 4

Industry Update Global scenario Global Tea Production to remain stable

Tea production across the world was lower except India where it was marginally higher by 2.3%. The output in Kenya, Sri Lanka and Malawi in early 2011 was affected by adverse weather, and this offset increases in China's production (output rose by 10% in January-August). According to the tea boards and traders organizations, the global black tea production till March,2012 has fallen by 4.69% from 150.2 mkg to 157.2 mkg compared to the corresponding period last year. Kenya has

lost 8.1 mkg and produced 54.6 mkg. Bangladesh has also suffered a marginal crop loss. All other countries have posted marginal increase in production. Going ahead, tea production in Kenya (largest exporter) is expected to further dip by ~5% in CY12 to 360 million kg. Hence, we believe that with production in India expected to remain at similar levels and that in Kenya to dip, the global tea production would either be as in CY12 or dip further keeping the tea prices firm. Exhibit 5: World Tea Production (in mkg) Country Excluding the production from China (green tea producer), India the overall black tea production was lower by ~25 Bangladesh mkg during CY11 over CY10. Kenya Rwanda Indonesia Malawi Sri Lanka Uganda Tanzania Zimbabwe TOTAL China (Green Tea) (we await the data from other producing countries) thereby,

Source: Indian Tea Association Publication, ICICIdirect.com Research

World Tea Prices to inch up

Black Tea prices across the globe were higher on the back of lower production and increasing consumption demand. Demand from countries like Dubai, Pakistan and China have been witnessing continuous uptrend in the past three years. Exhibit 6: World Average Tea Auction Prices Centre 2011 Jakarta Mombasa (Kenya) Limbe Colombo Exchange Rate: Jan-Dec- USD 1: 2011 - 46.6; 2010- 45.73 Source: Indian Tea Association Publication, ICICIdirect.com Research 91.66 138.87 74.91 151.7

ICICI Securities Ltd | Retail Equity Research Page 5

Industry Update
Going ahead, we expect the world tea prices to inch higher on the back of increasing costs for tea companies as well as the increasing demand for quality tea that would keep prices firm. Exhibit 7: Kenya Tea Prices (US$/kg) and India Tea Prices (|/kg) in the past ten years

4.0 Continuous uptrend in tea prices in the past 11 years, in 3.5

spite of increasing production indicates the increasing demand for tea. Hence, we believe that tea prices would

3.0

2.5 remain firm in the coming years too. 2.0 1.5

1.0

0.5 0.0

Country India Kenya SriLanka Zimbabwe Argentina China Tanzania Uganda Indonesia Malawi TOTAL Source: Company, ICICIdirect.com Research

With the production in CY11 being lower across the major tea exporting countries (Kenya and Sri Lanka), tea exports remained lower by ~2% during the year.

ICICI Securities Ltd | Retail Equity Research Page 6

Industry Update
Exhibit 9: ICICIdirect Coverage Universe McLeod Russel Idirect Code MCLRUS CMP Target MCap Jayshree Tea Idirect Code JAYTEA CMP Target MCap Harrison Malayalam Idirect Code HARMAL CMP Target MCap Source: Company, ICICIdirect.com Research 145.8 Upside 218.9 Upside 3053.8 Upside

ICICI Securities Ltd | Retail Equity Research Page 7

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Head - Research

Mumbai - 400 093 research@icicidirect.com ANALYST CERTIFICATION

We /I, Sanjay Manyal M.B.A.(FINANCE) Parineeta Poddar M.B.A.(FINANCE)

research analysts, authors and the names subscribed to this report, hereby c

research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation w

the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of th

Disclosures:

ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and finan

underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business re

companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other busi

generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or deri cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information c

meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the

prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and

employees (ICICI Securities and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or ot

from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with ap policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its

report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell o

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not tre

receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitab

circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment deci objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient.

the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Sec

loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to se

risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements change without notice.

ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securitie

compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of pub

banking or other advisory services in a merger or specific transaction. It is confirmed that Sanjay Manyal M.B.A.(FINANCE) Parineeta Poddar M.B.A.(FINANC

report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid i Securities, which include earnings from Investment Banking and other business.

ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the research report. It is confirmed that Sanjay Manyal M.B.A.(FINANCE) Parineeta Poddar M.B.A.(FINANCE) director or advisory board member of the companies mentioned in the report.

research analysts and the authors of this report or any of their f

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Se

of information contained in the report prior to the publication thereof.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country o

publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirem

described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may co to observe such restriction.

ICICI Securities Ltd | Retail Equity Research

3M 12.2 -0.4 52.8

6M -4.9 -29.6 7.5

98 105 7.6 218.9

279 305.1 9.4 3053.8

/s Nifty (LHS)) 375

300

225

150 75

Jayshree

Harrison

e world) and Jayshree Tea

North India 2011 6.4 1.0 38.1 49.5 51.7 89.5 111.9 112.8 93.1 2010 8.7 1.5 29.8 48.0 47.4 76.8 102.8 107.8 89.7

95.0 65.8 32.7 747.4

99.2 70.8 40.3 723.0

e year, a clear

expected to remain at 2011 levels and

North India 2011 103.9 94.4 81.9 128.4 128.8 2010 101.7 91.9 81.5 108.9 117.6

133.9 131.6 121.1 120.6 119.0 113.7 107.6

122.9 126.6 131.1 126.1 126.6 125.9 119.9

Volume (in mkg) 2010 % increase 17.1 13.4 23.5 13.4 14.1 14.2 19.7 20.8 23.0 22.5 19.9 20.6 222.0 8.0 -5.1 -37.9 -15.1 -19.6 -13.3 -22.4 -6.7 -8.5 -12.4 -12.1 -6.3 -13.1

direct.com Research

2010-11 Qty 28.9 59.8 14.1 57.6 43.7 4.7 4.8 Price/kg 186.0 126.7 192.0 144.4 98.3 73.3 273.4

sumer of tea and

ducing countries) thereby,

Jan to Dec Dec Dec Mar Nov Dec Dec Oct Nov Sept

2011 988.3 59.2 377.9 6.2 56.3 47.1 328.3 40.3 30.0 10.3 1943.8

Nov

1350.0

Jan to Dec (in approx. |/kg) 2010 +/83.09 126.21 72.46 149.84 8.57 12.66 2.45 1.86

2001

2002 Source: Company, ICICIdirect.com Research Exhibit 8: World Tea Exports (in mkg)

279 FY11 305.1 FY12E 9.4 FY13E

98 FY11 105 FY12E 7.6 FY13E

79 FY11 86 FY12E 8.9 FY13E

dations. ICICIdirect.com assigns unless specified and the notional

rket price and then categorises them

pankaj.pandey@icicisecurities.com

esearch analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this

ct issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to

as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

ated investment banking, investment management and brokerage and financing group. We along with affiliates are leading

India. We and our affiliates have investment banking and other business relationship with a significant percentage of

ssionals provide important input into our investment banking and other business selection processes. ICICI Securities

amily members from maintaining a financial interest in the securities or derivatives of any companies that the analysts

and are subject to change without any notice. The report and information contained herein is strictly confidential and

ted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without

nformation herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and

eep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities

been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities

o this company, or in certain other circumstances.

eved to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This

ed or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

omers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their

g and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific

y not be suitable for all investors, who must make their own investment decisions, based on their own investment

n in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate

nges in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any

s not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the

er materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to

ring for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received

ding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment research analysts and the authors of this

ed that Sanjay Manyal M.B.A.(FINANCE) Parineeta Poddar M.B.A.(FINANCE)

eport in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI

securities of the Company mentioned in the report as of the last day of the month preceding the publication of the

NANCE)

research analysts and the authors of this report or any of their family members does not serve as an officer,

h different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use

ntity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

ubject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities category of investors. Persons in whose possession this document may come are required to inform themselves of and

12M -2.8 -44.5 1.8 The Indian tea industry is witnessing a continuous rise in the realization of tea prices on the back of growing consumption demand and a shortfall in production. Simultaneously, a significant dip in global 79 production, especially Kenya, the Indian Tea companies fetched 86 attractive prices from exports. Hence, we believe that with the demand 8.9 for tea to continuing to rise and production in India to remain at 145.8 current levels, tea prices could further inch up benefiting companies

Brewing hot with rising prices

Tea Production
India, the largest black tea producer in the world, produced 988.3 million kilograms (mkg) of tea in CY11 (up by 2.3% YoY). Production in Kenya and Sri Lanka, the largest exporters, stood at 377 mkg (lower by 5.4%) and 328.6 mkg (lower by ~1% YoY). Indias production has been at the same levels since the past three years at ~970 mkg (CY09-11) however, consumption is rising by ~2-3% every year (~860 mkg in CY11). Going ahead, we expect the countrys production for CY12 to be at similar levels and consumption to be higher at ~890 mkg.

Tea Prices
Owing to the shortfall in production across other tea producing nations in

CY11 (except India which had lower than expected crop production of ~1000 mkg but marginally higher production over CY10), an increasing demand for black and premium quality Darjeeling tea (both domestic & international) and a lower opening inventory in India Feburary, 2012); tea prices in the country remained higher by ~|7-8/kg in CY11. Going ahead, with the production in the country expected to remain at similar levels but consumption to be higher, tea prices are expected to increase by ~|12-14/kg in CY12. (exhausted by

Tea Exports & Imports

Exports from India during CY11 stood at 192.9 mkg against 222.0 mkg in CY10. The realization/kg increased by ~|10/kg to |147.4/kg. Lower

production in Kenya led the exports from there to decline by ~20 mkg to 421 mkg in CY11.

The total tea imports in India declined by ~7% to 18.6 mkg against 20.04

South India % increase -26.3 -34.3 27.9 2.9 9.1 16.5 8.9 4.6 3.7 2011 14.5 15.7 18.6 23.6 24.4 25.3 21.3 14.3 18.0 2010 % increase 18.4 16.4 19.2 20.2 25.2 27.2 20.4 14.9 18.4 -21.1 -4.3 -3.0 16.8 -3.1 -7.3 4.6 -4.4 -2.1

-4.2 -7.1 -19.0 3.4

22.5 24.5 18.2 240.9

21.5 23.1 18.4 243.4

4.5 6.1 -1.2 -1.0

South India % inc/dec 2.1 2.8 0.5 17.9 9.5 2011 76.6 77.1 75.5 71.4 68.8 2010 % inc/dec 75.8 73.7 69.5 69.0 65.3 1.2 4.7 8.5 3.4 5.4

9.0 3.9 -7.6 -4.4 -6.0 -9.7 -10.2

62.8 63.6 66.9 70.5 75.5 70.4 67.9

60.3 58.9 59.1 69.6 71.8 72.1 71.9

4.1 7.9 13.3 1.2 5.1 -2.3 -5.7

Price (in |/kg) 2011 146.5 148.8 147.2 138.1 141.3 144.3 146.4 140.2 144.9 151.0 152.7 160.3 147.4 2010 % increase 140.8 142.7 129.8 134.2 131.2 137.1 134.3 142.5 141.3 139.9 139.6 138.8 137.8 4.0 4.3 13.4 2.9 7.7 5.2 9.0 -1.6 2.6 7.9 9.4 15.5 7.0

2010-09 Qty 27.8 65.2 12.2 68.4 31.9 3.4 4.6 Price/kg 171.6 133.2 187.5 138.1 115.8 85.1 265.7

2009-08 Qty 27.5 51.7 10.7 63.6 30.1 2.1 4.9 Price/kg 149.4 113.6 173.8 118.4 104.1 75.7 235.7

2010 +/966.4 60.0 399.0 7.1 67.0 51.6 331.4 47.2 29.3 10.5 1969.6 1273.0 21.9 -0.9 -21.1 -0.9 -10.7 -4.5 -3.1 -7.0 0.7 -0.3 -25.8 77.0

% 2.3 -1.5 -5.3 -12.7 -16.0 -8.7 -0.9 -14.7 2.5 -2.5 -1.3 6.0

2003

2004 Kenya Average (LHS)

2005

2006

Jan to Dec Nov Oct Jul Sept Nov Sept Oct Sept Oct

2011 186.7 385.0 244.6

295.3

1339.9

Sales (| crore) 1241.2 1227.5 1258.1

EPS (|) 20.7 23.8 28.3

PE (x) 13.5 11.7 9.9

EV/E (x) 9.7 8.0 6.9

448.4 570.2 558.8

23.9 14.3 19.9

4.1 6.8 4.9

10.2 8.2 5.9

364.4 365.4 370.6

2.1 4.7 5.7

37.5 16.7 13.8

12.0 7.5 7.5

ews expressed in this

ly or indirectly related to

with affiliates are leading

ficant percentage of

ses. ICICI Securities

nies that the analysts

tly confidential and in any form, without

es, their directors and

prevent ICICI Securities

d/or ICICI Securities

ness guaranteed. This

ies or other financial

mers by virtue of their

own investment

ndependently evaluate

ccept no liabilities for any

ument to understand the

nd may be subject to

e finance, investment

s and the authors of this

ofitability of ICICI

publication of the

not serve as an officer,

may act upon or make use

ere such distribution,

iction. The securities

orm themselves of and

India 2011 97.3 88.4 78.2 96.4 107.4 2010 % inc/dec 94.8 87.0 75.4 84.5 98.6 2.6 1.6 3.7 14.0 8.9

110.2 111.1 108.1 110.1 106.0 104.8 100.1

102.5 104.8 114.7 113.8 112.0 115.1 113.7

7.5 6.1 -5.7 -3.3 -5.4 -9.0 -12.0

120

100

80

60

40

20

0 2007 India Average (RHS) 2008 2009 2010 2011

2010 193.3 406.0 246.0 4.7 69.8 273.8 21.4 35.9 57.1 39.4 1368.6 20.0 42.5 65.3 43.5 6.1 72.1

+/-6.6 -21.0 -1.4 -1.4 -2.3 21.5 1.4 -6.6 -8.2 -4.1 -28.7

% -3.4 -5.2 -0.6 -23.0 -3.2 7.9 7.0 -15.5 -12.6 -9.4 -2.1

RoNW (%) 11.0 13.2 13.9

RoCE (%) 17.0 18.8 18.8

18.6 8.7 11.4

7.2 8.6 11.2

1.2 2.7 3.2

4.0 6.3 6.4