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Analysis on Indian Tea Industry

Management Research Project 1


Submitted
In the partial fulfillment of the Degree of
Master Business Administration
Semester III

Submitted By:
Khamar Bhaumik Vijaybhai (13044311033)
Patel Donika Jayeshkumar (13044311067)
Patel Parth Jitendrabhai (13044311096)
Patel Twinkaleben Pravinkumar (13044311110)
Patel Urmi Darsankumar (13044311111)
Vaishnav Jigar Vasudev (13044311143)

Under the Guidelines of:


Prof. Harsha Jariwala
V.M.Patel Institute of Management.

Submitted To:
V.M.Patel Institute of Management.
Ganpat University,
Kherva

December, 2014
CERTIFICATE BY GUIDE

This is to certify that the contents of this report entitled Analysis on Indian Tea Industry
by Khamar Bhaumik (33) , Patel Donika (67) , Patel Parth (96) , Patel Twinkale(110) , Patel
Urmi(111) , Vaishnav Jigar (143) submitted to V.M.Patel Institute of Management for the Award
of Master of Business Administration (MBA Sem-III) is original research work carried out by
them under my supervision.

This report has not been submitted either partly or fully to any other University or Institute for
award of any degree or diploma.

Prof. Harsha jariwala


V. M. Patel Institute of Management,
Ganpat University,
Kherva

Date: 15/12/2014
Place:Kherva

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CANDIDATES STATEMENT

We hereby declare that the work incorporated in this report entitled Analysis on Indian Tea
Industry in partial fulfillment of the requirements for the award of Master of Business
Administration (Sem- III) is the outcome of original study undertaken by us and it has not been
submitted earlier to any other University or Institution for the award of any Degree or Diploma.

Khamar Bhaumik(33)
Patel Donika (67)
Patel Parth(96)
Patel Twinkale(110)
Patel Urmi(111)
Vaishnav Jigar(143)

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Preface
This report owns its origin in the requirement of our subject Management Research Project I in
the semester III of the Masters of Business Management course. In this report we have to make
analysis of the particular Indian industry. For our report we have chosen Indian Tea Industry .

This report will help us to know about the different aspects of the Indian tea industry. This report
includes the introduction of Indian tea industry, the scenario of the Indian tea industry, the role of
tea industry in national economy, the rivalry among tea industry etc.

With the help of this report we will also be able to know about the different points of the tea
industry like History of the industry, Market of the industry, Government policies and
regulations etc.

All this research work and study will be done on the bases of secondary data. So we are not
going for field work and data collection.

Thus this report will help us to know lots of things about the Indian tea industry and this will be a
great experience of our life.

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Acknowledgement
Many people have guided and influenced us in preparing this project. First of all, we are grateful to Prof.
Harsha jariwala , assistant professor for the MBA program at V. M. Patel Institute of Management for
giving us an opportunity to experience the analytical way of working and in the process help us in
learning.

We are also thankful to all our faculty members who guided us throughout the project. Last but
not the least, we would like to cite our beloved parents and all our friends for their and
encouragement, support and blessings. These pages could scarcely have been written without
their help.

Submitted By:
Khamar Bhaumik (033)
Patel Donika (067)
Patel Parth (096)
Patel Twinkale(110)
Patel Urmi(111)
Vaishnav Jigar (143)

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Executive Summary

Our project title is Analysis on Indian Tea Industry . The project includes collecting information
about Indian tea industry. In this report we have also tried to know about the global scenario of
the tea industry. The idea for this project arises in my mind during the discussion with our guide
Prof. Harsha jariwala, assistant professor for the MBA program at V. M. Patel Institute of
Management.

Our Project includes analysis of export and consumption of Indian Tea. It also considered Five
Forces analysis, SWOT analysis, and PESTEL analysis to understand the Indian Tea Industry
deeply. Also Industry financial analysis is done for identifying the financial strength. The
forecasting is done by the trend analysis method it shows the future trend of the Tea Industry.

India plays a significant role in world tea trade, being the world's largest producer, consumer and
exporter. Hence fluctuations in India's tea production, consumption and exports are enough to
disturb the international tea trade. The India is decreasing in export side at everywhere also in the
percentage shares in total world export. It is now only around 11.90% which was 18.85% in the
1991.

India is the largest tea producing and consuming country in the world and Productivity and
quality of tea, Labor intensity, Long gestation, Commodity nature of tea, Inconvenient but
healthy drink, Tea organized industry etc are characteristics for industry.

In India out of the 757 M.Kgs of tea consumed, around 41% is sold in the form of branded
products
The total net foreign exchange Rs. 1,847 crore, highest foreign exchange earning agriculture
product of India and the global demand growth at around 2 per cent per annum will be easily met
by rising production from Kenya, Sri Lanka, Malawi, Indonesia and other countries.

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The impact of WTO on Indian domestic industry will be negligible because of the re-export
clause. Tariff reduction is likely to cause higher imports by Pakistan, Iran, Iraq, and Egypt.
WTO, Tea board of India and the effect of other factors like health, price variability, FAO tea
mark, Labor problems and also the domestic market consumption is on India Tea Industry.

Agricultural industry plays a key role in the economies of many developing countries. The prices
of exports have in the last two decades experienced considerable declines that have negatively
affected the incomes and well being of producers. The expansion of consumption of tea in all of
its many forms, black, green, soluble, tea bags, specialty etc, will lend underlying strength to the
market and eventually benefit producers.

Quality assurance is of the utmost importance, and ever more so among the health conscious
consumers of the future and provides a great employment opportunity mainly for the backward
classes and tribal. To improve the Indian economic position, Government should take
appropriate steps.

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No. Sub. CONTENTS Page
No. No.
Certificate by the Guide I
Candidates Statement II
Preface III
Acknowledge ment V
Executive Summery VI

Chap 1 INTRODUCTION 1-15


1.1 Introduction of Tea Industry 2
1.2 Global Scenario Of Tea 3
1.3 Indian Scenario 4
1.4 Industry Scenario 8
1.5 Industry Growth 9
1.6 Regional Differences 10
1.7 Consumption In Producing Countries Of Tea 11
1.8 Medium Term Export Strategy By Tea Board 12
1.9 Story Of Tea 14
1.10 Background Of Indian Tea Industry 15

Chap 2 Indian Tea Industry 16-23


2.1 Overview Of Tea Industry 17
2.2 Types Of Tea 19
2.3 The Competitors 23

Chap 3 Major Players In Tea Industry 24-26

Chap 4 Strategic Analysis Or Industrial Analysis 27-45


4.1 SWOT Analysis Of Tea Industry 28
4.2 Porters Five Force Model For Industry Analysis 30
4.3 PESTEL Analysis 38
4.4 BCG Matrix Of Tea Industry 43
4.5 Product Life Cycle 45

Chap 5 Financial Analysis 47-57


5.1 Trend Analysis 48
5.2 Ratio Analysis 57

Chap 6 Business Plan 69


6.1 Mission 70
6.2 Objectives 70
6.3 Key Of Success 70
6.4 Company Ownership 72
6.5 Market Segmentation 75
6.6 Sales Forecast 77
6.7 Personal Plan 78
6.8 Financial Plan 78
6.9 Break Even Point 79
6.10 Projected Profit & Loss 80
6.11 Projected Cash Flow 81
6.12 Projected Balance Sheet 83
6.13 Business Ratios 84

Chap 7 Conclusion 87

Chap 8 Bibliography 89
CHAPTER 1 -
INTRODUCTION

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1.1 Introduction of Tea industry:

The decade of Nineties has been quite depressing for the tea industry in India. First, it was the
disintegration of the erstwhile USSR which was solidly a loyal market for the Indian teas. The
USSR lifted huge volumes. In the mid 90s, when the market revived, the Russians were looking
for cheaper teas.

There was a scramble in the tea industry, particularly in the South, to meet the Russian demand
at their prices. The South Indian teas deeply destroyed their image while matching the prices
offered by the Russians and in the process totally disregarding the quality, In the North, and later
in South too; the industry was continuously facing labour problems. Some gardens had even
closed and were bought by traders who had money on their hand since their plywood business
had been closed down under orders from the Supreme Court of India. The traders had expected
large profits from the tea gardens and did enjoy that for some time. Later when the fortunes of
the tea industry declined in consequence of the Kenyan bouncing back in the global markets, the
traders simply abandoned the plantations and disappeared to avoid payments on account of social
obligations. They were too new to the industry to understand its complexities and did not know
the plantation business. When the industry saw some light in the aftermath of a drought in
Kenya, the traders wanted to go back to their gardens but were prevented. In many cases, the
laborers had taken over production and were marketing green leaf harvest to the bought leaf tea
factories (BLTF). This gave cause for enormous social tensions. The labour was only one of the
many problems the industry faced. There were difficulties on trade front, auctions,
transportation, sales, taxation etc. On the whole, the situation in the Indian tea industry was
pathetic. Yet, most individual firms were doing fairly well, an issue that requires a proper
understanding of the way the industry is organized and operates.

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1.2 Global Scenario of Tea:
India is the largest producer of tea in the world with annual production of over 900 million kgs,
representing over 28% of the world production of 3.2 billion kgs. The Indian Tea Industry was in
recession for the last few years due to high level of taxes, very high social cost, low labour
productivity, no commensurate change in wages to changes in productivity or realizations and
unavailability of adequate funds for replanting and rejuvenation of old tea bushes. During the last
few years, exports from India have been languishing owing to the low international prices
particularly for tea imported from Africa and Vietnam. This also resulted in cheap imports into
India for re-exports thus impacting domestic prices.
However, after seven years of recession, the Indian Tea Association (ITA) hopes to regain the
growth momentum, which it enjoyed in the mid-nineties.

The situation in the world markets for tea can be characterized by over supplies, a slow growth in
demand, and a fierce competition. It is necessary to reduce global supplies by increasing
domestic consumption, curtailing production or at least limiting further extension of area, and
developing new markets.

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1.3 Indian scenario:
India is the largest producer and consumer of tea in the world. India also leads in global R&D in
tea industry. India is the largest manufacturer and exporter of tea machinery. Other major tea
producers (also developing nations) source equipment and technology from India. The tea
plantations were started in the middle of the 19th century under the British management. The
farm ownership, however, is fragmented. The listed companies account for about 40% of total
tea production. Also, there are a large number of small players. Some 80% of the farms are of the
size less than 8 hectares and contribute only 10% of the production. The annual per capita
consumption in India is low at 650gm compared to other countries like Pakistan (950gm), Sri
Lanka (1.2kg), UK (2.5kg) and Ireland (3.16kg).

In India, tea cultivation on commercial scale was first started in Assam in 1839 and then it was
extended to other parts of the country between 50s and 60s of the 19thcentury. However, due to
certain specific soil and climatic requirements its cultivation was confined to only certain parts of
the country. Major tea producing states in the country are Assam, West Bengal, Tamil Nadu and
Kerala. 75% of the total tea produced in India is accounted by Assam and West Bengal together.
Some of the worlds finest teas are produced in India. While Assam teas are famous for their
strong, brisk and full bodied liquor; Nilgiri teas are well known for their delicate flavor, strength
and brightness; and the production of the famous Darjeeling tea is aided by the low temperature
in the hills of Darjeeling. With their own diverse agro-climatic conditions, other areas produce
medley of tea which suits many different tastes. The distinct characteristics of each region set
them apart from one another in many different ways.In India, tea industry is one of the oldest
agro-based well organized industries. More than a million workers get direct employment from
this industry of which a sizeable number are women. A large number of temporary workers are
also engaged during the plucking season.

The labor cost is the largest cost overhead accounting for about 60% of the total cost of
production of Indian tea because the tea plantations are not just economic production units, but
rather social institutions, which controls the lives of their resident work force to a large extent.
Apart from employment, the plantations are also responsible for providing house, water, welfare
and many other facilities that affect the daily lives of the workers. This is because most of the

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employees come from socially and economically weaker sections of the society and majority of
employees are women who work and reside in an ideal industrial community. Their livelihood is
directly linked with the prosperity of the tea industry. Therefore, the tea industry must grow, not
only to fulfill its primary function of producing a wholesome beverage for domestic and overseas
consumer, but also to fulfill its social obligations in sustaining and improving the well being of
all those who are dependent on its fortunes. India has been a dominant player in the global tea
industry. Despite its fluctuating situation in the share of world exports, still India is a key source
for tea as well as the largest market.

The industry faced steep decline in prices during 1999 to 2006, which brought out the vulnerable
areas that need to be addressed for guarding against reoccurrence of such eventualities and also
achieve sustainable global competitiveness and sustainable livelihood to millions of workers
employed in the industry. Around 130 gardens were closed, abandoned or suspended their
operations for some time due to this recession of which majority of tea gardens have reopened
with the gradual improvement in tea prices from 2008 onwards. The decline in the prices has
mainly been due to strong growth in supply in the face of sluggish demand.

The tea industry sees fluctuating trends due to agricultural nature of the operations, long
gestation periods and unstable prices of tea which are not likely to undergo any changes in the
future. In the past, tea prices have shown brief periods of boom followed by longer periods of
depression. During recession, the root causes for the closure of tea gardens in several parts of the
country, as reported by the experts, are that these gardens were inherently weak and suffered
from low productivity and lack of investment on developmental activities. Therefore, it becomes
very important that suitable packages for raising the productivity with cost effectiveness suiting
to the conditions of under/less developed sectors are devised and put into place quickly.

The problem of ageing and senile bushes is a major problem for the Indian Tea Industry. More
than 21.2 Million hectares constituting a substantial chunk of Indian Tea gardens are in the end
of economic life age category at present, because of which the industry is running down
gradually in vitality and productivity and faces a high cost of production. This situation can
endanger the prospects of keeping the plantations in a state of maximum vigor if not countered
effectively now. Renovation of the field assets and R&D on a sound footing- financially,
organizationally and managerially would help succeed in meeting the challenges of the future.

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The research institutes are expected to continuously develop appropriate technology suiting to
the demands of the industry and disseminate the same.

Therefore, research requires backing from well spread, fine tuned, efficient extension services,
covering different regions and all segments of the industry. Adequate technical support is not
available to the small and medium size producers. Thus, it becomes necessary for the research
institutes to set up a dedicated extension service exclusive for the benefit of small and medium
producers. Over the past 10-15 years, the emergence of small sector had assumed a form of a
socio-economic movement and served as a vehicle for social transformation in the N.E. region as
well as in North Bengal and Bihar state which has also opened up avenues for setting up of new
tea factories in the small scale industry sector leading to generation of employment in the tea
industry. 26% of the total production of India is accounted for by this tiny sector. This sector has
its strength in the young and most productive age of the plantations of the reasonably high clonal
composition, low cost of production and the youth segment of the entrepreneurs with
receptiveness to a new and improved agro-technique. In both Kenya and Sri Lanka too, most of
the success of the tea industry is linked to the growth of the small holder sector over past few
decades. The size of production from the small sector in Kenya and Sri Lanka are Interestingly at
par with the volume of tea produced by the small growers in India. Because of the scattered
nature of holdings, the major problem faced by the small growers in India is the inadequacy of
the technical guidance. 2009-10 witnessed international prices bouncing back even surpassing
the highs attained in 2008 which was primarily driven by almost unprecedented drop in
production due to unfavorable weather in India, Sri Lanka and Kenya proving once again that
climate related swings are the key determinants of the global demand supply balance. Despite
economic downturn, the facts that demand for tea has remained relatively robust have
strengthened the belief that the prices will remain firm even when production returns to normal
levels. Even though the stock has depleted in the major importing countries and consumption
growth in India and China, it is optimistically expected that the prices will not sink back to the
previously depressed levels. Therefore, there arises a need to understand the factors which
influence the demand and supply scenario and the price fluctuations in the Indian Tea Industry so
that the practitioners can modify their strategies and adapt to the changing environment for their
own benefits as well as aim at induction of professionalism in plantation management and
improve labor productivity.

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This paper seeks to address this issue and find out the ways to combat this situation. This paper
aims at studying the Indian Tea Industry by applying the concept of Forward Engineering
which is based on a new paradigm of a fusion between rationality and creativity, and it combines
the rational-analytic and the intuitive creative approaches to find unique solutions (Sharma,
2009). This paper examines this concept through qualitative analysis of data and information
gathered through interviews with Tea Board Officials, Tea Garden owners, Intermediaries,
Auction houses, Suppliers etc. , public documents (e.g. annual reports), and related research
literature. The study using Forward engineering tries to provide a foundational premise for the
strategic gearing of Indian Tea Industry keeping in view its existing and new capabilities with
respected to current and anticipated challenges in a competitive environment. Thus, it tends to
reveal the strategies and action plans for Indian Tea Industry based on mind pooling, METRIC
analysis and other forward engineering tools

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1.4 Industry scenario:
Industry majors like Tata Tea and Hindustan Lever are not only slugging it out between
themselves through increased branding to gain market shares, but are increasingly aware of
threats emerging from other beverage segments like coffee and aerated drinks like Coke and
Pepsi. However, the picture for the tea market as of now looks better than last year.

After record low prices in the previous year, the prices have started picking up in the current
year. The prices are expected to remain firm in the long run. In the exports scenario, with the
collapse of the USSR, India lost an evergreen market. But the recent trend shows that the
Russian markets are slowly reviving. On the other hand, Sri Lanka and Kenya (the two low-cost
producers) are trying to edge out the Indian tea industry. The tea industry is labour- intensive
where labour accounts for 60 per cent of the cost of production. Kenya and Sri Lanka have a
distinct advantage, as their labour costs are low.

Demand from US market is also expected to rise as the acceptance of tea as a health- friendly
drink catches up. Besides, there has been a trend towards consolidation of the existing tea
plantations. Smaller players are being bought over by larger estates or global consumer goods
majors, as in the case of Unilever Plc buying over Russell Industries. Apart from buying tea
estates, these companies are also moving up the value-chain through increased branding of
products across all segments in the industry and introduction of new blends.

During these trying times, the industry also saw history being created when Tata Tea bought over
UK-based Tetleys tea businesses for a consideration of over US $420 million. This deal may
lead to another round of consolidation among the global tea majors. All this is aimed at not only
improving realizations but also to attract new consumers, especially the younger generation. In
effect, the industry is gradually maturing from commodity-based businesses to market savvy
branded fast-moving consumer goods companies.

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1.5 Industry growth:
The annual tea production has been around 800mn kg for the last 2 years. The tea production
grew at an average annual rate of 2.3% during last four decades and at 1.4% pa in the last
decade. For the first 10 months of 2006 the production has increased by 6% on yoy basis. The
consumption is currently around 600mn kg. But over last one year the consumption growth has
slowed down, this coupled with falling exports has led to surplus supply and falling prices in the
market. Tea plantations in India are concentrated in the North-East (Upper Assam, West Bengal)
and the South (Kerala, Tamil Nadu). The North-Eastern region with 82% of area accounts for
76% of total tea production. In the North East, the yield is lower but quality of tea is superior.

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1.6 Regional differences:
Consumers in different parts of the country have heterogeneous taste. Dust tea is very popular in
the south. In the western states, good quality loose tea is preferred in Gujarat, whereas in
Maharashtra, consumers provide a large market to packet as well as unbranded tea. The eastern
states of West Bengal and Orissa consume CTC broken. Among the northern states, CTC
fannings is liked in Rajasthan and CTC broken in others states of the North. The Central India is
predominantly a dust market.

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1.7 Consumption in Producing Countries of Tea:
How much of total global production is consumed in producing countries? Except for India and
China, most other producers consume only a small proportion of their production.

To address market balance problems, domestic consumption in producing countries should be


stimulated. Kenya produced 324,000 MT TEA and reported to have surprisingly exported
333,000 MT Tea. The home consumption in Kenya is small and the Tea Board there is currently
working on a strategy to boost domestic consumption. The GDP growth in Kenya is around 3%
per annum. It is not clear why per capita consumption of tea in Kenya fluctuates from year to
year. May be the world prices affect per capita consumption in Kenya. Or, could it be smuggling
through borders of Pakistan and Iran? Some surmise that every time illegal tea imports enter
Kenya, per capita consumption goes down. Kenya is also embarking on value addition. It is also
exploring new markets such as USSR and Poland.

If Indians could drink half a cup more per day, the problem of surpluses will disappear and that
could make buffers history. Such is the power of even a small increase in consumption for a
large population base.

In view of surpluses, growth in production should be checked. Producing countries have to


control production on a voluntary basis in the long term interest of the tea industry. The increase
in production through productivity increases, as recently witnessed in Turkey, does strengthen
their competitive positions and serve their national interest. Would Turkey add to the world
supplies significantly and compound the woes of the other supplier countries?

Among the global suppliers, China is another concern. Like India, China is a producer, consumer
and exporter country. Although presently China has a small share in black tea, this appears to be
increasing. It has the capability to produce more black tea and could exploit that adding to world
supplies? It has already removed export quota on tea from January 1, 2006. Black tea is
becoming popular in China and they are served in tea houses in Beijing and Shanghai.

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1.8 Medium Term Export Strategy by Tea Board:
Tea Board which has the responsibility for overseeing and regulating production and trading
including exports, was already withdrawing from the controls and regulations.
The Board undertook an exercise to develop mid-term strategies for increasing exports during
the Tenth Plan period. The objectives of this exercise were:
Focused efforts at developing and promoting an Indian Tea Logo and assistance in
brand-building approaches of major players.
Geographical diversification of markets and consolidation of existing primary markets.
A comprehensive exporter rating and reliability management programme.
Targeting value-addition and niche segment opportunities in specific markets.
Re-alignment of the product- mix in line with demand in key high- value markets.
Comprehensive product quality up gradation programme.
Robust industry-wide information technology backbone for greater transparency and
dissemination of price and other market related information.
In line with the medium term export strategy for Indian tea (2007-2013), the Tea Board in 2007
has also developed strategies on 22 markets. The plan was to increase Indian exports of tea to
these markets to a total of 280 million kg which was almost 72 million kg incremental.
On the whole the industry did not do well and then began the blame game. The tea industry
blamed Tea Board and the Tea Board lamented lack of support from the industry particularly in
markets where concentrated efforts were planned. While concern on exports declining sharply
was expressed in all quarters, not much concrete was done to reverse the situation. Present global
strategy at the Board level includes among other things capturing Chinas domestic market for
black tea. The industry doyens both at home and abroad have made many caustic comments
about functioning of the Tea Board repeatedly pointing out that it neither has the experience nor
the expertise to handle issues in global marketing. A study by IIM Calcutta had made many
critical comments on the concerned Division. In fairness, it must be noted that the Tea Board
formed in 1952 was mainly to control and regulate the Indian Tea industry. Under the changed
circumstances presently, in which the clientele system has different and many more expectations,
it would be appropriate to redefine the charter of the Tea Board, refocus its activities, and down
size it. In doing so, the highly dynamic and well focused functioning of the Tea Boards of Sri

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Lanka and Kenya could be useful inputs. One of the strategies to beat the competition is to know
how it operates.
Tea industry in India is at crossroad not knowing how to reverse the adverse trends in global
markets that have directly affected its fortunes. The strategy is to protect the industry in the home
markets since the tea industry particularly the plantations employs a huge labour force.
Unfortunately, not much is known for sure about the actual consumption in the domestic market.
Some say it is growing, others feel it is stagnant, and in some informed quarters there is a feeling
that Indias average domestic consumption is growing more than the increase in the global
consumption. The fact remains that whatever the domestic market consumes, there is still
sizeable surplus between 180 to 200 million kg that needs to be sold in the world markets. Trade
estimates are that roughly half of this is poor quality and at best would fetch a price of around
Rs.40-45 per kg. Assam teas are a quality product, still much valued in the international markets
but suffer the disadvantage of seasonality and high prices. Assam produces nearly 56% of Indias
tea.
A careful analysis of the performance of Indian tea industry in global markets reveals some
interesting insights. First, India had leadership position in countries where it had bilateral trade
agreements. As these agreements expired, Indias leadership also weakened. Such is the case
with the markets like Russian Federation and Poland. India probably has a weak case in markets
that are free and have high purchasing power. Two, India continues to export tea in commodity
form whereas the demand is shifting in favour of tea bags. Indian teas although quite gutty, are
light weight and do not infuse easily in tea bags. Trade knows it well that Indian teas are not all
that suitable for tea bags. Since the world markets are steadily and increasingly moving towards
tea bags, India is in a disadvantageous position for not having the right kind of teas. India can
continue to export tea in markets which consume it in commodity form but that pattern of
consumption is fast changing. Indian tea industry has some good local brands in individual
markets abroad, but they are feeling the heat in competing with the globally established brands.
That is where serious concerns for future arise. Can Indian industry survive in markets that are
changing and face the competition of the global giants? The answer to this question lies in
knowing the markets and competition in them, emerging trends, and clear role definition for
different segments of the industry. Business has to be segregated from the bureaucracy.

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1.9 Story of Tea:
Began in ancient China over 5,000 years ago, According to legend, the Shen Nong, an early
emperor was a skilled ruler, creative scientist, and patron of the arts. His far-sighted edicts
required, among other things, that all drinking water be boiled as a hygienic precaution.

One summer day while visiting a distant region of his realm, he and the court stopped to rest. In
accordance with his ruling, the servants began to boil water for the court to drink. Dried leaves
from the nearby bush fell into the boiling water, and a brown liquid was infused into the water.

As a scientist, the Emperor was interested in the new liquid, drank some, and found it very
refreshing. Therefore, according to legend, tea was created. (This myth maintains such a
practical narrative, that many mythologists believe it may relate closely to the actual events now
lost in ancient history.)

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1.10 Background of Indian tea industry:
The tea industry in India is about 170 years old. It occupies an important place and plays a very
useful part in the national economy. Robert Bruce in 1823 discovered tea plants growing wild in
upper Brahmaputra Valley. In 1838 the first Indian tea from Assam was sent to United Kingdom
for public sale. Thereafter, it was extended to other parts of the country between 50's and 60's of
the last century. However, owing to certain specific soil and climatic requirements its cultivation
was confined to only certain parts of the country.

Tea plantations in India are mainly located in rural hills and backward areas of North-eastern and
Southern States. Major tea growing areas of the country are concentrated in Assam, West
Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are
Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim,
Nagaland, Meghalaya, Mizoram, Bihar and Orissa.

Unlike most other tea producing and exporting countries, India has dual manufacturing base.
India produces both CTC and Orthodox teas in addition to green tea. The weight age lies with the
former due to domestic consumers preference. Orthodox tea production is balanced basically
with the export demand. Production of green tea in India is small. The competitors to India in tea
export are Sri Lanka, Kenya, China, Indonesia and Vietnam.

Tea is an agro-based commodity and is subjected to vagaries of nature. Despite adverse agro
climatic condition experienced in tea growing areas in many years, Indian Tea Plantation
Industry is able to maintain substantial growth in relation to volume of Indian tea production
during the last one decade.

Tea is an essential item of domestic consumption and is the major beverage in India. Tea is also
considered as the cheapest beverage amongst the beverages available in India. Tea Industry
provides gainful direct employment to more than a million workers mainly drawn from the
backward and socially weaker section of the society.

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CHAPTER 2
INDIAN TEA INDUSTRY

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2.1 Overview of Tea Industry:
The tea industry in India is about 170 years old. It occupies an important place and plays a
very useful part in the national economy. Robert Bruce in 1823 discovered tea plants
growing wild in upper Brahmaputra Valley. In 1838 the first Indian tea from Assam was sent
to United Kingdom for public sale. Thereafter, it was extended to other parts of the country
between 50's and 60's of the last century. However, owing to certain specific soil and climatic
requirements its cultivation was confined to only certain parts of the country.

Tea is an agro-based commodity. Despite adverse agro climatic condition experienced in tea
growing areas in many years, Indian Tea Plantation Industry is able to maintain substantial
growth in relation to volume of Indian tea production during the last one decade. There has
been a dramatic tilt in tea disposal in favor of domestic market since fifties. While at the time
of Independence only 79 MKgs or about 31% of total production of 255 MKgs of tea was
retained for internal consumption, but now,

Tea is an essential item of domestic consumption and is the major beverage in India. Tea is
also considered as the cheapest beverage amongst the beverages available in India. Tea
Industry provides gainful direct employment to more than a million workers mainly drawn
from the backward and socially weaker section of the society. It is also a substantial foreign
exchange earner and provides sizeable amount of revenue to the State and Central
Government. The total turnover of the Indian tea industry is in the vicinity of Rs.8000 Crs.
Presently, Indian tea industry is having (as on 31.12.2006)
1655 registered Tea Manufacturers,
2008 registered Tea Exporters,
5148 number of registered tea buyers,
Nine tea Auction centers.

One cannot forget that the major driving force behind the country's tea sector growth is the
prospect of eastern India's tea industry, particularly of Assam which not only produces
around 53 percent of the country's total production, but also employs more than 10 percent of
the stats work force or around 13 lakh people. That the fate of India's tea industry is largely

17
dependent on what happens to its eastern sector of Assam and West Bengal is well known.
What is seriously worrying the tea industry is that even though India still produces 27 percent
of global tea output, the quality of product is sadly doubted in the global market. It is a fact
that the planters of major tea growing states, themselves were not careful enough about the
decline of quality during that days and their negligence gradually turned more than 30 per
cent of tea crops into infracts plants.

India's tea market is facing yet another inconsistency which could be explained in obvious
terms that price received by producer and the price charged by dealers and retailers. The
common consumer in the market is confused of the fact that while the producers are facing
the crisis created by a market excess and decline of prices, often voiced by the corporate, the
benefit of low price does not come to the common consumers.

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2.2 Types of Tea:

White Tea
White tea is similar to green tea, in that it's undergone very little processing and no
fermentation. But there is a noticeable difference in taste. Most green teas have a distinctive
'grassy' taste to them, but white tea does not. The flavor is described as light, and sweet. You
should steep white tea in water that is below the boiling point.

There is also considerably less caffeine in white tea than the other varieties (15mg per
serving, compared to 40mg for black tea, and 20mg for green). Some studies have also
shown that white tea contains more active cancer- fighting antioxidants than green tea.

As with all teas, there are many varieties of white tea, with poetic names such as: white
peony, golden moon, silver needle and white cloud. White teas are produced mostly in China
and Japan, but the Darjeeling region of India also produces some fine white teas.

Green Tea
Green tea is nothing more than the leaves of the camellia sinuses that have been processed a
certain way. Green teas, like white teas, are closer to tasting like fresh leaves or grass than
the black or oolong. They are also lower in caffeine and have higher antioxidant properties.

Preparation
First, the green leaves are seen how much oxidation should take place before drying them
out. Tea leaves have enzymes in their veins. When the leaf is broken, bruised, or crushed, the
enzymes are exposed to oxygen resulting in oxidation. The amount of oxidation depends
upon how much of the enzymes are exposed.

Processing of Green Tea


The processing of green tea is similar to that of white tea in that it does not oxidize. After the
leaves are plucked, they are (sometimes) laid out to wither for about 8 to 24 hours. This lets

19
most of the water evaporate. Then, in order to neutralize the enzymes thus preventing
oxidation, the leaves are steamed or pan fried. Next the leaves are rolled up in various ways
and tightness. After that, a final drying takes place. Since no oxidation took place, the tea has
more of a green appearance. From there, it goes off to be sorted, graded, and packaged.

Oolong Tea
Oolong teas are the most difficult of the four types of teas to process. The best way to
describe oolong tea is that they are somewhere in between green and black tea. This is
because they are only partially oxidized during the processing.

Oolong tea is gently rolled after picking allowing the essential oils to react with the air and
slowly oxidize. This process turns the leaf darker with time and produces distinctive
fragrances. When the leaf has reached the desired oxidation the leaf is heated, in a process
called 'panning', to stop the process. It's then rolled to form the tea into its final shape. The
resulting tea can be anywhere between a green and a black, depending on the processing
method. This tea is handcrafted, undergoing a labor intensive process. The tea maker must
carefully balance many elements in the critical few hours after the leaf is picked including
weather conditions, quality of the leaf, and the time the leaf oxidizes. The finest Oolongs are
often prepared and enjoyed Gung Fu style to savor their complex tastes and fragrances.

Processing
The processing of oolong tea requires only a partial oxidation of the leaves. After the leaves
are plucked, they are laid out to wither for about 8 to 24 hours. This lets most of the water
evaporate. Then the leaves are tossed in baskets in order to bruise the edges of the leaves.
This bruising only causes the leaves to partially oxidize because only a portion of the
enzymes are exposed to air. Next, the leaves steamed in order to neutralize the enzymes and
stop any oxidation. Oolong tea can have varying degrees of oxidation. Some are closer to
black teas, and some are closer to green.

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Black Tea
Black teas are the most consumed of the four types of teas. They are the highest in caffeine.
Black tea is the most popular tea in the world. It is the tea most widely used in making iced
tea and English tea. Since the process of making black tea consists of three main stages,
cut, torn and curled, it is also known as C.T.C tea. After cutting, the leaves are first
spread on shelves called withering racks.

Air is blown over the leaves to remove excess moisture, leaving them soft and flexible. These
withered leaves are then crushed between the rollers of a machine to release their flavored
juices. In the tearing process the cells of the leaves are exposed and the oxidation process
begins. They are then taken to the fermenting room where under controlled temperature and
humidity, they change into copper color. Finally they are dried in ovens, where they are
curled by heat and become brownish black.

It is made by steaming the leaves in large vats. The steaming prevents the leaves from
changing its green color, hence the name. The leaves are then crushed in a machine and dried
in ovens. It is produced by using many of the same techniques that were practiced centuries
ago.

Pu-erh Tea
Pu-erh teas come from the Yunnan province in China and have a strong earthy flavor. Pu-erh
has been praised for generations for it's flavor and health benefits. It's processed according to
an ancient technique (which used to be a state secret) that involves aging the leaves. It is
often formed into bricks and is one of the few teas that ages well. Pu-erh tea is moderate in
taste, not as strong as black tea. It can cut grease, help digestion, warm stomach, help
produce saliva and slake thirst, dispel the effects of alcohol and refresh ones mind. Pu-erh
tea has functions of lowering the triglyceride, cholesterol, hyperuricemia in the body.

Puer tea (also called pu-er or pu-erh) is an ancient and rare tea, much loved in China and the
only tea for some 'hardened' tea drinkers. The processes that go into making the classic puers
are closely guarded secrets. It is fermented, sometimes twice, and is often pressed into cakes

21
or bricks. This makes puer especially easy to store and keep for long periods. Generally they
are robust, earthy teas with a dark red or brown color and distinctive, mysterious aroma. Puer
is widely known in China to have major health benefits, especially in reducing cholesterol
and as an aid to digestion, which makes it the ideal after dinner tea.

Scented Tea
Scented or Flower tea is either green or white tea that has been infused with certain flowers,
which impart a delicate and interesting taste, and of course a wonderful aroma. As with black
tea and milk or sugar, flowers were added to green tea originally to disguise a less than
favorable taste in the poorer varieties. This is still the case with many commercially produced
flower teas, which hide the taste of very cheap tea behind a strong flowery presence. Flower
teas, in particular the delicious jasmine, have gained such a following both in Asia and the
Western world, that many people only drink this variety. The Seven Cups jasmine teas
combine really fine quality green and white teas with a subtle but distinct jasmine flavor, and
are a real treat, especially for dedicated jasmine fans. They are the best jasmine teas we've
ever tasted.

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2.3 The Competitors:

India is a producer, consumer and exporter of tea. The Indian exports declined by 13%
during 2003 but increased by 4% in 2004 over the previous year volume after that in declined
by 12% during 2009. During this period the Indian rupee had appreciated by 7% thereby
making Indian exports more uncompetitive. Even otherwise, India is a high cost producer of
tea because of high cost of labour and capital.

Sri Lanka produces 325,000 MT of tea. Sri Lanka encourages producers to pack good quality
tea thereby effectively checking over supplies. Sri Lanka exports around 305,000 MT teas.
By exporting only the quality teas, Sri Lanka has bounced back in the global markets for
their orthodox teas. Their product portfolio consists of three types of teas grown at different
elevation and that insulates Sri Lankan tea industry from fluctuations in global prices. Sri
Lanka has a very strong presence in the tea bags segment. It has very successfully established
two global brands that are well entrenched in the markets for tea. During the last decade,
large investments were made in producing quality teas and machinery for tea bags. A great
deal of this machinery came from India.

Although presently China has a small share (around 8%) in black tea, it could make much
more black tea. Besides, the market for green tea is expanding and that could affect to some
extent the market for black tea.

23
CHAPTER-3
MAJOR PLAYERS IN TEA
INDUSTRY

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Wagh bakre tea

One of the top 10 most trusted hot beverage brands in India. Estd. 1892 Trust. Tradition. History.
Heritage. Taste all this in a cup of Tea . The Wagh Bakri Group is led by 4th generation of Tea
Tasters and Blenders, ensuring consistency & quality. WaghBakri Tea is exported 30 countries
plus. Company sells black organic Green &Darjeeling Tea.

Limitex tea

Limtex is an Indian multinational company, headquartered in Kolkata , west bangal , india and a
subsidiary of Limtex Group. It exports $40 million in Indian tea annually. Limtex is the leading
producer, manufacturer and exporter of Indian Tea both in the domestic and international market.
It also has an IT division - Limtex Infotech, which was formed in 2005.

Tata tea

Tata Global Beverages Limited (formerly Tata Tea Limited) is an Indian multinational non-
alcoholic beverages company headquartered in Kolkata , west bangal , india and a subsidiary of
the Tata Group. It is the world's second- largest manufacturer and distributor of tea and a major
producer of coffee.[1]

Tata Global Beverages markets tea under the major brands Tata Tea, Tetley, Good Earth Teas
and JEMA. Tata Tea is the biggest-selling tea brand in India, Tetley is the biggest-selling tea
brand in Canada and the second biggest-selling in the United Kingdom and the United States and
JEMA is the biggest-selling tea brand in the Czech Republic.

Tata Global Beverages ventured into the Indian cafe market with a 50/50 joint venture with
Starbucks Coffee Company. The coffee shops branded as "Starbucks Coffee - A Tata Alliance"
will source coffee beans from Tata Coffee, a subsidiary company of Tata Global Beverages.

25
Marvel tea

Marvel group is one of India's most recognized and respected business entities. Conceived in
1994 by Shri R.C.Jain, the Marvel group has branched into very successful business units in
sectors ranging from FMCG (Marvel Tea), Real Estate (Marvel City) to Health Care (Marvel
Hospital).

Marvel Tea has always strived to provide its customers with the best quality tea and value for
money. We test almost 800 cups daily in our laboratory to maximize the product quality. To
maintain the quality we use mostly Indian tea in our products, carefully picked from significant
tea gardens of Assam and Darjeeling. Every cup of tea prepared with Marvel is enriched with
purity, authentic taste and aroma that awaken the spirits!

Balaji tea

Balaji Agro International has served as the bridge between specialty Indian teas and
connoisseurs worldwide since 1970.
We are a family concern located in Kolkata, India, and our eventful journey on the tea trail
since 1970 has won us friends and trusting associates worldwide. We are recognised as an
Export House by the Government of India.
The passion for tea continues to brew and we move forward innovatively as a leading
exporter of Indian teas.

26
CHAPTER-4
STRATEGIC ANALYSIS OR
INDUSTRIAL ANALYSIS

27
4.1 SWOT ANALYSIS OF TEA INDUSTRY:

STRENGTHS

1) The diverse agro climatic conditions previling in the tea growing areas of india lend
themselves to the production of a wide range of teas black, (CTC , orthodox) , green
teas and organic teas.
2) A one stop shope for high quality specially teas e.g. dearjeeling,aasam,orthodox,high
range nilgiris etc.
3) Strong production base with 75% of the production being accounted for by organized
sector covering 1600 gardens owned by nearly 1100 entities
4) Competent managerial manpower.
5) Strong research backing from well established research institution.
6) Availability of modernized and upgraded manufacturing facilities.
7) Labour welfare laws protecting workmen.
8) Emerging small grower sector with young plantation profiles.
9) Availability of training facilities plantation managers, supervisory staff and worker for
continuous up gradation of their skills.

WEAKNESSES

1) Old age of the bushes nearly 38% have crossed the economic threshold age limit of 50
years and another 10% on the verge of crossing this limit shortly.
2) High cost of production mainly due to low productivity, high energy cost and high social
cost burden.
3) Diminishing availability of workforce particularly in south India.
4) Remote location of the plantations and transportation of teas over long distances from tea
gardens to sale points.
5) Poor infrastructure approach roads to gardens, inadequate warehousing at ports,
constrained availability of containers, placement of vessels and high ocean freight
charges.
6) Difficulties in introduction of mechanization of field operations due to topographical and
quality limitations.

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7) Unorganized nature of small growers with fragmented small and scattered holding
leading to production of poor quality teas mainly due to non-availability of technical
know-how at the doorstep weak extension service.
8) Lack of quality monitoring mechanism for teas particularly sold through private sales.

OPPORTUNITIES

1) Good awareness level world over as to the health attributes of tea leading to rowing
demand for good quality teas and specially teas such as organic teas, green tea.
2) Narrowing down of the gap between supply and demand due to increased growth rate of
consumption in the major producing countries.
3) Producing countries reaching an agreement for forming an exclusive forum for resolving
their difference over common issue.
4) Positive response by the tea industry responding to the government towards renovation of
fields and processing factories.

THREAT

1) Round the year production in countries such as shri lanka, Vietnam.


2) Low cost of production of teas from Kenya, vietnam and Indonesia etc..
3) Younger age of bushes of other producing countries.
4) Consistency in quality commitment and high quality perception of tea.

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4.2 PORTERS FIVE FORCES MODEL FOR INDUSTRY ANALYSIS:

Michael Porter, an authority on competitive strategy, contends that a corporation is most


concerned with the intensity of competition within its industry. The level of this intensity is
determined by basic competitive forces, as depicted in given figure. The collective strength of
these forces, he contends, determines the ultimate profit potential in the industry, where profit
potential is measured in terms of long-run return on invested capital. In carefully scanning its
industry, a corporation must assess the importance to its success of each of five forces: threat of
new entrants, rivalry among existing firms, threat of substitute products or services, bargaining
power of buyers and bargaining power of suppliers. Also relative power of other stakeholders
exists as the sixth force.

30
The stronger each of these forces, the more limited companies are in their ability to raise
prices and earn greater profits. Although Porte r mentions only five forces, a sixthother
stakeholdersis added here to reflect the power that governments, local communities, and other
groups from the task environment wield over industry activities. Using the model in given
figure, a high force can be regarded as a threat because it is likely to reduce profits. A low force,
in contrast, can be viewed as an opportunity because it may allow the company to earn greater
profits. In the short run, these forces act as constraints on a companys activities. In the long run,
however, it may be possible for a company, through its choice of strategy, to change the strength
of one or more of the forces to the companys advantage. For example, Dells early use of the
Internet to market its computers was an effective way to negate the bargaining power of
distributors in the PC industry.

A strategist can analyze any industry by rating each competitive force as high, medium, or low in
strength. For example, the global athletic shoe industry could be rated as follows: rivalry is high
(Nike, Reebok, New Balance, Converse, and Adidas are strong competitors worldwide), threat of
potential entrants is low (the industry has reached maturity/sales growth rate has slowed), threat
of substitutes is low (other shoes dont provide support for sports activities), bargaining power of
suppliers is medium but rising (suppliers in Asian countries are increasing in size and ability),
bargaining power of buyers is medium but increasing (prices are falling as the low-priced shoe
market has grown to be half of the U.S. branded athletic shoe market), and threat of other
stakeholders is medium to high (government regulations and human rights concerns are
growing). Based on current trends in each of these competitive forces, the industrys level of
competitive intensity will continue to be highmeaning that sales increases and profit margins
should continue to be modest for the industry as a whole.

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Threat of New Entrants

New entrants to an industry typically bring to it new capacity, a desire to gain market share, and
substantial resources. They are, therefore, threats to an established corporation. The threat of
entry depends on the presence of entry barriers and the reaction that can be expected from
existing competitors. An entry barrier is an obstruction that makes it difficult for a company to
enter an industry. For example, no new domestic automobile companies have been successfully
established in the United States since the 1930s because of the high capital requirements to build
production facilities and to develop a dealer distribution network. Some of the possible barriers
to entry are:

Economies of scale:
Scale economies in the production and sale of microprocessors, for example, gave Intel a
significant cost advantage over any new rival.

Product differentiation:
Corporations such as Procter & Gamble and General Mills, which manufacture products such as
Tide and Cheerios, create high entry barriers through their high levels of advertising and
promotion.

Capital require ments:


The need to invest huge financial resources in manufacturing facilities in order to produce large
commercial airplanes creates a significant barrier to entry to any competitor for Boeing and
Airbus.

Switching costs:
Once a software program such as Excel or Word becomes established in an office, office
managers are very reluctant to switch to a new program because of the high training costs.

32
Access to distribution channels:
Small entrepreneurs often have difficulty obtaining supermarket shelf space for their goods
because large retailers charge for space on their shelves and give priority to the established firms
who can pay for the advertising needed to generate high customer demand.

Cost disadvantages independent of size:


Once a new product earns sufficient market share to be accepted as the standard for that type of
product, the maker has a key advantage. Microsofts development of the first widely adopted
operating system (MSDOS) for the IBM-type personal computer gave it a significant competitive
advantage over potential competitors. Its introduction of Windows helped to cement that
advantage so that the Microsoft operating system is now on more than 90% of personal
computers worldwide.

Government policy:
Governments can limit entry into an industry through licensing requirements by restricting
access to raw material, such as oil-drilling sites in protected areas.

Rivalry among Existing Firms

In most industries, corporations are mutually dependent. A competitive move by one firm can be
expected to have a noticeable effect on its competitors and thus may cause retaliation. For
example, the entry by mail order companies such as Dell and Gateway into a PC industry
previously dominated by IBM, Apple, and Compaq increased the level of competitive activity to
such an extent that any price reduction or new product introduction was quickly followed by
similar moves from other PC makers. The same is true of prices in the United States airline
industry. According to Porter, intense rivalry is related to the presence of several factors,
including:

33
Number of competitors:
When competitors are few and roughly equal in size, such as in the auto and major home
appliance industries, they watch each other carefully to make sure that they match any move by
another firm with an equal countermove.

Rate of industry growth:


Any slowing in passenger traffic tends to set off price wars in the airline industry because the
only path to growth is to take sales away from a competitor.

Product or service characteristics:


A product can be very unique, with many qualities differentiating it from others of its kind or it
may be a commodity, a product whose characteristics are the same, regardless of who sells it. For
example, most people choose a gas station based on location and pricing because they view
gasoline as a commodity.

Amount of fixed costs:


Because airlines must fly their planes on a schedule, regardless of the number of paying
passengers for any one flight, they offer cheap standby fares whenever a plane has empty seats.

Capacity:
If the only way a manufacturer can increase capacity is in a large increment by building a new
plant (as in the paper industry), it will run that new plant at full capacity to keep its unit costs as
low as possiblethus producing so much that the selling price falls throughout the industry.

Height of exit barriers:


Exit barriers keep a company from leaving an industry. The brewing industry, for example, has a
low percentage of companies that voluntarily leave the industry because breweries are
specialized assets with few uses except for making beer.

34
Diversity of rivals:
Rivals that have very different ideas of how to compete are likely to cross paths often and
unknowingly challenge each others position. This happens often in the retail clothing industry
when a number of retailers open outlets in the same locationthus taking sales away from each
other. This is also likely to happen in some countries or regions when multinational corporations
compete in an increasingly global economy.

Threat of Substitute Products or Services

A substitute product is a product that appears to be different but can satisfy the same need as
another product. For example, e- mail is a substitute for the fax, Nutrasweet is a substitute for
sugar, the Internet is a substitute for video stores, and bottled water is a substitute for a cola.

According to Porter, Substitutes limit the potential returns of an industry by placing a ceiling on
the prices firms in the industry can profitably charge. To the extent that switching costs are low,
substitutes may have a strong effect on an industry. Tea can be considered a substitute for coffee.
If the price of coffee goes up high enough, coffee drinkers will slowly begin switching to tea.
The price of tea thus puts a price ceiling on the price of coffee. Sometimes a difficult task, the
identification of possible substitute products or services means searching for products or services
that can perform the same function, even though they have a different appearance and may not
appear to be easily substitutable.

Bargaining Powe r of Buyers

Buyers affect an industry through their ability to force down prices, bargain for higher quality or
more services, and play competitors against each other. A buyer or a group of buyers is powerful
if some of the following factors hold true:

A buyer purchases a large proportion of the sellers product or service (for example, oil filters
purchased by a major auto maker).

35
A buyer has the potential to integrate backward by producing the product itself (for example, a
newspaper chain could make its own paper).

Alternative suppliers are plentiful because the product is standard or undifferentiated (for
example, motorists can choose among many gas stations).

Changing suppliers costs very little (for example, office supplies are easy to find).

The purchased product represents a high percentage of a buyers costs, thus providing an
incentive to shop around for a lower price (for example, gasoline purchased for resale by
convenience stores makes up half their total costs).

A buyer earns low profits and is thus very sensitive to costs and service differences (for example,
grocery stores have very small margins).

The purchased product is unimportant to the final quality or price of a buyers products or
services and thus can be easily substituted without affecting the final product adversely (for
example, electric wire bought for use in lamps).

Bargaining Powe r of Suppliers

Suppliers can affect an industry through their ability to raise prices or reduce the quality of
purchased goods and services. A supplier or supplier group is powerful if some of the following
factors apply:

The supplier industry is dominated by a few companies, but it sells to many (for example, the
petroleum industry).

Its product or service is unique and/or it has built up switching costs (for example, word
processing software).

36
Substitutes are not readily available (for example, electricity).

Suppliers are able to integrate forward and compete directly with their present customers (for
example, a microprocessor producer such as Intel can make PCs).

A purchasing industry buys only a small portion of the supplier groups goods and services and
is thus unimportant to the supplier (for example, sales of lawn mower tires are less important to
the tire industry than are sales of auto tires).

Relative Powe r of Other Stakeholde rs

A sixth force should be added to Porters list to include a variety of stakeholder groups from the
task environment. Some of these groups are governments (if not explicitly included elsewhere),
local communities, creditors (if not included with suppliers), trade associations, special- interest
groups, unions (if not included with suppliers), shareholders, and complementors.

According to Andy Grove, Chairman and past CEO of Intel, a complementor is a company (e.g.,
Microsoft) or an industry whose product works well with a firms (e.g., Intels) product and
without which the product would lose much of its value. An example of complementary
industries is the tire and automobile industries. Key international stakeholders who determine
many of the international trade regulations and standards are the World Trade Organization, the
European Union, NAFTA, ASEAN, and Mercosur. The importance of these stakeholders varies
by industry. For example, environmental groups in Maine, Michigan, Oregon, and Iowa
successfully fought to pass bills outlawing disposable bottles and cans, and thus deposits for
most drink containers are now required. This effectively raised costs across the board, with the
most impact on the marginal producers who could not internally absorb all these costs. The
traditionally strong power of national unions in the United States auto and railroad industries
has effectively raised costs throughout these industries but is of little importance in computer
software.

37
4.3 PESTEL ANALYSIS

A scan of the external macro environment in which the firm operates can be expressed in term
of the following factors:
Political Factors
Economical Factors
Social Factors
Technological Factors
Environmental Factors
Legal Factors

1. POLITICAL FACTORS

The tea industry in India is highly regulated. Under the Tea Act, 1953, the Tea Board has been
constituted by the Government of India (GOI) to regulate the production and extent of
cultivation of tea; improve the quality of tea; promote cooperative efforts among growers and
manufacturers of tea; secure better working conditions and the provisions and improvement of
amenities and incentives for workers; etc. Permission has to be obtained from the Tea Board
for planting of tea on any land not planted with tea; replacement of tea area by planting tea on
area not planted with tea.

The Tea Board is thus able to compute and compile the total volume of Darjeeling tea
produced and sold in the given period. No blending with teas of other origin is permitted. The
customs authorities in India have instructed, by circular, all customs c heckpoints to check
for the certificates of origin accompanying the Darjee ling tea cons ignme nts a nd not to
allo w the expor t o f any tea as Darjeeling without this certificate. This ensures the sale-
chain integrity of Darjeeling tea until consignments leave the country.

38
The Government has set a target of kg of production by 2014; this would require additional
land of 50,000 hectares and explanation of 200,000 hectares. Given the gestation period of 5-
7 years, the target is impossible to achieve. The production growth is estimated to be 1.5-2%
pa. Even if targets were achieved, it would do more harm than good to the industry. The
domestic demand of 600mn kg will rise at 1.5-2% pa. Indian tea in international market
will remain price uncompetitive due to high production costs. Available surplus for exports
will dampen prices.

In order to provide legal protection in India, the Tea Board has also registered the 'Darjeeling
logo' and also the word 'Darjeeling' as certification trade marks (CTMs) under the Indian
Trade and Merchandise Marks Act, 1958 (now the Trade Marks Act, 1999). At the national
level, the words 'Darjeeling' and 'Darjeeling logo' have been proposed for incorporation in
the Indian Geographical Indications (GI) registry under the Geographical Indications of
Goods (Registration and Protection) Act, 1999 which came into force with effect from
September 15, 2014. The use of a GI may act as a certification that the product possesses
certain qualities, or enjoys a certain reputation, due to its geographical origin (such as
champagne). At the international level, a number of treaties administered by the World
Intellectual Property Organizatio n (WIPO) provide for the protection of geographical
indications, most notably the Paris Convention for the Protection of Industrial Property of 1883
and the Lisbon Agree ment for the Protectio n of Appe llations o f Origin and The ir
International Registration. At present, GIs for all products are covered under Article 22 of the
Trade- Related Aspects of Intellectual Property Rights (TRIPS). The pending issue is to
whether to expand the higher level of protection under Article 231 of TRIPS currently given
to wines and spirits-to other products.

2. ECONOMICAL FACTORS

Indian economy become the strongest than it is coma ring since last many years, it is absolutely
good time for Indian tea industry. The total net foreign exchange earned per Annam is Rs 1847
crore, highest foreign exchange earning agricultural product of India. The rapid growth of
domestic demand is expected to reduce the export surplus in the coming years.

39
India net tea imports increased 1.5% during 2010 to around 1,416-1,420 mkgs, mainly because
of increases in traditional developed country markets. Most of the growth in these markets is
reportedly in response to promotional efforts on the health benefits of tea consumption.
Amongst the developing countries, Pakistan is the largest importer.

During 2010, India tea imports declined to around 1,401 mkgs mainly because of decline in
exports in India. An analysis of major tea importing markets indicates that Russia is the
largest importer of tea with imports of 169 mkgs in 2005.

Tea is concentrated more for adults markets. As tea as not considered healthy drink for
children's, the marketers do not focus on these segments, when they advertise. Still n\many
children are the regular consumer of tea in India.

Generally the market is being segmented on the basis of income. We can c lass ify the tea
market in to three segme nts premium, popular, and economical.

3. SOCIAL FACTORS

To remove puffiness from eyes, soak cotton pads in the cold lea brew and keep the pads on your
lids for about 10 minutes. Refrigerated used tea bags are another alternative. In case you have
had a rough day, soak your feet in the cold tea brew for about 15 minutes. This is a great way to
treat your feet after a long day of standing, walking, or running. For an aromatic soak, you can use
flavoured tea brews. For a face scrub, mix 1 teaspoon of fine commeal or oatmeal with cooled
chamomile tea brew.

4. TECHNOLOGICAL FACTORS

The labor force accounts for about 50% of the cost of production, as plucking of the leaves
requires expertise and these leaves are responsible for producing superior quality tea.

40
The technology that is used in tae production is not very advanced. New technology
innovation is not very advanced the basic product i.e. the tea. Tea industry is not an industry
where overnight changes have to be made or production is affected due to new technology.

Being highly labor intensive technological factors is least affecting the tea industry. India is
the largest manufacturer and exporter of tea machinery. Other major tea producers (also
developing nations) source equipment and technology from India.

Incorporating the highest technological standards in its production of tea, the company is a
symbol of excellence giving a perfect bland of quality and care in every cup of tea.

5. ENVIRONMENTAL FACTORS

Tea has a great impact on the environment. In 1999, the area of land cultivated by tea in just the
five major producing countries (China, India, Indonesia, Kenya and Sri Lanka) amounted to one
million acres.

Tea is grown in monoculture, which reduces bio diversity. In the absence of other plants to
maintain the ecological balance, intensive use of pesticides and fertilizers is needed to protect the
plants against pest infestation and to enhance productivity, leading to the soil being leached out.

The unsafe use of chemicals not only puts the workers and the environment in danger, but also
leaves traces of harmful pesticides and insecticides in the processed tea. According to a report
published in the Economic Times, the European Tea Committee in its findings claimed a high
incidence of pesticides in Indian tea exported to overseas markets.

41
6. LEGAL FACTOR

Stock reduction Although there is some correlation between stock levels and prices, the perish
ability of tea means that stocks are normally small in relation to consumption, so that this scheme
will only have a small impact on raising prices.

Reduced production Because tea is domestically a popular beverage in many producing


countries, most notably India, opposition from such countries is likely to make such a scheme
very difficult. High domestic demand in those countries will mean that a lower share of
production is exported, thereby reducing their share in the export market, which they will find
unacceptable.
.

42
4.4 BCG Matrix Of Tea Industry

BCG Matrix is used to access profile of product, cash demands of products, development cycle
of product and also for resource allocation and divestment decisions. According to this
technique, business or products are classified as low or high performance depending upon their
market growth rate and relative market share.

Cash Cow

A business unit that has a large market share in a mature, slow growing industry. Cash cows require
little investment and generate cash that can be used to invest in other business units.

43
Star

A business unit that has a large market share in a fast growing industry. Stars may generate cash, but
because the market is growing rapidly they require investment to maintain their lead. If successful, a
star will become a cash cow when its industry matures.

Question Mark

A business unit that has a small market share in a high growth market. These business units require
resources to grow market share, but whether they will succeed and become stars is unknown.

Dog

A business unit that has a small market share in a mature industry. A dog may not require substantial
cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other
strategic purpose, it should be liquidated if there is little prospect for it to gain market share.

44
4.5 Product Life Cycle in Tea Industry

Development

In the development stage, the product goes through testing and a prototype is developed. This is
after considerable market research to identify consumer needs and wants. If the product is
deemed commercially viable, then the product may be put into mass production and launched.

It is important to remember at this stage expenditure for the company is high. No income is being
received as there are zero sales. This is the first stage of the product cycle lifespan.

Introduction

Introduction is the stage in which a new product is first made available in the market. In the
introduction stage, customers are few, competition is less, sales are low, risk is high and profits
are low or nil. There are heavy distribution and promotion expenses. This stage is full of risks
and uncertainties. prices are also high because costs are high due to low level of output.
Technological problems in production may not have been solved, and high profit margins are
required to support the heavy promotion expenditure. the product at the introduction stage
requires high activity in promotion.

45
Growth

If the product is popular with consumers, then sales will start to rise. It may be a rapid growth or
a slower one. Rapid growths that fall away just as quick are called 'Fads'. That process is known
as Growth.

Advertising is often still heavy at this point.

Maturity

Once the product is well established and consumers are satisfied, then the product is widely
accepted and growth slows down. Before long, however, a successful product in this phase will
come under pressure from competitors. The producer will have to start spending again in order to
defend the product's market position or introduce extension strategies.

It may only be in the Maturity stage where companies will receive a return on their original
expenditure and investment due to potentially high start up and development costs.

Saturation: At the very end of the Maturity stage, and where there is no further growth possible,
saturation occurs. This is also referred to as Saturation Point. This is when little or no advertising
is needed and sales are levelling off.this is the period of stability. during this period, the sales of
the product reaches the peak. there is a steady demand for the product and no possibility for
growth. However, at this stage other competitors also become popular and capture the market.

Decline

Sooner or later sales fall due to changes in consumer tastes or new choices available from
competitor's products.

Again, extension strategies may be open to the company to keep the product alive. The product
can be declined if there is no proper growth and the later stage which has been discussed above.

46
CHAPTER-5
FINANCIAL ANALYSIS

47
5.1 Trend analysis

5.1.1 Total income

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 1540.1 2090.19 1966.87 2222.29 2495.49
Diana tea 59.76 59.50 55.43 43.48 41.17
Warren tea 202.56 214.75 209.56 121.43 143.82
Terai tea 47.63 33.15 36.00 32.15 44.68
Total income 1850.05 2397.59 2267.86 2419.35 2725.16
Average 462.51 599.40 566.97 604.84 681.29
income

Avrage Total Income


800

700

600

500

400

300

200

100

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Average income

The Tea Industry has a fluctuating flow of income over the 5 years. The industry has been able to
improve its sell much but not able in 2009-10. After 2009-10 the income decrease in Daina Tea
and Terai Tea at decreasing rate. But Tata Tea and Warren Tea income continues increase. This
is a good sign for the industry having such a reputed name in the market. Also it affects the
earnings of shareholders.

48
5.1.2 Total Expense

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 1227.00 1529.73 1689.85 1813.30 2126.13
Diana tea 48.47 47.85 47.38 38.84 37.91
Warren tea 156.01 173.49 190.22 97.53 111.44
Terai tea 42.76 48.93 31.32 59.24 79.77
Total income 1474.24 1800 1958.77 2008.91 2355.25
Average 368.56 450 489.69 502.23 588.81
Expense

Average Expense
600

500

400

300

200

100

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Average expense

Above graph show the Tea industry fluctuating of expenses over the 5 year. The industry has not
able to decrease their expenses. The expenses of last 5 years is continually increase. In 2008-
2009 TATA Tea, Diana Tea, Warren Tea, Terai Tea.Total expenses decrease and than after
increase.

49
5.1.3 Ope rating Profit

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 153.14 183.46 128.55 231.77 238.51
Diana tea 10.54 11.12 4.52 3.13 2.93
Warren tea 44.59 39.42 16.74 21.13 30.60
Terai tea 4.81 4.97 5.02 6.61 5.57
Total 213.08 238.97 154.83 262.64 277.79
Operating
Profit
Average 53.27 59.74 38.71 65.66 69.45

Average Operating profit


80

70

60

50

40

30

20

10

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Column1

Above graph show the industry different year operating profit over the 5 year. The graph show
the last 3 year operating profit continually increase. The industry show, they have achieved good
market share over the first 3 year. But the year of the 2010-11 the industry operating profit was
decrease.

50
5.1.4 PBDT

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 229.48 504.12 238.05 381.95 337.35
Diana tea 8.18 9.61 6.26 3.02 1.40
Warren tea 42.94 41.05 18.45 23.77 32.03
Terai tea 2.44 2.41 2.18 2.51 2.76
Total PBDT 283.04 557.19 264.49 411.25 373.54
Average 70.76 139.30 66.24 102.81 93.39

Average PBDT
160

140

120

100

80

60

40

20

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Average PBDT

Above graph show the industry fluctuating of PBDT over the 5 year. The industry has able to
improve their PBDT in 2009-10 to 2011-12 but than after PBDT not improve in 2008-09 and
2012-13. The first 2 year industry has increase PBDT But suddenly in the year of 2010-11 the
trend was downfall. Because in the year 2010-11 and 2012-13 the three company Terai and
Diana Tea suddenly down their PBDT.

51
5.1.5 Total s hare capital

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 61.84 61.84 61.84 61.84 61.84
Diana tea 7.50 7.50 7.50 7.50 7.50
Warren tea 11.95 11.95 10.71 10.71 10.71
Terai tea 6.90 6.90 6.90 6.90 6.90
Total 88.19 88.19 86.95 86.95 86.95
Average 22.05 22.05 21.74 21.74 21.74

Total share capital


22.1
22.05
22
21.95
21.9
21.85
21.8
21.75
21.7
21.65
21.6
21.55
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Total share capital

Above graph show the industry fluctuating of Total share capital over the 5 year. In first three
year the total share capital of the industry is near to equal, but in 2010-11 the share capital is
decrease the reason is Terai Tea is decrease. This is not a good sign for the industry having such
a reputed name in the market. Also it affects the industry volume and profit.

52
5.1.6 Total Liability

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 2554.31 2577.50 2676.12 2705.13 2906.86
Diana tea 88.45 86.31 86.75 94.95 84.45
Warren tea 142.93 171.62 165.64 88.61 108.85
Terai tea 62.01 67.88 72.78 81.67 74.80
Total 2847.7 2903.31 3001.29 2970.36 3174.96
Average 711.93 725.83 750.32 742.59 793.74

Total Liabilites
800

780

760

740

720

700

680

660
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Total libilites

Above graph show that the industry total liability continually over the 5 year. The industry
liability is continues increase in all 3 year the reason is all four company increase the liability
but in a year 2011-12 TATA Tea,Diana Tea,Warren Tea,Terai Tea the total liability is decrease.

53
5.1.7 Investment

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 2073.67 2309.05 2290.91 2205.70 2225.14
Diana tea 1.52 3.85 3.81 3.92 3.69
Warren tea 25.55 3.19 3.19 1.60 16.60

Terai tea 7.49 7.49 8.43 11.69 3.26


Total 2108.23 2323.58 2306.34 2222.91 2248.69
Average 527.06 580.90 576.59 555.73 562.17

Investment
590
580
570
560
550
540
530
520
510
500
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Investment

At the initial level the industry is very poor in making investments at the year 2008 -09 industry
sold its investments but in 2009-10 and 2010-11 industry had done good business And the year
2011-12 and 2012-13 industry had decrease their investment the reason is Warrena Tea and Terai
Tea sold his investment.

54
5.1.8 Inventory

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 291.10 378.14 429.91 453.47 651.56
Diana tea 15.10 11.07 11.53 9.67 10.1
Warren tea 11.69 15.26 11.40 5.75 8.04
Terai tea 10.32 .11.59 8.15 6.74 9.16
Total 328.21 416.06 460.99 475.63 678.86
Average 82.05 104.02 115.25 118.91 169.72

Inventory
180
160
140
120
100
80
60
40
20
0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Inventory

From the above trend of inventories the industry cost of inventories is continues increase in
2008-09 to 2012-13 the reason is TATA tea,Diana tea,Warren tea,Terai tea the inventories cost
increase. It is because of increased price level of raw material and stores.

55
5.1.9 Total Assets

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 2554.31 2577.50 2676.12 2705.13 2906.86
Diana tea 88.42 86.31 86.74 94.94 84.46
Warren tea 142.94 171.63 165.65 88.62 108.85
Terai tea 62.02 67.89 72.77 81.65 74.79
Total 2847.69 2903.33 3001.28 2970.34 3174.96
Average 711.92 725.3 750.32 742.59 793.74

Total Assets
760

750

740

730

720

710

700

690
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Total Assets

From the above trend of total assets of the company we can say that company has a good growth
rate. It has increased in all five year the reason is TATA Tea and Warren Tea company assets are
more increase compare to other company. It is because of company overvalued its fixed assets
and investments.

56
5.2 RATIO ANALYSIS

5.2.1 Return on capital e mployee

The sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the
total dividends paid out over an entire year (including interim dividends but not including special
dividends) divided by the number of outstanding ordinary shares issued.

Return on capital employee = Earnings before interest and tax


---------------------------------------
Capital employee

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 12.89 12.39 9.56 12.17 13.39
Diana tea 17.27 18.49 8.09 4.06 4.27
Warren tea 35.11 24.10 6.10 21.36 25.19
Terai tea 4.60 4.82 4.46 6.06 5.23
Total 69.87 59.8 28.21 43.65 48.08
Average 17.47 14.95 7.05 10.91 12.02

57
20

18

16

14

12

10

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Return on Capital Employee

Above graph show the industry pay divined to all 5 year. The graph show the divined per
share first 3 year industry good divined to their holder and it continues decrease. But last
2 year industry divined per share is increase. The First 3 year dividend per share is
suddenly fall down because Terai Tea and Warren Tea dividend decrease compare to
earlier. It is not good sign for industry.

5.2.2 Return on Net worth

The return on equity ratio (also known as the return on net worth) reveals the amount of
return earned by investors on their investments in a business. This return can be improved
when a business buys back its own stock from investors, or by using more debt and less
equity to fund its operations

Return on Net worth = Net income

----------------

Eqity

58
Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
TATA tea 8.98 19.04 8.87 13.69 11.15
Diana tea 17.10 15.16 4.95 3.36 -0.61
Warren tea 21.69 16.71 3.60 15.50 18.59
Terai tea 1.22 1.56 0.44 1.04 1.10
Total 48.99 52.47 17.86 33.59 30.68
Average 12.25 13.12 4.47 8.40 7.67

14

12

10

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Column3

Return on equity measures a corporation's profitability by revealing how much profit an industry
generates with the money shareholders have invested.

Above graph show the fluctuating of the return on net worth over the 5 year. In the year 2008-09
the return on net worth was around 12.25 and the in a year 2009-10 the return on net worth is
increase the reason is the TATA tea, Diana tea, Terai tea highly increase in return on net worth .
It is good for industry but year 2010-11 industry return on net worth fall down.

59
5.2.3 Curre nt Ratio

It is a measure of general liquidity and is most widely used to make the analysis for short term
financial position or liquidity of a firm. It is calculated by dividing the total of the current assets
by total of the current liabilities.

Current Ratio = Current assets

-------------------

Current liabilities

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 0.83 0.78 0.77 1.22 0.87
Diana tea 0.97 1.17 1.64 1.53 2.63

Warren tea 0.71 1.06 1.30 1.27 1.40


Terai tea 1.11 1.24 1.95 1.26 0.74
Total 3.62 4.25 5.66 5.28 5.64
Average 0.905 1.06 1.42 1.32 1.41

60
1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Column3

The current ratio is a financial ratio that measures whether or not a industry has enough resources
to pay its debts over the next 12 months. It compares a firm's current assets to its current
liabilities. Above graph show the current ratio in the first three years increase .

5.2.4 Debt / Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by


stockholders' equity. It indicates what proportion of equity and debt the company is using to
finance its assets.

Debt /Equity ratio = Total liability


------------------
Share holder equity

61
Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
TATA tea 0.42 0.24 0.25 0.17 0.08
Diana tea 0.46 0.24 0.12 0.19 0.08
Warren tea 0.04 0.10 - - -

Terai tea 0.75 0.88 0.99 1.10 0.91


Total 1.67 1.46 1.36 1.46 1.07
Average 0.42 0.37 0.34 0.37 0.27

0.45

0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Column2

A measure of an industry financial leverage calculated by dividing its total liabilities by


stockholders' equity. It indicates what proportion of equity and debt the industry is using to
finance its assets. Above graph show the industry debt equity ratio was increase in the year of the
2011-12 and the decrease in year 2012-13 the reason is TATA Tea, Diana Tea, Warren Tea the
ratio is decrease. It is good position in the market.

62
5.2.5 Inventory Turnover Ratio

Inventory turnover is the ratio of cost of goods sold by a business to its average inventory during
a given accounting period. It is an activity ratio measuring the number of times per period, a
business sells and replaces its entire batch of inventory again.

Inventory turnover ratio =Cost of goods sold


------------------------
Average inventory

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 5.15 4.71 4.48 4.49 3.57
Diana tea 4.08 6.55 4.46 4.64 3.98
Warren tea 33.80 23.88 18.66 20.72 17.42
Terai tea 4.48 4.69 5.67 9.98 9.07
Total 47.51 39.83 33.27 39.83 34.04
Average 11.88 9.96 8.32 9.96 8.51

14

12

10

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Column3

63
A ratio showing how many times a inventory is sold and replaced over a period. Here the graph
show the higher inventory turnover ratio is 11.88 in the year of the 2008-09 the reason is the all
four company inventory turnover ratio is increase. It means the industry inventory is more sold
and replaced over a period. But in 2009-10 and 2010-11 is decrease the reason is TATA Tea,
Diana Tea, Warren Tea ratio is decrease.

5.2.6 Debtor Turnover Ratio

Debtors Turnover ratio is a test of the liquidity of the firm. This ratio establishes the relationship
between net credit sales and accounts receivables. The objective of this ratio is to determine the
efficiency with which the debtors are being managed. It suggests the number of time the amount
of credit sale is collected during the year.

Debtor turnover ratio = Net sales


--------------
Debtor

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 17.53 16.31 16.42 21.14 23.29
Diana tea 10.22 12.27 4.04 2.34 3.62
Warren tea 15.29 17.01 12.68 5.01 4.47
Terai tea 6.83 11.38 9.74 13.47 12.92
Total 49.87 56.97 42.88 41.96 44.3
Average 12.47 14.24 10.72 10.49 11.08

64
16

14

12

10

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Column2

Debtor turnover ratio or accounts receivable turnover ratio indicates the position of debt
collection of an industry. In simple words it indicates the number of times average debtors
(receivable) are turned over during a year. The graph show debtor turnover ratio in the year
20010-11 and 2011-12 is decrease the reason is Diana Tea and warren ratio is decrease. It is the
benefit of the industry. But in 2009-10 the ratio is increase the reason is Diana Tea,Warren Tea
and Terai Tea company debtor turnover ratio is increase

5.2.7 Total Fixed Assets Turnover Ratio

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's
ability to generate net sales from fixed-asset investments - specifically property, plant and
equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the
company has been more effective in using the investment in fixed assets to generate revenues.

65
Total fixed assets turnover ratio = Net sales
--------------
Total fixed assets

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 7.49 8.48 8.42 9.14 9.87
Diana tea 0.67 0.76 0.79 0.67 0.58
Warren tea 0.81 0.80 0.77 0.78 0.91
Terai tea 0.93 1.06 0.78 1.26 1.29
Total 9.9 11.1 10.76 11.85 12.65
Average 2.48 2.78 2.69 2.96 3.16

3.5

2.5

1.5

0.5

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Total Fixed turnover ratio

The total asset turnover ratio measures the ability of a industry to use its assets to efficiently
generate sales. This ratio considers all assets, current and fixed. The graph show the industry
total assets turnover ratio is decrease in 2010-11, the reason is a TATA Tea,Warren Tea and

66
Terai Tea fixed turnover ratio is decrease . In the year of 2011-12 and 2012-13 the total turnover
ratio is increase.

5.2.8 Earing Per Share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings
per share serves as an indicator of a company's profitability.

Earing per share = Net income dividends on preferred stock


----------------------------------------------------------
Average outstanding share

Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013


TATA tea 25.72 63.30 2.92 4.89 4.18
Diana tea 4.72 4.77 2.57 1.78 -0.32
Warren tea 20.79 19.23 5.57 11.49 16.94
Terai tea 0.58 0.77 0.22 0.59 0.63
Total 51.81 88.07 11.28 18.75 21.43
Average 12.95 22.02 2.82 4.69 5.36

67
25

20

15

10

0
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

Earning par share

Financial analyst considers the earning per share as an important measure of profitability.EPS
measures the profit available to the equity share holders on a per share basis. That is the amount
that they can get on every share held. The earnings per share has increase rapidly from 2009-
10.In 2009-10 it was highest at 25.16 and it has decreased to in 2010-11 .This lower ratio will
not attract investors. This ratio shows that company fails to increase profitability in 2010-11,
2011-12 and 2012-13.

68
CHAPTER-6
BUSSINESS PLAN

69
BUSINESS-PLAN:-

6.1 Mission

Our goal is to provide the finest premium teas and chocolates to residents of the Simsbury,
CT area in a relaxed and fun atmosphere.

6.2 Objectives

To operate a successful tea and chocolate store in Simsbury, employing one


to two employees the first year.
To obtain a minimum of 200 regular customers in the Simsbury market the first year of
operation.
Achieve first year sales of $190,000.
Maintain an average gross margin of 58 percent.
To produce a reasonable net profit by the end of the third year of operation.

6.3 Keys to Success

1. Experienced Owners/Managers. Earl and Lady Grey have years of experience in this and
related industries.
2. Product Quality. We sell only the finest whole- leaf loose teas, pastries, and chocolates.
3. Excellent Customer Service. Each customer will be treated as would an honored guest in
our homes.
4. No direct competition. We are the only teahouse in 20 miles.
5. Enough working capital to survive the first year as we build a customer base.
6. Broad cross-seasonal offerings. In addition to hot teas, we offer iced teas, chocolates, and
gift baskets to cover seasonal variations in customer demand.

70
Company Summary

Jasmine Teahouse is a start-up business on a well-trafficked street in Simsbury, CT. Our primary
focus is in the over 50 kinds of loose tea we offer, including black teas, green teas, herbal teas
(infusions), and flavored teas (black or green tea plus other flavors). We serve our teas hot and
iced, and sell loose teas by the ounce.

In addition, we sell premium chocolates and gift baskets, and offer daily pastries to accompany
tea orders. Since we are not intending to compete with coffee giants such as Starbucks, we brew
only one kind of coffee daily, as a courtesy to our customers.

About Simsbury

Simsbury is one of Connecticut's oldest communities, incorporated in 1670. The population in


Simsbury has grown from 5,000 in 1950 to today's population of over 23,000. While Simsbury
has seen some development, the town is committed to maintaining its rural environment and
historic charm. Simsbury old New England appeal has also made it a popular tourist destination
for residents of Hartford, Boston and New York City.

Simsbury has four State parks, several wildlife habitats, and Talcott Mountain, a great hiking
destination. Tourists flock to Simsbury in all four seasons for outdoor activities, historic
sightseeing, and shopping. In Summer, the Talcott Mountain Music Festival draws crowds from
Hartford, and in Autumn, the city-dwelling "leaf-peepers" stop to enjoy our antiques and craft
fairs. Winter brings cross-country skiiers, candlelight tours of the historic downtown, and ice
skating, while Spring introduces the Simsbury Light Opera season and the River Run Road Race.

71
6.4 Company Owne rship

As a Limited Liability Company in the State of Connecticut, ownership of Jasmine Teahouse is


identified as belonging to its managers. These partners, Earl Grey and Lady Grey, each control
50% of the business.

Start- up Requirements

Start- up Expenses

Legal $750

Stationery etc. $800

Brochures $200

Insurance $500

Rent $3,000

Leashold Improvements $10,000

Start- up Supplies $1,200

Dishes, Teacups, Teapots $2,000

Other $100

Total Start-up Expenses $18,550

Start- up Assets

Cash Required $15,000

Start- up Inventory $10,000

Other Current Assets $6,605

Long-term Assets $13,808

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Total Assets $45,413

Total Requirements $63,963

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Start- up Funding

Start- up Expenses to Fund $18,550

Start- up Assets to Fund $45,413

Total Funding Required $63,963

Assets

Non-cash Assets from Start-up $30,413

Cash Requirements from Start- up $15,000

Additional Cash Raised $0

Cash Balance on Starting Date $15,000

Total Assets $45,413

Liabilities and Capital

Liabilities

Current Borrowing $0

Long-term Liabilities $53,633

Accounts Payable (Outstanding Bills) $0

Other Current Liabilities (interest-free) $0

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Total Liabilities $53,633

Capital

Planned Investment

Owners $10,330

Other $0

Additional Investment Requirement $0

Total Planned Investment $10,330

Loss at Start-up (Start-up Expenses) ($18,550)

Total Capital ($8,220)

Total Capital and Liabilities $45,413

Total Funding $63,963

Products and Services

Jasmine Teahouse will specialize in premium teas, fine chocolates, and gift baskets. Our full
"teahouse" experience is complemented by an assortment of loose teas, premium chocolates, tea
accessories and gift baskets, all suitable as souvenirs and gifts for our tourist customers. Our goal
is to be a destination store for visitors, and a resource for locals seeking gifts, new experiences,
and knowledge of tea.

52 kinds of tea

Our tea-tenders will know the best brewing temperature and time for each of the 52 kinds of teas
we offer. These include straight black teas such as Assam, Ceylon, Darjeeling and Keemun,
blends like Chai, Earl Grey, and our own creations, like "New London Garden Party," a
Ceylon/Vanilla/Jasmine blend. We will also offer a range of green teas, which are becoming
more popular with the proliferation of local sushi restaurants. Jasmine Teahouse's no-caffeine
herbal infusions range from flavored rooibus to fruit blends and medicinal brews.

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6.5 Market Segmentation

While we anticipate a split between locals and tourists, all members of our target market are
between the ages of 25 and 60, and have a moderate to sizable disposable income.

Market Analysis

Year 1 Year 2 Year 3 Year 4 Year 5

Potential Customers Growth CAGR

Local Residents 5% 10,000 10,500 11,025 11,576 12,155 5.00%

Tourists 3% 100,000 103,000 106,090 109,273 112,551 3.00%

Total 3.19% 110,000 113,500 117,115 120,849 124,706 3.19%

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Target Market Segment Strategy

Jasmine Teahouse will provide the local upper-middle-class community with a place to socialize,
indulge themselves with fine teas and pastries, and find unique chocolates and tea for gifts. For
tourists, Jasmine Teahouse will be a destination stop in their tour of the town, whether as a break
from shopping, a warm- up visit after skiing, or a place to buy unique gifts as souvenirs of their
holiday.

These customers will be glad to pay the price premium for our products in exchange for the high
quality, great taste, and sense of prestige they receive. In fact, higher prices for some items
(Assam golden tippy versus regular Assam) may encourage higher sales - these kinds of
customers eagerly accept the idea that higher prices equal higher quality, and want to buy "only
the best," regardless of whether their palate is educated enough to appreciate the subtle
differences.

Service Business Analysis

The tea market is relatively new in rural and suburban areas such as Simsbury. Currently, locals
and more sophisticated tourists looking for a cup of coffee or tea can either go to the local
Dunkin Donuts or Peaberry's cafe, or travel up to five miles out of town to reach the nearest
Starbucks. None of these options is geared toward the tea drinker, and none of them offer the
convenience or upscale feeling, let alone knowledgeable service, available at Jasmine Teahouse.

Teahouses have long done well in urban areas; Tealuxe in Boston and the Russian Tea Room in
New York are both internationally renowned. In smaller tourists areas, however, smaller, more
eclectic teahouses have also done very well in recent years. The Berkshires, a tourist area
roughly 50 miles north of Simsbury with a similar tourist base, now has over 15 specialty
teahouses throughout the county. In talking with the owners of three of these establishments, we
have learned that their proximity to cultural events, shopping districts and fine restaurants has
brought in hundreds of walk- in tourists monthly, while advertising with local hotels and bed and
breakfasts boosted their clientele only slightly. Word of mouth, visibility, and year-round tourist
appeal are very important for a teahouse's success in areas like Simsbury.

Tea Methodology

Most people do not consume tea as a morning ritual as they do with coffee.
Tea is consumed in the afternoon and before bed.
People drink tea only during cold weather, making the business seasonal.
Tea is associated solely with the image of old ladies, china cups and doilies.

Tea Factors

Tea is growing in popularity and more people are drinking tea in the mornings as a
substitute for coffee.
Tea is being consumed throughout the day; its milder caffeine effect allows for multiple
cups without the "jitters."

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Today's tea drinkers do not limit their purchases to one season, but drink tea all year long.
Tea has become the drink of choice for today's baby boomer, and tea's health effects are
giving tea a more active, youthful, and healthy image.

6.6 Sales Forecast

Sales Forecast

Year 1 Year 2 Year 3

Sales

Hot Teas $52,400 $62,000 $66,000

Iced Teas $22,400 $24,000 $25,500

Pastries $14,400 $15,000 $16,000

Chocolate $88,000 $92,000 $100,000

Tea Paraphernalia $3,000 $3,200 $3,400

Gift Baskets $3,895 $4,000 $4,200

Loose Teas $10,150 $10,920 $13,104

Total Sales $194,245 $211,120 $228,204

Direct Cost of Sales Year 1 Year 2 Year 3

Hot Teas $15,720 $18,600 $18,480

Iced Teas $7,168 $7,680 $7,650

Pastries $9,504 $9,900 $10,240

Chocolate $39,600 $41,400 $43,000

Tea Paraphernalia $1,500 $1,600 $1,666

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Gift Baskets $1,558 $1,600 $1,596

Loose Teas $4,060 $4,368 $4,980

Subtotal Direct Cost of Sales $79,110 $85,148 $87,612

6.7 Personnel Plan

The Personnel Plan chronicles the growth of the organization to approximately 4 employees in
the first 3 years. Future years may require a few additional people besides those
indicated, depending on the growth of the company.

Personnel Plan
Year 1 Year 2 Year 3
Earl Grey $24,000 $30,000 $35,000
Lady Grey $6,000 $12,000 $14,000
Part-time tea-tenders $13,600 $14,000 $14,500
Total People 4 4 4
Total Payroll $43,600 $56,000 $63,500

6.8 Financial Plan

General Assumptions

Year 1 Year 2 Year 3

Plan Month 1 2 3

Current Interest Rate 9.50% 9.50% 9.50%

Long-term Interest Rate 9.25% 9.25% 9.25%

Tax Rate 30.00% 30.00% 30.00%

Other 0 0 0

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6.9 Break-even Analysis

Our break-even analysis is based on our cost and price structure for the first year. As we grow,
the fixed costs will grow in proportion to the number of employees. We should surpass our
Break-even point early on.

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Break-even Analysis

Monthly Revenue Break-even $11,612

Assumptions:

Average Percent Variable Cost 41%

Estimated Monthly Fixed Cost $6,883

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6.10 Projected Profit and Loss

Pro Forma Profit and Loss

Year 1 Year 2 Year 3

Sales $194,245 $211,120 $228,204

Direct Cost of Sales $79,110 $85,148 $87,612

Other Costs of Goods $0 $0 $0

Total Cost of Sales $79,110 $85,148 $87,612

Gross Margin $115,135 $125,972 $140,592

Gross Margin % 59.27% 59.67% 61.61%

Expenses

Payroll $43,600 $56,000 $63,500

Marketing/Promotion $5,400 $6,000 $6,000

Depreciation $1,380 $1,380 $1,380

Rent $18,000 $19,000 $20,000

Utilities $8,010 $8,200 $8,600

Monthly disposable supplies $1,200 $1,200 $1,200

Insurance $5,000 $5,000 $5,000

Payroll Taxes $0 $0 $0

Other $0 $0 $0

Total Operating Expenses $82,590 $96,780 $105,680

Profit Before Interest and Taxes $32,545 $29,192 $34,912

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EBITDA $33,925 $30,572 $36,292

Interest Expense $4,513 $3,721 $2,894

Taxes Incurred $8,410 $7,641 $9,606

Net Profit $19,622 $17,830 $22,413

Net Profit/Sales 10.10% 8.45% 9.82%

6.11 Projected Cash Flow

Pro Forma Cash Flow

Year 1 Year 2 Year 3

Cash Received

Cash from Operations

Cash Sales $194,245 $211,120 $228,204

Subtotal Cash from Operations $194,245 $211,120 $228,204

Additional Cash Received

Sales Tax, VAT, HST/GST Received $11,655 $12,667 $13,692

New Current Borrowing $0 $0 $0

New Other Liabilities (interest- free) $0 $0 $0

New Long-term Liabilities $0 $0 $0

Sales of Other Current Assets $0 $0 $0

Sales of Long-term Assets $0 $0 $0

New Investment Received $0 $0 $0

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Subtotal Cash Received $205,900 $223,787 $241,896

Expenditures Year 1 Year 2 Year 3

Expenditures from Operations

Cash Spending $43,600 $56,000 $63,500

Bill Payments $117,261 $135,040 $140,758

Subtotal Spent on Operations $160,861 $191,040 $204,258

Additional Cash Spent

Sales Tax, VAT, HST/GST Paid Out $11,655 $12,667 $13,692

Principal Repayment of Current Borrowing $0 $0 $0

Other Liabilities Principal Repayment $0 $0 $0

Long-term Liabilities Principal Repayment $8,938 $8,938 $8,938

Purchase Other Current Assets $0 $0 $0

Purchase Long-term Assets $0 $0 $0

Dividends $0 $0 $0

Subtotal Cash Spent $181,453 $212,645 $226,888

Net Cash Flow $24,446 $11,142 $15,008

Cash Balance $39,446 $50,589 $65,597

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6.12 Projected Balance Sheet

Pro Forma Balance Sheet

Year 1 Year 2 Year 3

Assets

Current Assets

Cash $39,446 $50,589 $65,597

Inventory $7,400 $7,964 $8,195

Other Current Assets $6,605 $6,605 $6,605

Total Current Assets $53,451 $65,158 $80,397

Long-term Assets

Long-term Assets $13,808 $13,808 $13,808

Accumulated Depreciation $1,380 $2,760 $4,140

Total Long-term Assets $12,428 $11,048 $9,668

Total Assets $65,879 $76,206 $90,065

Liabilities and Capital Year 1 Year 2 Year 3

Current Liabilities

Accounts Payable $9,782 $11,217 $11,601

Current Borrowing $0 $0 $0

Other Current Liabilities $0 $0 $0

Subtotal Current Liabilities $9,782 $11,217 $11,601

Long-term Liabilities $44,695 $35,757 $26,819

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Total Liabilities $54,477 $46,974 $38,420

Paid- in Capital $10,330 $10,330 $10,330

Retained Earnings ($18,550) $1,072 $18,902

Earnings $19,622 $17,830 $22,413

Total Capital $11,402 $29,232 $51,645

Total Liabilities and Capital $65,879 $76,206 $90,065

Net Worth $11,402 $29,232 $51,645

6.13 Business Ratios

Business ratios for the next three years are shown below. Industry profile ratios based on the
Standard Industrial Classification (SIC) code 5812, Eating Places (including cafes and
tearooms), are shown for comparison.

The following table outlines some of the more important ratios from the Eating Places industry.
The final column, Industry Profile, details specific ratios based on the industry as it is classified
by the Standard Industry Classification (SIC) code, 5812.

Ratio Analysis

Industry
Year 1 Year 2 Year 3
Profile

Sales Growth 0.00% 8.69% 8.09% 5.24%

Percent of Total Assets

Inventory 11.23% 10.45% 9.10% 2.72%

Other Current Assets 10.03% 8.67% 7.33% 32.59%

Total Current Assets 81.14% 85.50% 89.27% 41.88%

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Long-term Assets 18.86% 14.50% 10.73% 58.12%

Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 14.85% 14.72% 12.88% 21.75%

Long-term Liabilities 67.84% 46.92% 29.78% 29.17%

Total Liabilities 82.69% 61.64% 42.66% 50.92%

Net Worth 17.31% 38.36% 57.34% 49.08%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 59.27% 59.67% 61.61% 55.74%

Selling, General & Administrative


52.78% 52.47% 50.50% 37.46%
Expenses

Advertising Expenses 0.00% 0.00% 0.00% 2.06%

Profit Before Interest and Taxes 16.75% 13.83% 15.30% 1.50%

Main Ratios

Current 5.46 5.81 6.93 0.81

Quick 4.71 5.10 6.22 0.51

Total Debt to Total Assets 82.69% 61.64% 42.66% 53.68%

Pre-tax Return on Net Worth 245.84% 87.13% 62.00% 2.39%

Pre-tax Return on Assets 42.55% 33.42% 35.55% 5.16%

Additional Ratios Year 1 Year 2 Year 3

Net Profit Margin 10.10% 8.45% 9.82% n.a

Return on Equity 172.09% 60.99% 43.40% n.a

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Activity Ratios

Inventory Turnover 10.67 11.08 10.84 n.a

Accounts Payable Turnover 12.99 12.17 12.17 n.a

Payment Days 27 28 30 n.a

Total Asset Turnover 2.95 2.77 2.53 n.a

Debt Ratios

Debt to Net Worth 4.78 1.61 0.74 n.a

Current Liab. to Liab. 0.18 0.24 0.30 n.a

Liquidity Ratios

Net Working Capital $43,669 $53,941 $68,796 n.a

Interest Coverage 7.21 7.85 12.06 n.a

Additional Ratios

Assets to Sales 0.34 0.36 0.39 n.a

Current Debt/Total Assets 15% 15% 13% n.a

Acid Test 4.71 5.10 6.22 n.a

Sales/Net Worth 17.04 7.22 4.42 n.a

Dividend Payout 0.00 0.00 0.00 n.a

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CHEPTER-7
CONCLUSION

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As in the part of tea industry, we all know its growth that from the leaf it has become a tea of
garden that is its popularity not only in the foreign people but also put foot in the Indian market.

Major tea producing states in the country are Assam,West bengal, Tamilnadu, and Kerala 75% of
the total tea produced in india is accounted by Assam and West Bengal together. 26% of the total
production of india is accounted for by this tiny sector.

Proactive measures taken by our government and industry bodies to upgrade the methods and
practices in the industry.

More and more tea shops open daily across the globe and major corporate tea chains have used
emerging markets to growth their business.

The expansion of consumption of tea in all of its many forms, black, green, soluble, tea bags,
specialty etc, will lend underlying strength to the market and eventually benefit producers.
Clearly, quality assurance is of the utmost importance, and ever more so among the health
conscious consumers of the future.
Tea is a most popular beverages in the world.

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CHEPTER-8
BIBLIOGRAPHY

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Website:

www.capitaline.com

www.moneycontrol.com

www.terai.com

www.diana.com

www.warren.com

www.TATA.com

www.Waghbakri.com

www.Limtex.com

www.lipton.com

www.proquest.com

Link:

http://www.ibef.org

http://www.tea.in

http://www.indianteaindustry.aspx

http://www.onicra.com

http://www.slideshare.net

http://www.teaindia.com

http://www.about.com

http://www.studymode.com

http://www.netmba.com

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http://www.we bcrawler.com

Book:

I.M.Pandey

Kotler

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