Does the wage hike only hit Tea segment of a plantation?

innam

innam

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With the upcoming plantation wage talks one thing to look at is how a wage hike hits the bottom line of the indutry.
One misconception that investors have is that ONLY the tea segments get hit and rubber and oil palm may escape because of the low labor intensity.
But this may not be accurate, if you look at the September results of KGAL and NAMU you can see that the because of the wage hike in 2009 the increase in the gratuity provision hit the Rubber and Oil Palm segments as well as Tea.
Page 7 of NAMU's report has the segment breakdown http://www.cse.lk/cmt/upload_report_file/725_1289214492389.pdf
You can see that the gratuity provsion in 2009 for the rubber segment was 42 million compared to 4 million in 2010 (the higher hit in 2009 was clearly due to the wage hike)
Page 6 of KGAL's report has the segment breakdown
http://www.cse.lk/cmt/upload_report_file/711_1289214688358.pdf
You can see that the gratuity provsion in 2009 for the rubber segment was 78 million compared to 12 million in 2010 (the higher hit in 2009 was clearly due to the wage hike)
The high rubber prices helped to off set the higher cost of production in the rubber segment but the point i'm trying to make is that investors should not assume that it is only Tea that gets hit because going by KGAL and NAMU's results bot rubber and oil palm took hits last time there was a wage hike.

xmart

xmart

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well,
even with wage hike in plantation industry, i think all tea, rubber and palm oil plantations and related manufactures can survive in the industry. anyway, I'm thinking of buying some tea plantations not in CSE, but in real. i did a small feasibility study. end up with,
1. Tea
2. Cinnamon
3. Coconut

What do you think of Tea plantation?- not shares, but plantations

thanks buddy...

Slstock

Slstock

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Innam,

Yes it will be incorrect to say Rubber /Oil plam plantation will not be effected. All plantation listed at CSE has some tea segment . Even in KGAL and NAMU case what we do not know is the gratuity distribution effect to those figures you mentioned with respect to segments. ( TEA, Rubber, Plam Oil.) Tea segment will be hit the most.

In any case what we can note is that all plantations short term can be affected in case of a hike as you pointed out. But under the present market conditions plantation having Rubber/ Oil plam can survive /recover much faster compared to TEA only ones .

cse.alpha

cse.alpha

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Good to see that segmental disclosures of KGAL and NAMU are better than most other plantations. And yes, although wage hike will affect all crops, given lower labour intensity and higher profit margins, a rubber and palm oil plantation would still be better than a pure tea company.

Although rubber prices have fallen recently, the margin of safety in rubber is still well above that in tea, but investors should remember to do further analysis on GP margins, management fees, administrative costs and gearing - not all rubber companies are equal. And commodity plays should generally trade at large discounts.

The small-holder model seems superior to the larger regional plantation company model in terms of yields and productivity. Owning a tea or rubber processing factory, and buying the tea green leaf and rubber milk may also be attractive. Longer term though, a shortage of labour may hinder the sector in general.

smallville

smallville

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This was mentioned on an earlier discussion as well where the total cost of production will get increased if a wage hike could be witnessed soon.. And its not for Tea only plantations, it hits generally the plantations sector as whole..The best thing with Rubber & Oil Palm is, due to low labour intensity the production cost could also be low while Tea can damage the bottom line..

KGAL is abt 60-70% Rubber and NAMU is abt same % on Oil Palm, then abt 15-20% rubber.. The GP margins of Tea can come down due to a wage increase-but the Tea segment contribution is less in expectations..
The prices of Rubber and Oil Palm is also trying to get stabilize..

However Current prices and demand can attract producers of Rubber to strive on increasing production. China seems to be the number one in rubber consumption..

Rajitha

Rajitha

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Well people with a general idea about the sector should know why those days those plantations wages went up and how much it might effect this time!
On top of the point made here, Please go dump those rubber + palm oil shares ASAP! Preferably to a low around next week! I have some cash soon after I sell off my LDEV shares next week.

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Does the wage hike only hit Tea segment of a plantation?

1 Does the wage hike only hit Tea segment of a plantation? Tue Apr 19, 2011 11:45 am

innam

2 Re: Does the wage hike only hit Tea segment of a plantation? Tue Apr 19, 2011 12:12 pm

xmart

3 Re: Does the wage hike only hit Tea segment of a plantation? Tue Apr 19, 2011 12:59 pm

Slstock

4 Re: Does the wage hike only hit Tea segment of a plantation? Tue Apr 19, 2011 3:35 pm

cse.alpha

5 Re: Does the wage hike only hit Tea segment of a plantation? Tue Apr 19, 2011 5:05 pm

smallville

6 Re: Does the wage hike only hit Tea segment of a plantation? Tue Apr 19, 2011 5:45 pm

Rajitha

7 Re: Does the wage hike only hit Tea segment of a plantation?

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