Future of Plantations

smallville · 1 Future of Plantations Wed Jul 20, 2011 7:26 am

smallville

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Overall we cannot expect plantations to keep their profits margins like earlier after the recent wage hike, hence we should not expect magic numbers as revenue in coming financial year.. while there's a chance of increasing prices due to soaring rubber prices there's a tendency for the oil prices to drop as well so we should expect a drop to balance this effect.. In this view what we really have to think of is; whether the level of production could be maintained by some of the outstanding plantation companies or not despite the wage hike..

In valuation wise, plantations shares should trade at a discount to the market PE due to the level of risk those posses.

The following companies are witnessed to be trading undervalued to the current market PE of 7-8 (After deducting for the risk factor)

KOTA - Strive to maintain its production with investing 5% replanting annually. Te company uses this technology called "Rain Guard" so that the rubber tapping in rainy seasons are possible.

KGAL - Largest rubber plantation in SL. Their growth is mainly supported by the soaring rubber prices and the product mix to cater the market demands. KGAL is also another plantation lavishly involves in replanting. Tea being a niche portion of KGAL's production, a lesser impact compared to its competitors. Still we can expect at least 5% increase in revenue due to this replanting in FY2012.

NAMU - Renowned for its balanced crop mix of Tea+Rubber+Oil Palm mainly. Being another RPC manged plantation, this also heavily invested in replanting. Company's focus is on Oil Plam sector in future which generates a higher gross profit margin. Hence the expectation is to have a higher 7-10% profitability increase in financial year 2012.

AGAL - Higher exposure to Oil Plam and recorded a tremendous increase in revenue for financial year 2011. Exposure to Tea is very less hence less impact on wage hike.

However we should not underestimate that the oil prices also contribute to price fluctuation of synthetic rubber

windi5 · 2 Re: Future of Plantations Wed Jul 20, 2011 9:28 am

windi5

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Tea industry is very sensitive for external forces, specially weather. Dont think that there would be any big loss of demand for Tea and Rubber. Rubber demand increased mainly due to the fact that over whelming demand from boobing economies like India,China,Brazil, Russia,specially India and China. India n China are in race of making vehicles specially for low budget customers in Asia, Nano is a good example.

According to a latest report, Indian Rubber consumption has been increased by a 6%, recently. So this might be the same or more with China.

The middle east never has been stable, some thing is there to talk about every day. Now the problems have been confined to Libya and Syria. The up rising started in Tunisia and spread across the region and now some what settled. The chaos in Libya would have an effect on crude oil production, the oil prices might go up as already has happened. The increasing Oil price intern make the synthetic rubber price go up, opening up new mkt for the natural rubber,so the middle east crisis has a favorable effect for rubber.

Most of SL tea is exported to the CIS countries, as i can remember, including Russia. Russian economy is doing well. Japan is a another mkt, dont know how its economic downturn gonna effect on tea.

According to the Tea boards recent figures, there is a rise in export of tea. April-KG-19,183,68, May-KG-23,715,590, June-KG-28,756,361.00. These figures show an increase in exports,even at the worse part of that Middle east up rising.

Wage hike had no effect for the last quarter ended in June. I dont think the government or trade unions wants to c the collapse of the plantation industry. When companies making huge profits, a portion of it should be draining to the most important part of the tea industry, the plucker,.as well. This wage hike came after 5y, as i can remember. Companies should be flexible, they should be able to find ways and means to keep their growth momentum, as they did in most difficult times than this.

We should not forget, now most of the Plantation companies are exploring their opportunities in other areas as well like Tourism, Hippodrome,etc,. Mal and Elpl are good example.This should be the strategy to minimize any burden that fall their heads after the wage hike

After all this seems to be a downward rally than anything else.Ppl tend to go after rallies rather than fact finding and realizing,brokers also backup them. we will be able to c the real impact of this wage hike in next quarter results. Question

Investor99 · 3 Re: Future of Plantations Wed Jul 20, 2011 11:35 pm

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If inflation is not control the wage hikes are going to be normal phenomena in the future for tea plantation companies as the plantation staff needs to be provided with the fair wage to support them.

The main fact is the consumption of tea is not going to reduce in the future but it’s going to increase.

What I observe is the tea production in Sri Lanka has been constant throughout the last ten years. Sri Lanka start growing tea a long time ago and most countries like China, Viet Nam etc started grown tea very recently so the tea output of these countries have increase every year. The Sri Lankan tea plantation companies should try to increase the tea output. The tea companies need to concentrate on their core business. Diversification is good but it should not be done at the expense of the core business.

Analysts predict that oil prices might trade between USD 100 to USD 110 levels next year. This might increase the rubber prices in the future.

This is not a buy/sell/hold recommendation please do your analysis before investing