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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Should we buy plantations

Should we buy plantations

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1Should we buy plantations Empty Should we buy plantations Sun Feb 06, 2011 10:57 pm

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics

This is extracts from the annual report of ELPL. It brings up the story of plantations

Sri Lanka’s cost of production in tea and other plantation produce is unfortunately amongst the highest compared to competitor countries. Therefore, managing the cost base and continuous
improvement to productivity will be a key factor for growth and competitiveness for Sri Lanka’s plantations industry.

Fortunately, commodity prices for tea, rubber and palm oil was at a high during the year under review, although margins were constantly under risk due to the enormous cost pressures that were experienced. It is important that the company generates sufficient profits to plough back to the plantations for development and productivity improvements.

This is the key
The diversification strategies that EPP adopted continue to pay dividends to the company. Foremost amongst these being the investment into palm oil via field planting and the joint venture
palm oil mill – AEN Palm Oil Processing (Pvt) ltd. The growth for palm oil in Sri Lanka and overseas looks attractive as palm oil has many uses. This will be one of the primary areas of focus for the
future
. The Sheen hydropower project too has performed well, exceeding expectations thus being a very viable investment. We are in the process of developing a further 1.9MW of power in the next financial year. Further the company’s timber and forestry base in the up country estates continues to grow in value and will be a valuable resource for the future. We expect the thrust on palm oil, hydro power and commercial forestry to play a dominant role in the company’s diversification strategies.

In simple terms , we have look for plantations who diversify across crops and across sectors (such as alternative energy in the case of ELPL)

2Should we buy plantations Empty Re: Should we buy plantations Mon Feb 07, 2011 12:02 am

KDS

KDS
Senior Equity Analytic
Senior Equity Analytic

Investing in plantations companies only having one crop at their disposal is high risk especially if its Tea as the labor cost is high. I would go for companies having more rubber or palm oil along with some leisure bungalows or hydro or any other value addition to their crops. Harry owned plantations are mulling some ventures to diversify due to their loss on Tea. Rich is also more relying on rubber which is at present terms look good.

Anyhow its bit of hard time on plantation as the trade union initiating salary talks very soon. Be cautious now and be more bullish when the prices come down after trade union agreement.

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