>HARRISON MALAYALAM LIMITED (ICICI DIRECT)

MANAGEMENT MEET UPDATE

Harrison Malayalam Ltd (HML) is engaged in many businesses including tea and rubber plantations, aqua and plant tissue culture, engineering and clearing & shipping. However, tea and rubber production contribute 90% of total revenues. The company owns roughly 23,417 hectares of land. Of this, around 6,030 hectares is used for tea plantation. Almost 7405 hectares is used for rubber plantation while the rest is used for fuel wood and other plantations. HML owns nine tea estates in Kerala and one in Tamil Nadu. The company produced 17.1 million kg of tea and 12.0 million kg of rubber in FY09. HML also produces smaller quantities of a variety of other exotic horticultural crops like areca nut, banana, cardamom, cocoa, coffee, coconut, pepper and vanilla as well as limited quantities of organic tea and spices.

■ Soaring tea prices
Tea prices have surged above Rs 130 per kg, almost 30% higher than last year. A decline in tea production due to severe drought conditions in key tea exporting countries like Kenya and Sri-Lanka has resulted in a radical rise in tea prices in international markets. Simultaneously, lower area under tea cultivation coupled with truant monsoons has led to lower production in India further aggravating the situation. With incremental consumption growing at a 3.8% CAGR over 2000-2007 and the relatively lengthy gestation lag of a tea plant, which typically lasts for around five years, we believe that tea production is unlikely to register any significant growth in the near term. This, in turn, would keep tea prices firm, going forward.

■ Volatile crude increases natural rubber prices
Volatile crude prices have lead to an increase in synthetic rubber and natural rubber prices. Despite increasing imports, prices of natural rubber have remained buoyant throughout 2009 on the back of a shortfall in global production. Rubber imports by tyre companies have reached about 79,573 tonnes during April to August 2009 as compared to 24,264 tonnes during the corresponding period. A shortfall in rubber production has lead to an increase in natural rubber prices to Rs 110 per kg. This would result in a significant improvement in the company’s margin from the rubber segment as the rubber division contributed 50% of the company’s revenue.

To see full report: HARRISON MALAYALAM