Branded tea boosts margins at Sri Lanka’s Sunshine Holdings
ECONOMYNEXT – Sri Lanka’s Sunshine Holdings Plc, said margins in branded tea grew sharply boosting profits, helped by the country’s top selling brand, as commodity prices hit its agriculture sector pushing down raw material prices.
Low tea prices boosted helped boost profits in the fast moving consumer goods sector, 55 percent to 146 million rupees in the September quarter as margins grew 16.3 percent from 12.9 percent. In the six months to September profits margins were up to 14.4 percent to 9.3 percent.
Sunshine Holdings have built two of the country’s strongest tea brands, Zesta and Watawala which allows retail prices to be maintained.
Unlike commodities, a brand has pricing power and engage in ‘monopolistic competition‘ with loyal customers.
Branded tea sales rose 11.1 percent to 1.7 million kilograms, primarily by Watawala Tea which the company said has become the best-selling brand in the country.
Analysts say there are opportunities for a low cost brand to come and disrupt the market with global commodities prices expected to be low with a strong US dollar, as the Federal Reserve tightens policy and pulls back from excessive money printing.
Its subsidiary Watawala Plantations was hit by low tea prices, but gains from palm oil helped maintain it the firm said.
Palm oil prices are artificially kept high in Sri Lanka with interventionist import taxes, with rent-seeking pressure from the landowners who grow coconut, helping keep the price of basic and prepared foods high for the poor people in Sri Lanka, critics say.
The firm said there may be pressure on cost of production with wage negotiations now under way with plantations workers. World crude palm oil prices were also sharply down.
Sunshine’s group profits rose 8 percent to 171 million rupees in the September 2015 quarter from a year earlier helped by FMCG and phamaceuticals.
Pharmaceuticals sales grew 17.2 percent to 1,765 million rupees above the industry growth of 4.8 percent with margins flat at 5.3 percent with pressure from suppliers, the Sunshine Holdings said. It had a 11.7 percent share of the market with profits coming from volume growth.
The group reported earnings of 1.27 rupees for the quarter.
Revenues rose 4 percent to 4.34 billion rupees and cost of sales fell 2 percent to 3.23 billion rupees helping grow gross profits 29 percent to 1,101 million rupees. (Colombo/Nov02/2015)