Sri Lanka mixed crop plantations seen as better investment
COLOMBO, Nov 13, 2014 (EconomyNext) – Investors considering buying into Sri Lanka’s listed plantations companies should consider those with a diversified crop mix to hedge against unpredictable weather and commodity market cycles, a stock broker said.
In a research report titled ‘Under the weather, seeking productivity’, Bartleet Religare Stockbrokers said the industry continues to be at the mercy of unpredictable weather patterns and labour issues that have collectively dented profitability.
Listed Regional Plantation Companies (RPCs) grow tea, rubber, and palm oil supplemented by coconut and spices like cinnamon.
Investors buying shares of tea plantations would do better to find those growing tea in different elevations, again as a hedge against the risk of market cycles and weather.
"Diversity emerges as the key to success for plantation companies. It is imperative that plantations counters considered for investment be diversified both in terms of crop mix and also in terms of elevation when it comes to exposure to tea."
BRS said the bi – annual wage hike in 2013 hit profitability across the industry, mainly in the labour heavy tea sub-segment, but with 2014 spared of wage negotiations, expectations are for industry profitability to be boosted by a buoyant tea sector.
"This was indeed the case during the first half of 2014," the report said. "However, persistent rainfall has resulted in a drop in output and profitability during the latest quarter."
The rubber industry continues its decline due to bleak global market conditions and unfavorable weather locally.
"However, amidst this gloom palm oil has continued to yield positive results for those RPCs with exposure to it."