Financial Times

Tess Agro seen gaining from higher Tesco tuna fish orders
UK retailing giant Tesco's decision to increase tuna fish shipments from Sri Lanka could benefit Tess Agro Ltd., one of the largest exporters of tuna fish in the island.

The company, which also cultivates and exports non-traditional agricultural produce, is also likely to benefit from a low interest Indian credit line, stock brokers Lanka Orix Securities said. Tess Agro, founded in 1992 as a Board of Investment approved venture, specializes in the cultivation and export of agricultural produce such as cantaloupe melon, other vegetables and fruits.

It is also engaged in deep-sea fishing of tuna for export using its own fleet of vessels and operates a cold chain service through a subsidiary, Tropic Fishery (Pvt) Ltd. "Tess Agro's existing lines of business are expected to generate an improved revenue stream during the current year and over the next two financial years," Lanka Orix Securities said in a research report.

The UK's Tesco recently announced that it would increase its tuna fish orders from Sri Lanka by about 30 percent. "This move too is expected to benefit Tess Agro as the company is one of the largest tuna exporters in Sri Lanka."

Tess Agro accounts for an estimated 70 percent of the seafood exported by Sri Lanka. The seafood product exported by the company is the high quality tuna used for 'sashimi' varieties.

'Sashimi' is a Japanese delicacy primarily consisting of thinly sliced fresh raw fish served with soy sauce. Tess Agro's main burden of heavy debt and the resulting interest charge could be somewhat mitigated during the current financial year as it has secured an Indian loan with a 9.5 percent interest, which is a significantly lower rate than its average borrowing rate.

Rs. 47.5 million raised through a Rights Issue during FY 2003/2004 is being invested to enhance cold storage capacity. "As the company provides cold storage services to third parties, this expansion is expected to bring in immediate benefits by way of enhanced revenues," the brokers said.

The company estimates that this expansion would add a further Rs. 9 million to the bottom line, during the current financial year. "We are of the opinion that a combination of factors such as higher quality of products, accelerated depreciation of the rupee, lower borrowing costs and the returns from new ventures would significantly enhance the company's profitability over the coming three financial years," Lanka Orix Securities said.

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