Sri Lanka’s plantation sector, shunned by investors during the past few months, saw a strong rally this week with analysts saying that the recent increase in world tea and rubber prices has given them renewed hope.
“Many investors had a very pessimistic view of this sector and there were only a few transactions in plantations during the last few weeks, but with the world tea and rubber price hikes, plantations are now seen as a ‘goldmine’,” Sarath Rajapakse, Director - Capital Trust told the Business Times. Charuka Suchendra, Research Analyst - Asha Phillip also said that the plantation sector took the investors’ attention due to price hikes witnessed in the main commodities of the plantation firms.
“Tea and rubber prices made significant gains during the past two quarters that allowed plantation companies to move beyond their breakeven points or to profitable grounds,” he added.
Srimal Liyanage, a stockmarket research analyst based in the Middle East with a strong focus on the Sri Lankan equities, said that the plantation sector saw a rally due to strong commodity prices.
“Rubber prices have peaked due to supply constraints. On a negative note, tea prices have slightly dropped due to increased supply in Kenya.
Therefore plantations with a higher exposure to rubber are expected to yield higher returns,” he said in an email communication.
Jaliya Wijeratne, Director - SMB Securities said due to the commodity price increase investors perceive the sector’s earning potential will also increase. “Though the sector had its own issues in the past few months there are positive factors which have caught investor attention,” he added.
An analyst said that the wage talks which saw plantation employees get wage hikes disillusioned investors somewhat, adding that the output in plantations was falling due to weather, the cost, etc.
He said the wage hike has wiped out a substantial amount of profits in the immediate future. “In addition although the prices have increased, the volumes are relatively low.”
Currently there are 18 plantation companies listed on the Colombo Stock Exchange while tea, rubber and oil palm are the main income generating crops of these companies.
In order to reduce the risk relating to the dependency on the main crops, most of the companies have diversified into other sectors such as coconut, forestry, mini hydro power generation and tourism. |
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