One of the industries which investors could look at in this perspective is the Tea industry where traditionally higher dividends are paid. We have already looked at Tata Tea in this sector a few weeks back which had paid a dividend of 101 % for the previous year. But for a share quoted at around Rs 290 the dividend yield in Tata Tea worked out to around 3.5 % only. On the other hand, Harrison Malayalam, another plantation company (with 74 % of its Rs 192 crore turnover coming from Tea) which has paid a dividend of 35 % last year
and whose shares are now available at around Rs 34, attracts attention on account of the possible high dividend yield.

Harrison Malayalam is a company of the RPG group with
over two decades of standing. It owns and manages Tea and Rubber plantations. It also manufactures and markets packaged tea under several brand names. Unlike other major Tea companies, Harrison Malayalam’s presence in Export market is not very high. The recent problems in the Russian economy which caused a fall in the international market price of Tea will therefore have a relatively lower impact on the company.

The year 1997-98 saw the profits of the company zoom at the net level from around Rs 6 crores to Rs 13.23 crores . It was notable that this 118 % increase in the net profits was achieved
only on a 28 % increase in the turnover. Against an equity base of Rs 18.30 crores the EPS therefore was Rs 7.24 . At the current price of Rs 34 the shares represent a discounting of the EPS by about 4 times. The current share price which has so far moved up by only around 10 % after the announcement of the results does not appear to have fully absorbed this profit jump.

One of the reasons for the jump in profits appear to be the raise in productivity both in the Tea as well as Rubber plantations managed by the company. The contributions of the value added packaged tea products is also increasing gradually. As a result, in the last three years, the company’s turnover appears to have broken the earlier range of around Rs 100 to 120 crores and moved into a different zone beyond Rs 150 crores.

One of the reasons that is holding back a larger increase in the share prices of the company appear to be the down trend in the prices of natural rubber seen in the previous year and early months of the current year. This continues to be a cause of concern for the company even though during the second quarter of the current year, prices seems to be firming up to atleast the previous year levels. In 1997-98, the contribution of Rubber in the turnover of the company was Rs 47 crores as against Rs 126 crores of Tea. The share of Rubber in the overall turnover of the company which was around 38% in the previous year was thus brought down to around 26 %. Concerned by the declining rubber prices, rubber growers consisting largely of small farmers in Kerala, have moved the central government to take steps for shoring up the demand for natural rubber. The Prime Minister has assured of a positive action in this regard . The declining value
of Rupee in the international markets could also shift some of the users to increase consumption of domestic rubber. As a result, the effect of declining rubber prices on the profitability of the company could be contained. With this note of caution, investors with a slightly higher risk-reward target could consider accumulating shares of this company.