What is so peculiar about sachin tendulkar? Well
he can judge or foresee FUTURE much better than anyone else. He can foresee
much earlier where the ball is going after pitching and so there he
is...smashing hundreds at will. Same is true also for stock picking. You can
only earn astronomical returns if you can foresee or feel some type of growth
story in any particular sector which is going to shape up much better in the
future.
If you can find those sector which are going to
witness greater activity in the future then you have almost done 70-80% of what
is required to find a great stock capable of giving great returns...financial
analytic skills would help to find the suitable company among the bunch....it
just cant help you finding a company on an absolute basis. The main crux is
your ability to continuously finding next big thing which is going to change
our lives emphatically.
I am highly optimistic about agriculture
sector...infact this is my favourite and something into which i see myself
indulging as an active stakeholder in near future. I am picking agriculture
stocks for quite a long time and all of them are going great.
Today our focus area is tea sector and the
company under scanner is Goodricke group. I also like Mcloed russel but it has
just got doubled after i picked it but couldn’t buy it.
Our old sages and Rishis were just great, their
works in the forms of various scriptures is just beyond imagination. They have
touched every sphere of our visible and non visible life. Like Ayurveda, i mean
how without any known expertise in terms of sophisticated laboratories, they
can analyse human anatomy and devise solutions in the form of natural
formulations which surprise even the today’s best doctors.
Not many people know that they have written a
great detail about agriculture also. There is another VEDA, named
Vrikshayurveda by Surapala which contains great details about soils, type of
crops to be produced according to type of soil, pest and fertility management
via natural resources like they say that Fish flesh can eliminate all
types of diseases of crops. They mainly use fermented formulations comprising
Cow dung, cow urine along with various type of biomass.
One such experiment was done in Abali tea estate
in Arunachal Pradesh in india where two person one swami valmiki from Karnataka
and Binod saharia ( estate owner ) use the treasury of Vrikshayurveda to
produce Organic tea using manures made from cow dung, pesticides made from cow
urine and biomass reducing the cost of production to great extent, augmenting
the production and enhancing the fertility of the soil and almost eliminated
the various pests of tea plants. To surprise there are no mosquitoes in the
estates which are the main cause behind the malaria in the labour force.
Why i find Vrikshaayurveda relevant to Goodricke?
Well company has applied to RBI for venturing into dairy farming also after
successfully running a 50 cows model experiment. In the initial phase they will
maintain 2000 cows producing around 10000 litres of milk. However as per their
plans, they will also collect cow urine and dung to make manures and pesticides
for their tea plantations which would further cut their costs by 5%. I feel
they are also using the knowledge of vrikshayurveda.
They are the first company in the sector to get
the rainforest alliance Certification which is an indicator of their
environmental friendly ways of producing tea, maintaining the biodiversity of
the surroundings. RA certification is a hard process since they have very
strict rules to follows like proper water usage and waste water discharge, soil
management, reduction of chemical inputs, health and safety of workforce etc.
This certifications will help in getting better price for their tea.
Now to the company, it is a subsidiary of
Camellia PLC of UK listed which is a 1 lakh crore company dealing into farming
produce like maize , barley , wine, pistas, tea, horticulture produce and
distribution, banking and engg all over the world. Parent has told many times
that they are looking to buy tea estates all over the world. They also made
plans once in 2006 to venture into horticulture produce on the estates of
Goodricke in india which are yet to begin....however i feel since the expertise
of the parent is in the horticulture, we can see some positive step in this
direction very soon because prices of the agri produce are increasing all over
the world and they are not going to come down. For the record Goodricke has
10000 hect ( almost 25000 acres ) of tea estates in 17 gardens in india.
Prices of tea haven’t increased much as compared
to other agri products so they are due for a ride. Tea plants are different
business in the sense that they don’t require fresh seeding for every crop,
infact tea bushes produce tea for 30-40 years....they just need labour hence
labour cost is the main component of the total cost and this was the main
reason for the loss shown by the company in june-12 qtr as wages are revised
from last year by almost 30-40% and they have paid the arrears in this qtr. This
is also the main reason for reduce cash in the books although company is
earning good cash from operations since their estates are more than 100 years
old. You will be surprised that such a huge land bank of 25000 acres are valued
at just 65 crore in the books which i feel is the biggest wealth of the
company.
Company is planting new tea bushes and till date
around 1100 hectares have been planted with new tea bushes. In tea plantations,
you need to leave the land free from tea for some years to enable it to
rejuvenate so that it can recoup its nutritional and mineral balance and this
is where the scope for horticulture crops comes in.
They are investing greatly into dairy sector also
which in india is mired with some very Indian problems like one of very low
productivity per cattle as compared with the world average, but with the parent
like camellia PLC which can really invest big time and bring their
technological expertise into play augurs well for the company.
With the turnover of 547 cr net profit was 20 cr in 2012-13, NP was
down mainly on account of payment of arrears of wage revision. It is having
negligible debt in the books and so company can leverage on it in the future
for its acquisition plans.
One more big thing is the opening of Tea Bars in
the country. Although we Indian drink tea all day like an addiction but still
it is a surprise just to find only 40 odd tea bars as compared to 1800 Coffee
parlours in the country. It is because perhaps we take tea as a poor man’s
drink and coffee the upper cut. However we still don’t know anything about
drinking tea if we think that tea is made of milk only. The fact infact is that
the true aroma and smoothness of tea can only be sensed without milk.
Tea is just like chicken where you can do as many
experiments as you want to enhance its taste and aroma. You can add ginger,
cinnamon, tulsi, masala, lemon, dry fruits etc. Ice tea is the next big thing
to happen in the non alcoholic beverage segment in india. Companies are having
big plans to revive the tea bars in the country, Goodricke is one of them...it
is still running some bars in the country...i think they have one in Bhopal
also( I’ll be visiting it in my next trip to Bhopal ).
This is one of the cheapest stock available in
the sector relative to its superior balance sheet , high quality produce and strong
parent.
Tea drinking is growing in the US at a faster
rate than coffee, according to IBISWorld. In the last decade, the amount of tea
consumed by the average American grew 22.5% and will rise an additional 3% in
the next five years. Coffee slumped 1.9% between 2003 and 2013 and will grow
less than 1% through 2018.
In USA, Tea sales at restaurants, grocery
stores and shops reached $15.7 billion in 2012, up nearly 32% from 2007,
according to consumer goods research firm Packaged Facts. In the next two
years, the market is expected to expand to $18 billion. Hotels and caterers are
procuring Indian tea. And Americans have started preferring hot tea to the cold
version.
Media reports say the tea-drinking demography is
widening in the US and that aging baby-boomers and Redbullswigging youngsters
are expected to buy more tea.
The currency depreciation is likely to make
prices of Indian tea more competitive in the international market. Exporters
will have been at a disadvantage had the depreciation not happened this year
when Kenyan prices are down.Kenya had a bumper crop in May when India lost a
lot of trade enquiries to it. A softer Kenyan price would have pushed India out
of the race in CTC in markets such as the UAE, the UK, Pakistan and Egypt.
McLeod Russel and others are expecting a 10 per
cent jump in exports, while Goodricke Group expects 20 per cent.
Goodricke has started selling its TEA online and
it is having big plans to foray into packaged tea which is a high margin
business. I have seen their ads on TV and they are quiet serious about it as
success in this move will be a game changer for the company.
What is so peculiar about tea? Well apart from the fact that it contains
virtually nil calories (without sugar and Milk) and a cup contains only 40 calories
with milk and sugar with about 300 calories of any cold drink but tea contains many
of much needed antioxidants and vitamins. Latest research shows that it can
cure low Blood pressure and many of heart diseases. It contains much lesser
caffeine (1/3rd ) than coffee. So the need is only to promote it as a health drink.
But another thing which is distinctive about tea is the fact it is the only
agricultural commodity which hasn’t seen price boom as seen by all other agri
products whether it is onion or potato during last decade. The prices of other
commodities have got trebled or much more in this period. But tea after the
boom of 1998 just collapsed....because to reap the benefit of boom in prices
tea growers started growing tea which was much more than demand at that time
and so it crashed like anything forcing many estates to closed down. The revival
happened to small extent in 2010.
But demand is getting increased by 3-4% every year with no real hike in production,
so the equation is going to change very soon with demand outstripping supply significantly
leading to awaited boom in tea prices because in this period of last decade,
costs which are mainly labour have increased by 3 times and i feel this will
force much needed consolidation in the sector with less efficient tea estates
producing low quality tea will get out of the race and will be acquired by more
efficient...the trend which we are and will be going to see in Indian telecom
sector.
One more thing....we are talking about difficult time faced by tea
growers during last decade....but we as consumers haven’t witnessed anything
like crashing tea prices which infact are ruling at around 350/- per kg much
more than of 100-150/- of last decade. Here is the catch....tea in india is
allowed to sell only through auctions which is almost 150 years old system...but
this should be a good system unless not marred by speculative forces. Big guns
of tea market like Tata and HUL have great control over the auctioning of tea
which is facilitated through authorised agents who are mere puppets in the
hands of these big guns which control almost entire retail tea market of the
world....tata tea doesn’t produce any tea at all now it acquires it from other
producing gardens. So the wholesale prices were ruling around 100-120 last year...which
are expected to see a boom this year due to shortfall in production around the
world.
However E-auctioning route which has just started here will surely put a
break to this speculative practice. But tea producing companies like Goodricke are
now investing in establishing their own tea brands rather than selling in
wholesale market.
Regards,
(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)
(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)
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