Harrisons Malayalam – Value Unlocking?

huge plantations

At CMP of 140, the co is trading at a Market Cap of about 255 Cr. Now first lets look at the assets of the company:

Harrisons Malayalam Limited (HML) has huge tea and rubber plantations spanning across 23,417 hectares i.e.. approx 57,800 acres. HML is the single largest producer of Rubber in the country with 18,300 acres under cultivation. It is also the largest grower of tea in South India having plantations spread across 15,000 acres. It is also one of the largest farmer of Pineapples in the region. Over the last few years, the company has also been a major processor of other agricultural produce from neighbouring farmlands.

HML through it’s 100% subsidiary – Harrison Financial, holds investments worth more than 225 Cr of group companies like – CES, KEC International, Ceat etc.

HML also has a small projects division. They won a 50 Cr KRCTC contract in January, 2010.

Though in the past the company hasn’t created value and has had a slow growth, but things seem to be changing and major positives are there for the company.

1. All time high Rubber prices:

The rubber prices have risen from about Rs 90/Kg to Rs 180/Kg.

2. Tea prices have been firming over last several months.

3. Management focussing on growth:

There was an article in Business Today magazine on HML, titled – “Entering unchartered waters”. As per the article, the company is doing the following to improve the performance:

a. “Moving away from selling produce as a commodity”. HML is trying to sell branded tea rather than selling it in auctions.

b. Upping land productivity (through re-planting old tea bushes and rubber trees with new high-yielding varieties and inter-cropping pineapples, bananas and other crops with rubber).

c. Upping labour productivity. (Mechanisation has increased to 50% in 2009 from 20% in 2008).

4. Demerger to unlock value:

HML had announced the demerger plans on 29th January, 2010. As per the details, the company is demerging the investment undertaking into Sentil Tea & Exports Ltd (STEL). The shareholder of HML will receive new shares of STEL in the ratio of 1:1.

The investments are worth 225 Cr+ and the equity capital of the new company would be 18.46 Cr. Even if STEL lists at 50% discount to value of investments, the listing price would be Rs 60+.

If one is to consider the replacement value of the huge plantations HML has, the value is unbelievable. Such huge assets can’t be created again. At such low Market Cap, the potential is huge.

Company Website: Harrisons Malayalam