Financial Times

Richard Peiris group mulls branded tea exports
By Duruthu Edirimuni
The Richard Peiris Company Ltd., is contemplating a tie up with a tea export firm to produce branded teas and add value to the regional plantation companies it acquired from John Keells Holdings (JKH) earlier this year.

"Tea is something that we are developing and expanding and our intention is to look at going into exports at a future date," Lalith Wijeratne, Finance Director at Richard Peiris said. He said the company is in discussions with three or four parties on strategies to add value to tea.

Analysts said the company is working on a model that resembles the Mabroc Tea brand based in US which is made by Hayleys subsidiary Kelani Valley Plantations or the Dilmah brand made by the MJF Group.

"Richard Peiris is thinking of acquiring an exporter to add value and build a brand name overseas, which will be similar to Dilmah," an analyst said. The company has had discussions with several export firms with the intention of acquiring or tying up with one of them.

Stock market analysts said they believe Richard Peiris might consider sub leasing their tea estates if this attempt at branding and value addition does not go through.

Analysts said that a couple of Indian firms have had initial discussions with the company in this regard. Richard Peiris had bought the stake of RPK Management Services, the owning company of Kegalle Plantations and Maskeliya Plantations, from John Keells Holdings purely because they were keen on the eight rubber estates of Kegalle Plantations which could supply the raw material to make the company's rubber products.

Maskeliya Plantations has 19 tea estates with 5,898 hectares under tea. The recent demand for wage hikes in tea estates together with the fuel price hike have pushed up the cost of production, which has affected profit margins.

The labour issue is seen as a major concern in the tea trade. "Since Arumugam Thondaman of the CWC has crossed over as the government's ally, many fear that there will be more demands for a wage hike," an analyst remarked. He said the trend that was started by JKH in divesting itself of plantations has been catching on to some extent with other tea estate owning companies trying to sell or sub lease their estates. The government is planning to sell Elkaduwa Plantations and CT Smith wants to sell their Horana Plantations due to margins being hit hard.

Richard Peiris is also believed to be seeking to sell its stake of 29.67 percent in Dipped Products Ltd., its joint venture with Hayleys. It reportedly wants Rs. 120 per share. Analysts said that Hayleys and Akbar Brothers are interested in the stake. If Hayleys acquires the stake it will have a 76 percent stake, making it the largest shareholder of DPL.

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