Some Inputs on Assam Company Ltd:

Tea with Mint

(i) Assam Company Ltd's subsidiary Gujarat Hydrocarbon and Power Ltd (GHPL) will set up a SEZ, in Gujarat, which will cater to the Petroleum sector and for which 450 (four hundred and fifty) acres of land has already been acquired by the company, according to my  close sources who refused to be named.

(ii) A sector specific SEZ (basically catering to the Power Sector) will be also be set up in Bharuch, Gujarat by GHPL. 

(iii) Since the tea and crude oil prices are ruling firm in both the domestic and international markets, the company hopes to generate good  operating margins from the same in the coming quarters. Moreover, in case of tea since last year's production was low, the prices are expected to remain firm in the coming months. Recently, it  has been mentioned in this blog, that www.icicidirect.com has recommended Jayashree Tea, based on the buoyant tea prices both in the domestic and international markets. Moreover, SKP Securities has last month (in its March 25, 2011 research report) recommended a hold rating on Goodricke Group Ltd with a target of Rs 161 (which has been achieved this week). It is to be noted that Assam contributes to 45% of India’s tea which suffered a shortfall in crop in 2010 due to erratic monsoon and helopeltis attack leading to increase in Indian tea prices in the 1st half of 2011.
India's tea production in February 2011 fell by 7.2 percent to 16.7 million kg from 18 million kg a year ago, data with the state-run Tea Board showed. However, in the last week due to the arrival of "Poor quality Tea", price of CTC (crush-tear-curl) tea variety dropped 15.40 % to Rs.113 per kg, compared with Rs.133.57 at the previous auction. Price of dust tea was lower 7.24% to Rs.110.14 per kg against Rs.118.74 in the previous auction. "It's a seasonal fluctuation as there were some quality concerns. But by the end of May, prices will pick up again on arrival of better quality harvest", said a senior official at J. Thomas & Co, a leading tea broking house. Hence this  will not have any major effect on the Q4FY11 results (the company considers Jan-Dec as the quarter hence it would be March, 2011 quarter for the company or 1st Quarter for the accounting  year, CY11) which is expected to be published on the middle of next month. 

(iv) Though only around 11% of the revenues comes from the Oil and Gas front but in terms of profit margin, the ratio is around 65:35 (in terms of tea and oil matrix). The company derives around 89% of its revenues comes from the tea business, where margin is less as compared to the oil and gas business. In future the company hopes to generate 50% of the revenues from the oil and gas sector due to higher operating margin as compared to its farm business. 

(v) The erratic operating/net margins and net profits in the last few quarters is due to too much fluctuations in the tea and oil & gas business during this period, and hence should not be a cause of  concern for the shareholders. 

(vi) The company's new Columbian venture is expected to yield better margins in the days to come as it is a rich oil field (situated in the prolific Llanos basin, less than 20 km from Columbia's largest discovered oil field, operated by BP). The company hopes to recover 30 MM barrels in future from this oil field. However, it would take at least a couple of years to get any revenues from the same, as the things are on the nascent stage. The company has already tied up with Sismopetrol and R3 for exploration of Production blocks NAHE1 Trunfo (the block) located in Columbia. 

With the crude prices boiling in the international market, the company hopes to strengthen its bottomline from this business too....