LA OPALA RG LTD: BEST IN TABLEWARE !!!

Scrip Code: 526947 / LAOPALA

CMP:  Rs. 350.70; Buy at current levels.

Short Term Target: Rs. 404.00; Medium to Long Term Target: Rs. 600; STOP LOSS – Rs. 322.64; Market Cap: Rs. 1,946.38 Cr; 52 Week High/Low: Rs. 376.70 / Rs. 89.60. Total Shares: 5,55,00,000 shares; Promoters : 1,07,77,700 shares – 19.41 %; Total Public holding : 1,68,77,460 shares – 31.85 %; Book Value: Rs. 19.61; Face Value: Rs. 2.00; EPS: Rs. 5.95; Dividend: 50.00 %; P/E: 26.53 times; Ind. P/E: 58.94; EV/EBITDA: 36.39.

Total Debt: Rs. 14.18 Cr; Enterprise Value: Rs. 1,951.44 Cr.

LA OPALA RG LIMITED: La Opala RG Limited was founded in 1987 and is headquartered in Kolkata, India. La Opala RG Limited manufactures, sells, and exports lifestyle products in India and internationally. The company offers opal glass tableware products, such as plates, bowls, dinner sets, cup-saucer sets, coffee mugs, coffee cups, tea sets, soup sets, pudding, and dessert sets; and crystal-ware products comprising barware, vases, bowls, and stemware. It provides its products under La Opala, Diva, and Solitaire brands. The company had declared splits in face value of its shares from Rs. 10 to Rs. 2 in May 2014 and gave bonus of 1:1 in March 1994 and again 1:1 bonus in August 2006. Company manufacture’s glass and glassware products like plates, bowls, dinner sets, cup-saucer sets, coffee mugs, coffee cups, tea sets, soup sets, pudding and dessert sets; its crystal ware products comprises of barware, vases, bowls and stemware. Company’s brands include LaOpala, Diva, and Solitaire. The company’s manufacturing facilities are in Madhupur (Jharkhand) and Sitarganj (Uttarakhand). In 1999, Radha Glass and La Opala merged to become La Opala RG Limited. The Company is one of the largest organised crockery players in India with an installed capacity 13,000 MT TPA as on 31 March 2014. LaOpala, currently exports its brands to more than 40 countries which includes US, UK, Singapore, South Korea, Australia, New Zealand and Spain as well as the Middle East, Africa, Latin America and the ASEAN region. La Opala Rg Ltd is locally compared with Asahi India, Hindustan National Glass Ltd, Borosil Glass, Saint-Gobain Ltd, Gujarat Borosil, Haldyn Glass, Nile Ltd, Swiss Glascoat, Sezal Glass, Triveni Glass, FGP Ltd, Jai Mata Glass and globally compared with Industrial Glass & Mirror Inc of USA, Bassett Furniture Inds of Virginia, Beazer Homes Usa Inc of USA, Cavco Industries Inc of USA.

Investment Rationale:

La Opala RG Limited is the largest glassware manufacturer in India. The Company is engaged in manufacturing and marketing of opal glass tableware and crystal-ware products within and outside India. In 1999, Radha Glass and La Opala got merged and become La Opala RG Limited. The company mainly manufactures glass and glass products of all types and exports its 85 % of crystal ware around the world. La Opala RG Ltd has a network of 125 distributors with 10,000 dealers across country and the number is increasing at the rate of 15 per cent annually. Company also exports 10 % of its opal ware production to 20 countries. La Opala has a grand 70 years of experience & has a strong presence in the national glass industry in India. La Opala products are widely distributed in all major towns of the country through a network of distributors and sales representatives covering all states of India. There are about 10,000 retail touch points through which the products of La Opala are sold. La Opala deals in Opal-ware and Crystal-ware products and has a strong product portfolio that spans over 100 products. La Opala is one of the established brands in the country. The company has brands that cater to all the sections of the society. For example, ‘Diva’ is the high end brand of the company and contributes around 40 % to the company’s turnover. Apart from ‘Diva’, the company has brands like ‘Crystal’ which caters to the upper segment and ‘La Opala’ which is targeted towards the mass market. As per IMF estimates on January 2014, global GDP growth was estimated at 3 % in 2013 vis-à-vis 3.1 % in 2012. The year under review was marked by a variance in growth and financial market conditions. Indian economy slackened in 2012-13 but buoyed by good performance from the farming sector & the economic growth in the current fiscal is now estimated to rise to 5.5 percent as compared to the growth rate of 4.5 percent in 2012-13. The recovery in growth, although weak, was on the back of abundant rainfall which not only boosted agricultural output but also the overall expansion. Nonetheless, this growth rate remains below its potential as the manufacturing and the mining sectors continues to remain a cause of concern in the ongoing fiscal. Supported by slightly stronger global growth, improving export competitiveness and implementation of recently approved investment projects, India’s growth is expected to get better over the medium-term. Over the last decade, there was a significant growth in rural incomes – an average annual median per capita income increase of 7.2 % – inspiring a shift in lifestyles from traditional bone china crockery to modern alternatives. This is expected to plug the extensive crockery-ware which is currently under-penetrated with just 24 % within India’s total dinner set market. India is possibly the largest relatively under-explored tableware market in the world. The product category targets individuals with aspirational lifestyles who are increasingly receptive to branding. There is a visible transition from conventional crockery to modern equivalents on the one hand and the use of unbranded to branded products on the other. The use of opal glassware products has gone a transition - from special occasions in the past to everyday use today. The opal glassware product is considered more durable compared to its bone china equivalent. The opal glassware product is completely hygienic and vegan, an advantage over its bone china competition that contains animal matter. There has been a steady growth in urbanisation and nuclear families, catalysing tableware consumption. The entry of international brands is helping widen the opal glassware market and enhance category visibility. The Company have consistently retained its position as one of the largest organised crockery players in India with an installed capacity 13,000 MT TPA as on 31 March 2014.

Outlook and Valuation:

La Opala RG Ltd (La Opala) promoted by Mr. Sushil Jhunjhunwala and Mr. Ajit Jhunjhunwala, is engaged in manufacturing of Opalware and Crystalware products. La Opala started manufacturing Crystalware in March 1999, sourcing the exclusive right to use the technical know-how, information, data for the manufacture and sale of Crystalware in India and abroad from Doosan Glass of South Korea, a leading manufacturer of Crystalware globally. Headquartered in Kolkata, La Opala has manufacturing units in Madhupur (Jharkhand) and Sitarganj (Uttarakhand). The company has been listed, out of 19 Indian companies, in the Top 200 Asian companies in Forbes Asia's Best under a Billion (BUB) list, from a pool of 15,000 stock traded companies in Asia Pacific with revenues between $5 million and $1 billion. La Opala has successfully increased its capacity in Uttarakhand by 4000 MT which takes the total capacity of the company to 12,580 MT. This expansion was completed in July 2012 and has entailed a capex of Rs. 23 crores. LaOpala has also modernized its plant at Madhupur with an estimated capex of Rs. 12 crores. This will help to ensure superior quality of products and reduction in costs. Company has well-known Brands like La Opala and Crystal and Diva which has their own recognitions. Its products are not only White in colour but are also microwave safe and Chip resistant. Their products matches are the best across the globe. Company’s Classique Collection, comprises of an elegant range of tableware that stands out for its striking milky white glaze and consumer-friendly properties. Its exquisitely chic international designs are very much in demand. Its Ivory Collection is inspired and is well adorned on the walls and plates of kings and nawabs. Its soft milky glaze, its smooth texture has been adored through the centuries. Diva brings you a collection as refined as ivory designed by leading Indian fashion designer, Manish Malhotra. Adding to Diva a one-of-a-kind, haute couture collection meant to be collectibles for connoisseurs of high taste and the uber-chic. Solitaire Crystal is handcrafted to protection as per global standards in aesthetic and design. Every cut and every sparkle redefines the spheres of clarity. Renowed Globally, it makes a prominent presence of India in the entire world market of Crystals. Crockery has by far become an integral part of every dining room not only because of its utility but also it can lend grandeur even to a humble little dwelling. The role of dining room has changed from merely being a place to dine in to one of stately proportions. Crockery adds grace and class to the decor of the dining room giving it a royal ambience. In the Indian milieu, one can hardly find a modern household without at least one set of crockery proudly exhibited in a rather strategic spot on the mantle or showcase another set for daily use. Crockery enhances the positive mood and vibes, soothing the mind of the guest and the host alike. The demand for crockery in India has undergone dramatic change. Crockery is no longer used only as a serve ware but as a lifestyle product. With the changing lifestyle and attitude of people, the design of crockery has undergone sea change. A transition from Stainless Steel to Glass wares has been observed. With cultural diversity and varied lifestyles in India, crockery market is one of the most vibrant market segments. A highly fragmented market, crockery has been one of the fastest growing segments over the past few years paving the way for new market players to enter the industry. Customers prefer to buy branded crockery (mainly low-priced) rather than unbranded crockery. As the prices of La Opala RG’s (LORL) crockery are close to the prices of unbranded crockery, there is a shift in customers’ preference towards LORL products. LOPALA RG is looking at product extension and plans to sell products like water glasses, juice glasses, and Wine glasses and also bake and serve products. It will outsource the manufacture of these products and leverage on brand equity of La Opala apart from its distribution reach. This will significantly improve revenue and RoCE of LaOpala. Currently, the company caters to four different price segments - La Opala catering to the economic segment, Diva Classic, Diva Ivory and Diva Designer Collection catering to basic, medium and premium segments, respectively. Diva Classic enjoys a 35 % premium to La Opala, Diva Ivory enjoys around 15 % premium to Diva Classic and Diva Designer Collection enjoys a premium of 15 % to Diva Ivory. Institutional orders account for 4 %-5 % of LORL’s revenue. The addressable market for la Opala is Rs. 7,000 to Rs. 8,000 Cr and right now only Rs. 1,000 Cr is what it addresses of which 50 % is organised. So the organised market that La Opala Rg caters is Rs. 500 Cr of which its topline is about Rs. 150 to 200 Cr. So the scale of expanding across India as it grows its product range is tremendous. On financial side, La Opala RG Ltd achieved a turnover of Rs. 41.91 Cr for the 1st quarter of the current year 2014-15 as against Rs. 32.17 Cr in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs. 11.00 Cr an increased by 30.36 % y-o-y as against prior period of last year. In Q1 FY15, net profit jumps up by 35.81 % y-o-y of Rs. 6.11 Cr against Rs. 4.50 Cr in the corresponding quarter of the previous year. The principal risks in the sector comprise increased competition, cheaper imports, volatile fuel costs and change in government policies affecting the sector, brand weakness and stiff competition from the unorganised sector. Net Sales and PAT of the company are expected to grow at a CAGR of 18 % and 23 % over 2013 to 2016E respectively. It is expected that the company surplus scenario is likely to continue for the next three years, & will keep its growth story in the coming quarters also. At the current market price of Rs. 350.70, the stock P/E ratio is at 51.42 x FY15E and 43.72 x FY16E respectively. Company can post Earning per share (EPS) of Rs. 6.82 for FY15E and Rs. 8.02. One can buy this stock with a Short Term target of Rs. 404 and Rs. 600.00 for Medium to Long term investment. 

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	153.91	177.85	213.43	251.84
NET PROFIT (₹ Cr)	22.87	29.95	36.17	42.52
EPS (₹)	21.59	5.65	6.82	8.02
PE (x)	60.45	46.17	38.23	32.52
P/BV (x)	18.67	14.14	11.08	8.82
EV/EBITDA (x)	33.13	27.19	22.73	19.29
ROE (%)	30.89	30.62	28.97	27.11
ROCE (%)	48.77	51.84	48.30	45.11

I would buy LA OPALA RG LTD for Medium to Long term for target of Rs. 600.00 and for the shorter term the target would be Rs. 404.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 322.64 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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