CMP:
Rs. 577.90 ; Market Cap: Rs. 3,207.35 Cr; 52 Week
High/Low: Rs. 670 / Rs. 313.60.
Total
Shares: 5,55,00,000 shares; Promoters : 3,60,87,500 shares – 65.02 %; Total Public
holding : 1,94,12,500 shares – 34.98 %; Book
Value: Rs. 41.41; Face Value: Rs. 2.00; EPS: Rs. 9.94; Dividend: 65.00 %; P/E:
58.17 times; Ind. P/E: 47.45; EV/EBITDA: 84.65 times.
Total
Debt: Rs. 7.86 Cr; Enterprise Value: Rs. 3,214.80 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. Till the early
eighties, kitchenware in the average Indian home would constitute primarily
copper, aluminium and stainless steel utensils; cutleries in the form of
tea-cups, saucers and spoons; cookware of aluminium; plastic bottles to store
spices, sugar, salt and edible oil. The only sophisticated gadgetry was perhaps
the pressure cooker. Gradual changes were seen with stainless steel utensils replacing
copper and aluminium. Then microwave made a grand entry in a number of kitchens
in mid-90s, and then, the newer kinds of utensils and storage vessels started
forming a vital part of the Indian kitchen. Indian kitchens and kitchenware are
now evolving from being purely functional to convenient and fashion driven.
This gradual shift in lifestyle brought changes in the cooking and eating
habits of the Indian consumer. Convenience has now become an important factor
for selecting kitchenware and now there is more emphasis on aesthetics, novelty
and style. Kitchen utensils like pots and frying pans, woks, saucepans,
pressure cookers and glass items such as heat resistant casseroles and
vitro-ceramic pans also form part of the products found in the cookware
sub-segment. A third group of items such as plates, bowls, serving dishes,
dinner sets, serving ware placemats and coasters form the tableware and
crockery market sub-segment. Then there are cutlery items like cutting tools
and instruments, knives forks and spoons, etc. and glassware items like
tumblers, stemware, bottles, and jugs. Global Sources classifies Indian
houseware suppliers into four categories- household supplies, kitchenware, pet
supplies and tableware. Kitchenware, in turn, is segmented further into bake-ware
& cookware, kitchen accessories and kitchen storage. The market can be
classified in several ways with ceramic, china and porcelain, metal-ware,
plastic-ware and wood-ware being the major sub-segments. As is evident, there
is a considerable overlap between these different product sub segments. The
cookware segment dominates the Indian house-ware market and with significant
growth in rural incomes there is an inspiring shift in lifestyles from
traditional bone china crockery to modern alternatives. This is expected to
plug the extensive crockery-ware which is under-penetrated with a 24 % share in
India’s total dinner set market. India is possibly the largest relatively
under-explored tableware market in the world. 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. In India, more than 90 % of sales in this segment happen
through traditional channels but now modern retail methods & direct sales
method are gaining popularity and also online retailers are fastly increasing
their market share. Kitchenware market in India is still very much driven by
purely functional requirements and there is a huge scope for market expansion.
It is a very niche market today and features mostly imported brands. The future
trends are likely to remain focussed around products and retail formats. In terms
of product range, non-stick cookware, healthy eating, wider range of cutlery
and storage containers are some of the areas where we should see interesting
developments in the near future. On the health concerns, there is an
increasing growth seen in utensils that can be used to cook food without the
use of oil and the fact that for effective storage of different food items, a
special set of containers is required is again a trend, which is just being
explored in India. La Opala is prepared for the next phase of growth by brown
field expansion at its Sitargunj unit with an additional capacity of 8000 MTPA
and has started operations in November 2015. This will increase the capacity
from 8000 MTPA to 16,000 MTPA creating enough room to scale the mid premium
brand ‘Diva’, rapidly in the years to come. In FY14, the company modernised its
Madhupur plant and successfully replaced fuel fire furnace by electric arc
furnace thereby improving operating efficiency. In the anticipation of
increasing capacity, the company has been steadily investing in the
distribution channels over the years and currently its retail points stand at
about 11,500-12,500. The company funded this expansion plan by offering private
placement to the tune of Rs. 55.3 Cr in FY15 avoiding the possible leverage on
the balance sheet and hence without increasing any related interest outflow. To
widen its product portfolio, the company introduced a new range of borosilicate
cookware products in FY15 sourced from the Europe, diversifying the products
offered. The management is committed to focus on the brand creation by
continuous investing in the advertisement spends leading to the increased brand
visibility among the potential consumers. La Opala’s revenue tripled in six
year from Rs. 75 Cr in FY10 to Rs. 223.3 Cr in FY15, witnessing a 24 % CAGR
growth. The company is mulling to launch new brands and will increase its ad
spends which will help company to make its presence across the market. LA OPALA
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. The current ad spends stands at about Rs. 35 Cr.
It also got benefited by government’s imposition of anti-dumping duty in 2011
on cheap Chinese crockery imports. Increased capacity, new product launches and
increase in the disposable income would propel the growth of LA Opala Rg and
has greater prospects ahead.
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). La Opala RG Ltd has market
share of 24 % in crystalware products. It 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 as well as crystal-ware products
comprising barware, vases, bowls and stemware under various brand names like
Diva, La Opala and Soliatre Crystal. The company has also introduced the
heat-resistant borosilicate range of cookware during the last fiscal year. It
has two manufacturing facilities located at Madhupur, Jharkhand and Sitargunj,
Uttarakhand with a combined capacity of 13,000 MTPA and has installed
additional 8,000 MTPA capacity at its Sitargunj unit increasing the total
capacity to 21,000 MTPA. The company is consciously building the brand and has
celebrity endorsements from actor Bipasha Basu and fashion designer Manish
Malhotra. Company have launched Opalware Cup-Saucer range and its commercial
production has started at its Sitarganj plant from November 2015. The product
was launched on 1 February 2016 under Diva brand. It is 25 % to 30 % more
expensive than La Opala brand and the product has already been placed on
important counters. The management believes that it won’t cannibalise La Opala
brand as it has different price points. La Opala RG Ltd has launched a new
category of ‘cook-n-serve’ product. The product is imported from Europe. The company
has kick-started marketing campaign for the product. The gross margin of the
product will be on the higher side as no overhead costs are involved. The
product will be marketed under La Opala brand. La Opala RG Ltd has increased the number of
distributors from 150 a few quarters ago to 170 currently. Headcount also
increased because of the rise in Capacity, thereby driving up employee costs.
Currently, combined capacity utilisation of its Sitarganj and Madhupur plants
is 85 %. The new facility will be operating at full capacity and therefore
there will be a rise in inventory level, which will be absorbed once traction
occurs in Cup-saucer segment. As a major portion of the expansion is complete
and there is no major expansion plan for FY17, the management believes that
there will be only routine maintenance capex. It is also looking for inorganic
growth via acquisition, if anything good comes by. Currently, exports account
for 14 % to 15 % of sales, mainly because domestic volume has picked up
significantly. The Middle East, Asia, Africa and Latin America are key areas
where LORL is looking to export its new launched cup–saucer range. Export
margins are 5 % to 10 % lower compared to domestic business. Modern retail
currently accounts for 12 % to 13 % of sales. The Contribution of e-commerce is
not significant currently. As per the management, Chinese products are priced
10 % to 15 % cheaper, domestic Indian products are priced 25 % cheaper while
European products are priced 15 % to 20 % higher than LORL products. As per the
management, Tier 2 and 3 cities are growing at a faster pace than metros and
are good potential markets in Future. On financial side, during the period
between FY11-15, the company sales witnessed a growth of 23 % CAGR, while in
the same period its EBITDA grew at 33 % CAGR. This performance was due to two
reasons, the company’s sales growth which was mainly from the volume growth of
14 % CAGR with the modern manufacturing facilities and increased realisation
per unit at 9 % CAGR reflecting the pricing power enjoyed by the company. While
on the expense side raw material witnessed a growth of 14 %, power cost grew at
11 % mainly on account of installation of cost efficient modern electric arc
furnace at Sitargunj unit. Company will continue with the robust performance as
the company have ramped up its capacity at Sitargunj helping the company to
scale in terms of volumes of brand ‘Diva’ and also it enjoys certain pricing
power in the market. Replacement of fuel furnace by electric arc furnace at
madhupur plant in FY14 helped the company to better control the power cost,
hence expanded its operating margins and will continue for coming years also.
During Q3FY16, La Opala reported net sales of Rs. 80.48 Cr registering growth
of 27 % y-o-y basis and 28 % growth q-o-q basis, its sales grew by 21 % during
9MFY16. Diva brand contributed 70 % to the total revenues during the quarter,
followed by La Opala at 20 % and Solitaire at 10 %. EBIDTA Margins have
improved significantly to 36 % during the quarter vis-à-vis 32.9 % in
corresponding quarter last year and PAT margins have improved from 22 % to 25.1
% during the same period. Improvement in margins is on account of better
product mix, reduction in raw material & fuel cost and better operating
leverage. The Company enjoyed EBIDTA margin of 33.8 % during 9MFY16. The
company is well positioned itself to gain the benefits from increased
urbanisation, rising disposable income, improving lifestyles and home
ownership. Rising urbanisation will significantly expand the market for the
company’s products and also with rising disposable income leading to the higher
discretionary spending would translate into increased spending on tableware
products, hence benefiting the company. Improving lifestyle would induce people
from traditional tableware such as stainless steel and melamine towards branded
and premium products such as opalware and crystalware. These augers well for
the company. At the current market price of Rs. 577.90, the stock is trading at a PE of 50.69 x FY16E and 38.52 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 11.40 in FY16E and Rs. 15.00 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
| KEY FINANCIALS | FY15 | FY16E | FY17E | FY18E |
|---|
| SALES (₹ Crs) | 223.33 | 270.78 | 344.17 | 428.17 |
| NET PROFIT (₹ Cr) | 41.74 | 63.05 | 83.15 | 108.17 |
| EPS (₹) | 7.50 | 11.40 | 15.00 | 19.50 |
| PE (x) | 81.20 | 53.80 | 40.80 | 31.30 |
| P/BV (x) | 18.30 | 14.30 | 11.00 | 8.40 |
| EV/EBITDA (x) | 51.50 | 36.60 | 27.50 | 21.60 |
| ROE (%) | 22.50 | 26.50 | 27.00 | 26.90 |
| ROCE (%) | 28.80 | 33.30 | 34.20 | 34.30 |
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*As the author of this blog I disclose that I do not hold LA OPALA RG Ltd in my any of the portfolios.
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