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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