La Opala RG –In ‘HOT’ pursuitmailers.sparkcapital.in/uploads/Consumer/3QFY14/La Opala RG -...
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Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
1
Corporate Factsheet
Promoter Background Established in 1987, La Opala RG (LOG) under the leadership of Mr. Sushil
Jhunjhunwala and Mr. Ajit Jhunjhunwala has transformed itself as one of the
leading brands in the Indian crockery market through its three brands, La
Opala, Diva and Solitaire.
Presence Headquartered in Kolkatta, India. Operates out of dual facility at Madhupur
(Jharkhand) and Sitarganj (Uttarakhand)
Management depth Mr . A C Chakrabortti - Chairman
Mr . Sushil Jhunjhunwala - Vice Chairman & Managing Director
Mr . Ajit Jhunjhunwala - Joint Managing Director
Ms . Nidhi Jhunjhunwala - Executive Director
Business LOG is engaged in the manufacturing and marketing of Opalware and
Crystalware products.
Corporate Structure Associates: Genesis Exports Ltd, Ishita Housing (P) Ltd, SKJ Estate (P) Ltd,
Anuradha Designers (P) Ltd
Revenue Model (FY13) Three Brands – La Opala (~40%), Diva (~48%) and Solitaire (~12%)
Capacity Madhupur (Jharkhand) (5000 tpa) and Sitarganj (Uttarakhand) (8000 tpa)
Key Clientele Aspiring middle class retail population
Key Vendors LOG currently has ~125 distributors with a reach of ~10,000 retail outlets. 75
employees are involved in selling to distributors as also Modern Retail. Modern
Retail contributes ~15%.
Key Success Factors Brand strength and expanding distribution network
Capital History Rs.34mn in February 1995
Credit Rating Long Term Bank Facilities - CARE A + ( Single A Plus)
Short Term Bank Facilities - CARE A 1 + ( A One Plus)
Corporate Bankers State Bank of India
Auditors Doshi, Chatterjee, Bagri & Co
Market Data
Market Cap (Rs. mn) 6,390
Shareholding 68% Promoters, 13%
institutions, 19% Public
Key Shareholders Kotak Mahindra (1.9%), UTI
asset mgmt. (1.9%)
52-week High-Low (Rs.) 230-631
All time High-Low (Rs.) 33-631
3M Average Volume 18984
Stock Return (%)
Correction from 52WH 4.4%
Rise from 52WL 162%
F&O NA
Index BSESMCAP
Stock exchange list BSE-NSE
3M 6M 1Y YTD
24% 57% 122% 0.5%
Fundamental View
Current Market Price Rs. 600
Recommended entry
priceNA
Target Price NA
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
2
Key takeaways from the management interaction
Industry Scenario: Growth potential in the segment continues to be attractive despite growth momentum being slightly subdued off-late. The
management believes that high teen revenue growth is achievable in FY14 and growth potential is enough to sustain high teens growth number
in the medium to long term. With majority of the MNCs competitors still struggling to establish a scalable and profitable distribution model in India,
competitive intensity in the segment has dwindled. We learn that RAK and Luminarc are re-jigging their distribution network while Corelle is
looking out for direct tie-ups with importers post severing ties with World Of Kitchen. Further, volumes of Chinese imports too have significantly
declined post the antidumping duty imposition in 2010. The management did express their cognizance of Hopewell’s 8000mtpa plant in Jaipur
(only other player to have a plant set up in India) and their potential threat, however believes LOGs stronger terms of trade provides them with
the necessary edge to Hopewell’s offerings.
Capacity Expansion: The management indicated that all capacities are running at high utilization and that LOG has incurred a cost of Rs.130mn
for the Madhupur facility modernisation, carried out in August 13. The management outlined that further capacity addition to keep abreast with the
increasing demand would be in Sitargunj plant and that Rs.~200mn has been allocated to increase capacity to 12000mtpa from its current
8000mtpa capacity by FY15E.
3 ‘P’ growth strategy: Premiumization, Penetration and Portfolio extension are to be the key growth drivers. The management confirmed that all
the three brands continue to do well, with Diva leading the growth. Revenue contribution from premium range Diva has increased to 55%, and the
premium positioning of the brand continues to gain traction. Crystalware value growth should also significantly improve as the brand gains reach
and popularity. We learn that LOG has done considerable distribution realignment in recent times which should assist in increasing penetration
and drive growth. Western India to be a key market and LOG believes the market has the potential to become their largest selling region,
currently ranks 3rd. LOG also underlined the plans to launch complimentary opalware products viz. Tumbler, Bake & Serve offerings, etc. to
expand their product portfolio. With these additional product lines requiring no extra capex, capital efficiency is expected to improve.
Management indicated that macro drivers as increasing aspirational purchases, growth of nuclear families, rising microwave and dishwasher
penetration continue to drive opalware sales in India.
Margin to expand: Management remains confident that operating margins would sustain in near term and expand from FY15. Modernization of
the Madhupur facility, favourable product mix leading to premiumization and calibrated price increases are expected to lead to gross margins
expansion. Significant operating leverage is expected to arise from non-linearity of employee cost and A&P spends as revenue grows.
Capital Efficiency to improve: LOG’s efforts of transform into a asset light model through portfolio expansion and increasing premiumization is
expected to improve capital efficiency in medium to long term.
Our View: We believe LOG revenues and earnings would grow by ~20% and ~23% respectively in FY15E led by strong set of macro drivers and
favourable industry economics. With the industry still being at a nascent stage, macro factors as rising urbanisation, increasing propensity to
spend towards aesthetically appealing products and rising number of women in workforce to lead to massive industry expansion in near term. We
see that LOG with its superior terms of trade, high brand equity and increasing reach, stands at a definitive advantage to grab this opportunity.
The portfolio of strong brands (La Opala, Diva and Solitaire ) should enable LOG to garner significant market and wallet share in long term.
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
3
1987•La Opala Glass Private Limited commences operation
1988•First opalware glass plant set up at Madhupur, Bihar
1991•Commences export of Opal tableware
1995•Public Listing in the market (Rs.34mn in February 1995).
1996
•Pioneered 24% Lead Crystal glassware technology in India and sets up first Crystal Glass plant at Madhupur, Bihar.
1996
•Launches India's first 24% Lead Crystal glassware, under the brand name 'Solitaire'.
1999
•Merges La Opala Glass Ltd, with Radha Glass & Industries Ltd, forming La Opala RG Ltd.
2007
•Fully automatic state-of-the-art plant set up at Sitargung, Uttarakhand, to produce opal glass tableware.
2008
•Launches 'Diva', the hi-tech, world class opal brand in the premium segment.
2012•Completes major expansion plan at Sitargunj, Uttarakhand plant.
2013
•Awarded Economic Times Bengal Corporate Awards for Best Entity in Innovation.
La Opala RG corporate timeline Key product categories
Opalware Crystalware
Since 1987 1996
% of sales ~88% ~12%
Brands La Opala , Diva Solitaire
Price RangeLa Opala (Mass),
Diva (Popular)Premium
Growth drivers• Shift towards opalware
from metals
• Strong brand equity
• Increasing Social strata
symbol
• Rising need for appealing
home wares
CompetitorsCorelle, Vanres, Luminarc,
etc
Waterford, Zrike, Lauren
Ralph, etc
~Operating MarginsLa Opala (~20%)
Diva (~30%)(~30%)
Products OfferedPlates, Glasses, Mugs and
Bowls
Bar ware, vases, Ash Trays,
drink ware and beer mugs
Source: Company, Spark Capital Research
Source: Company, Spark Capital Research
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
4
Kolkata (Head Office)
Madhupur (Plant) (La
Opala opalware &
Solitaire crystalware
Sitarganj (Plant)
(Diva opalware)
La Opala RG’s presence in India
Source: Company, Spark Capital Research
Sales and PAT margin performance (15 years)
Source: Company, Spark Capital
301359 357
276328 343
415 431488 502
609
740
964
1150
1539
8.8%
11.1%
7.9%
4.2%
6.2%5.5%
6.7%
10.0%9.4%
2.1%
1.3%
3.7%
9.7%
11.0%
14.9%
-1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
0
200
400
600
800
1000
1200
1400
1600
1800
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sales (Rs mn) PAT margin (%)
La Opala RG brands
Value For Money opalware offering
Premium
opalware offering
Crystal glassware offering
Source: Company, Spark Capital Research
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
5
• Vast Unorganized market:
India’s crockery/opalware market is serviced predominantly by the unorganised sector with most of the products sold being imported by small-time
traders from China, Dubai and France and sold through local stores. The US brand, Corelle, is the largest known player in the super-premium
category with sales of approximately about Rs.500mn last year. We believe La Opala RG’s portfolio of well-established brands in the Indian
tableware market (La Opala, Diva and Solitaire) command high recall and enjoys premium positioning which should enable them to gain share
from unorganized players. The 100%+ anti-dumping duty on opalware implemented few years back on imports from China and UAE should further
assist in taking away the pricing pressure off the industry.
• Domestic expansion led growth:
~85% of LOG’s turnover is from domestic market, balance from exports. Management has indicated that overseas market is currently not the
focus area for the company and focus would be more on the Indian markets where it can leverage brand equity of its brands – La Opala, Diva and
Solitaire. LOG currently has ~125 distributors reaching out to ~10,000 retail outlets. At present, 75 employees are involved in selling to distributors
as also modern retail. Modern retail contribution has increased to ~15% from ZERO in the last 3 years. We believe growth of modern retail would
be a key growth driver, we learn that terms of trade are similar to that of with distributors. Interesting to note – LOG has Rs. ~130mn sales in its
largest single market – Kolkata. Reach in Mumbai, Bangalore and Delhi is growing stealthily. We believe attractive channel margins should enable
rapid expansion as LOG bills distributors and Modern Retail ~60% of MRP, leaving the rest for the sales channel. This is in line with major brands
in the branded apparels business (Page Industries earns 60%, Kewal Kiran Clothing earns 58%). In general, payments are collected in less than
45 days.
Robust historical financial performance:
(1) Healthy revenues & expanding margins: Revenues have grown at a CAGR of ~23% in FY08-13 enabling the company attain the critical size of
Rs.1.5bn turnover. EBIDTA margins expanded from 12.7% in FY08 to 26.8% in FY13.
(2) Strong Balance sheet: Balance sheet indicated management’s aversion to debt funded growth. Despite maintaining stupendous growth rate in
last decade, average Debt/Equity has hovered at ~0.8x most of the time with the highest point being ~1.2x in FY09. In FY13 Debt/Equity stood at
0.3x. Controlled working capital cycle – FY13 Debtor days: 44 days, Inventory days: 73 days (because of the nature of the business), Creditor
days: ~9 days. Healthy capital efficiency (Current RoE ~35%, Current RoCE ~27%), sharp improvement from the lows of 2-3% in FY08-09.
Investment Thesis
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
6
Gas Stove (Rs. ~25bn, ~40%, ~20%)
Refrigerator (Rs. ~140bn, ~90%, ~22%)
Metal Ware (Rs. ~70bn, ~40%, ~60%) OpalWare (Rs. ~3bn, ~30%, ~1%)Grinders (Rs. ~2bn, ~70%, ~10%)
Microwave Oven (Rs.~13bn, ~90%, ~2%) Toaster (Rs.~1.4bn, ~60%, ~1%) Mixie (Rs.~16bn, ~60%, ~31%)
Pressure Cooker
(Rs. ~17bn, ~60%, ~40%))
Non-Stick Cookware
(Rs. ~7bn, ~50%, ~10%))Induction Stove
(Rs. ~12bn, ~60%, ~2%))Water Purifiers
(Rs. ~38bn, ~80%, ~6%))
(Market Size, Organised share, Penetration)
Opalware has
the lowest
organised
share and one
of the lowest
penetration in
the Indian
Kitchen.
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
7
Distribution
terms of
trade
A&P outlayReach PricingTechnologic
al superiority
Economic Moat Index
Brand
Strength
Supplier
credit terms
Production
facility
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
8
STRENGTHS1. Strong brand equity
2. Established retail network
3. Brands straddled across price points
4. Robust historical financial performance
5. Credible management with proven track record
6. Strong domestic demand.
WEAKNESS1. Seasonal sales and production pattern leading to optically bloated working capital because of high inventory days.
2. Absence of a super-premium product.
3.Limited reliance on outsourcing model, makes model slightly more capital intensive vs. other players in the kitchenware categories.
OPPORTUNITIES1. Vast Unorganised market
2. Anti-dumping duty period to strengthen entry barriers.
3. Shift from metalware to glassware
4. Increasing urbanisation and nuclear families
5. Glass ware/Opalware gaining aesthetic appeal
4.
THREATS1. Cheap competitive imports in case Rupee appreciates significantly.
2. Threat from substitutes (Stainless steel offerings)
3.Slow-down in discretionary spend
4. Volatile oil prices
5. Unhealthy competition from unorganised sector
6. Anti-dumping duty removal in near future
SWOT
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
9
Company
specific
drivers
f
Growth – function of (f) Importance Outlook
f
Wide expansion
opportunity
Glass ware to
metal ware
consumption rising
f
f
f
f
L
a
O
p
a
l
a
R
G
G
r
o
w
t
h
d
r
i
v
e
r
sMacro
drivers
Increasing disposable
income
Urbanisation drive gaining
momentum
Rising working women
population
Increasing propensity to
spend
Shift towards fashionable
crockery
f
fBranding led
pricing premium
Indian crockery sector
remains predominantly
unorganised
Increasing usage
of glass ware
• A rough channel check with households makes us
believe that there is almost no other brand that the
typical householder recalls other than La Opala RG
and Corelle.
• Improving product mix is expected to drive margin
expansion and also provide cushion for higher A&P
spend.
Vast Unorganized
market
Anti Dumping duty
imposed
f
f
Currently caters to just ~125
distributors and ~10000 retail
outlets
Amount spent on A&P
should enable them to
charge a brand premium
f
Source: Spark Capital Research- Negative- Strong - Weak - Positive - Neutral
Industry
drivers
f
Improving product
mix
Increasing contribution from
premium opalware and
crystalware to assist in
margin expansion
ff
Imposed in 2011 on import of
opal/glassware from China
and UAE.
f
f
• Most of the products sold being imported by small-
time traders from China, Dubai and France and sold
through local stores.
• India imposed anti dumping duty on the import of opal/
glassware from China and UAE for a period of five
years from December 2011. Since the imposition of the
duty, % of imported crockery has significantly reduced
assisting domestic players as La Opala RG
• Increasing disposable income coupled with rising
propensity to spend has enabled the growth of
Opalware and crystalware market in India.
• Increasing number of nuclear families and working
women has led to an increased need for ‘convenience’
based products as opalwares in India.
• Aesthetic appeal and social strata associated with
opalware’s is also beginning to significantly contribute
to their superior growth in recent times.
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
10
Business Overview
Well positioned brands straddling across price points to assist in growth and expansion of margins.
Time Tested
Positioning
Contribution
Since 1996
Aesthetic
Waterford, Zrike, Lauren Ralph
~12% - FY13 Sales
~1000 tpa
Since 1988
Value For Money
~40% - FY13 Sales
~4000 tpaCapacity Location
Since 2008
Premium Affordable
~48% - FY13 Sales
~8000 tpa
Madhupur, JharkhandMadhupur, JharkhandPlant Sitarganj, Uttarakhand
CompetitorsHopewell, Unorganised players,
Cheap Chinese imports Luminarc, Corelle, Vanras
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
11
• Sustain growth momentum
LOG has grown at 23% CAGR in the last 5 years. Management is confident of maintaining growth at these levels over the next 2-3 years. We
believe the business should easily grow 23-24% annually merely if LOG can manage to dovetail capacity additions with distribution network
expansion as we see that there is actually no great effort from any of the unorganized players to resort to branding to generate demand. Moreover,
marked preference amongst consumers to avoid “Made in China” labels when it comes to products that are too close to the “person” – eatables,
medicine, toys, tableware, etc to act as a growth driver.
• Branding to lead to pricing premium:
With LOG using branding to drive consumers to stores to buy their products, we believe the premium they would be commanding in comparison to
the unorganized players should assist in sustaining margins. LOG currently spends 10% of sales on A&P with a preference for using celebrities
(within its budget) to improve brand standing and recall. The management intends to continue with this level of spend and a growing revenue base
will help them stay miles ahead of competition. In fact a rough check with households by us makes us believe that there is almost no other brand
that the typical householder recalls other than La Opala RG and Corelle. We believe this is crucial as Modern Retail is “forced” to deal with such
brands in a product category in a more benign manner (Jockey, Levis, Bajaj Almond Drops).
• Focus on Mix Improvement:
Margins to further improve as contribution from Diva opalware range increases. Diva, premium opalware offering is positioned under Whiter,
Brighter and Stronger proposition to La Opala opalware offerings. This along with the branding effort on Diva (Manish Malhotra collection, etc.)
should help it to premiumise its brand position in the medium to long term. Further, low power & fuel cost from Madhupur facility, that has
undergone modernisation (conversion of fuel furnace to electric furnace) to assist in margin expansion in near term.
• Better placed capacity to meet up to robust demand:
Major capacity expansion was undertaken at Sitargunj (Uttarakand) was carried out in 2007-08. Initial teething problems in this facility had resulted
in higher depreciation costs despite low output however the plant currently is working fine, with power assured from the hydel projects in the state.
The company also has carried out modernization of its Madhupur plant in 2013 (automating manual processes and conversion to electric furnace),
resulting in higher through put capacity. Moreover, the modernisation has shifted the capacity from the legacy crystalware product line to opalware
which is the key growth area for the company. Power is a key input cost for this product and fortunately the current plants are in locations where
power is regularly available at a cheap cost.
Strategy Going Forward
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
Cookware, 44%
Dinnerware, 36%
Kitchenware14% Beverageware,
2%
Cutlery, 4%
Metalware, 75%
Glassware, 7%
Ceramicware3%
Woodenware, 1%
Plasticware, 14%
12
Investment Concerns
Cheap competitive imports in case Rupee appreciates. Ability to defend and expand market share post anti-dumpy duty expiry.
Threat from substitute tableware categories (Stainless steel, melamine, bone china, plastic, etc.)
Slow-down in discretionary spend
Growth drivers
Concerns & Challenges
Shift from Steel/metal crockery to glass
crockery
Increasing usage of
glass crockery
La Opala RG volume offtakes
Growth drivers
1. Increasing disposable
income
2. Urbanisation drive gaining
momentum
3. Rising working women
population
4. Increasing propensity to
spend
5. Shift towards fashionable
crockery
Usage drivers
1. Rising acceptance of
Microwave ovens
2. Increasing shift towards
western foods
3. Rising spend towards
convenience needs
4. Prominence of health and
lifestyle increasing
5. Increasingly becoming social
strata symbol.Source: Bloomberg, Spark Capital Research
Source: Bloomberg, Spark Capital Research
Crockery by type (%)
Crockery by category (%)
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
13
Competitive Landscape
Low Pricing Scale High
Lazzaro
Stainless
steelCorelleSuper ware TupperwareRAK
La OpalaLa Opala
DivaServe well
Bormioli
Rocco
Valerio
opalwareVanras
Luminarc
Plastic
Economy Offerings Premium offerings Domestic
MNCs
Reason for a huge unorganised market
• Utensils and cutlery continued to be perceived as commodities by Indian consumers
• Unbranded products are available at a huge discount compared to branded products
• Among the few brands which do exist, economy brands doing better due to a huge base of middle-class
consumers.
• Premium brands have found it easier to sell to institutional clients than retail consumers.
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
14
Revenue growth more consistent despite slowdown
Source: Company, Spark Capital
Off late it has been operating margin led PAT margin expansion
`
Source: Company, Spark Capital
Power & Fuel cost to come down as Madhupur modernisation gets
completed
Source: Company, Spark Capital
Healthy A&P outlay to assist in brand equity
Source: Company, Spark Capital
Consistent growth history…
509 620 750964
1150
15391791
2150
3%
22% 21%
29%
19%
34%
16%
20%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
500
1000
1500
2000
2500
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
% Y
oY
gro
wth
Revenue (
Rs m
n)
Revenue % YoY growth
48%
59% 59% 58%61% 63% 63% 64%
13%16% 17%
22% 23%27% 28% 28%
2% 1%4%
10% 11%15% 16% 17%
0%
10%
20%
30%
40%
50%
60%
70%
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
Gross Margin EBITDA Margin PAT Margin
122
180
130
160
196
243263
309
24.0%
29.0%
17.3%
16.6%17.0% 15.8%
14.7% 14.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0
50
100
150
200
250
300
350
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
Power & Fuel Costs % of sales
12
41
59
77
95
148
193
224
2.4%
6.5%
7.9% 8.0% 8.3%
9.6%
10.8%
10.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0
50
100
150
200
250
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
A&P % of sales
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
15
D/E ratio improving stealthily
Source: Company, Spark Capital
Working capital seem stretched due to business seasonality
Source: Company, Spark Capital
Returns on the uptrend
Source: Company, Spark Capital
FCF/OCF
Source: Company, Spark Capital
… with improving capital efficiency
333.5
446.2
390.2
290.7
202.0
238.7
189.0
149.0
0.9
1.2
1.0
0.6
0.40.3
0.20.1
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
0
50
100
150
200
250
300
350
400
450
500
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
Debt/
Equity
Debt (R
s m
n)
Debt Debt/Equity
65
5244 44 44
86 8373 72 71
12 11 9 9 9
139
124
108 107 106
0
20
40
60
80
100
120
140
160
FY11 FY12 FY13 FY14E FY15E
Debtor Days Inventory Days Creditor Days Working Capital Days
3% 4%
7%
16%
20%
27% 27% 27%
3% 2%
8%
22%
25%
35%34%
32%
0%
5%
10%
15%
20%
25%
30%
35%
40%
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
ROCE% ROE%
52
-37
141158 143
320 306
359
-109
-53
106137
96 96
156129
-200
-100
0
100
200
300
400
FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
OCF FCF
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La Opala RG – In ‘HOT’ pursuit
16
Remuneration details of key management personal
NameCategory of
Directorship
Remuneration
(Rs.mn) ^
Mr Sushil Jhunjhunwala, Vice Chairman and Managing Director 14.17
Mr Ajit Jhunjhunwala, Joint Managing Director 13.03
Ms Nidhi Jhunjhunwala, Executive Director 5.57
Mr. A C Chakrabortti Non-executive Directors 0.275
Mr. G Narayana Non-executive Directors 0.275
Mr. Shakir Ali Non-executive Directors 0.275
Mr. Arun Churiwal Non-executive Directors 0.275
Mr. Rajiv Gujral Non-executive Directors 0.275
Note: ^ - (Salary & perquisites + Commission). Source: FY13 La Opala Annual Report, Spark Capital
Consistent dividend pay Out
Source: Company, Spark Capital
Holding structure – Promoter holding has slightly
increased in the recent past
Source: Company, Spark Capital
Promoter 68%
FII4%
DII2%
Bodies Corporate
7%Public19%
Corporate Governance
Board of Directors: There are 5 Independent directors out of total 8
directors on the board. Most of the directors have long experience in
relevant area of operation. The promoter is the vice-chairman of the board
and the managing director.
Audit Committee: The audit committee comprises of three members, all of
whom are non-executive independent directors.
Remuneration committee: The remuneration committee comprises of
three members, all of whom are non-executive independent directors.
Director compensation: Primary compensation to the non-executive
directors is in the form of sitting fees plus commission. The Executive
director’s compensation is basic salary plus perquisites and commission.
1.50
2.00
3.50
4.00
4.5020% 19% 19%
17%15%
0%
5%
10%
15%
20%
25%
0
1
1
2
2
3
3
4
4
5
5
FY11 FY12 FY13 FY14 FY15
Dividend Per Share Dividend Payout
Management Tenets
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
17
Trading at 18x FY15E – Sharp re-rating in last 12 months
Source: Company, Spark Capital
5 years one year forward multiple
Source: Company, Spark Capital
5 years one year forward multiple
P/E Multiple range No. of days traded % of of no. of daysCumulative traded
no. of days
%of Cumulative
no. of days
3 - 4x 29 2% 29 2%
4 - 5x 427 23% 456 25%
5 - 6x 629 34% 1085 59%
6 - 7x 268 15% 1353 74%
7 - 8x 74 4% 1427 78%
8 - 9x 17 1% 1444 79%
9 - 10x 38 2% 1482 81%
10 - 11x 70 4% 1552 85%
11 - 12x 80 4% 1632 89%
12 - 13x 67 4% 1699 93%
13 - 14x 43 2% 1742 95%
14 - 15x 16 1% 1758 96%
15 - 16x 66 4% 1824 100%
Source: Bloomberg, Spark Capital
2x
5x
8x
11x
14x
17x
0
100
200
300
400
500
600
700
Jan
-09
Ap
r-09
Jul-0
9
Oct-
09
Jan
-10
Ap
r-10
Jul-1
0
Oct-
10
Jan
-11
Ap
r-11
Jul-1
1
Oct-
11
Jan
-12
Ap
r-12
Jul-1
2
Oct-
12
Jan
-13
Ap
r-13
Jul-1
3
Oct-
13
Jan
-14
CM
P(R
s.)
Average
+1SD
+2SD
-1SD
-2SD
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14
Reaching a considerable size led to sharp re-rating in last ~12 months
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
18
Abridged Financial Statements
Rs. mn FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E
Profit & Loss Growth Ratios (%)
Revenue 1,150 1,539 1,791 2,150 Revenues 19% 34% 16% 20%
EBIDTA 269 412 493 605 EBIDTA 26% 53% 20% 23%
Other Income 2 10 8 8 PAT 36% 80% 26% 24%
Depreciation 46 56 55 74 Margins (%)
EBIT 224 367 446 539 Gross 61.2% 63.0% 63.0% 63.5%
Interest 41 42 36 30 EBIDTA 23.3% 26.8% 27.5% 28.1%
PBT 184 325 410 508 PAT 11.0% 14.9% 16.1% 16.7%
Tax 57 96 121 150 Leverage Ratios (x)
Normalised PAT 127 229 289 358 Debt to Equity 0.4 0.3 0.2 0.1
Balance Sheet Current Ratio 2.5 2.2 2.4 2.7
Net Worth 557 741 981 1,284 Return Ratios (%)
Loan Funds 202 239 189 149 RoCE 19.6% 27.1% 27.0% 27.3%
Sources of Funds 842 1,067 1,258 1,521 RoE 25.1% 35.3% 33.6% 31.6%
Gross Block 820 989 1,148 1,378 Total Asset Turnover (x) 1.5 1.6 1.5 1.5
Capital WIP 20 9 - - Per Share
Net Block (incl. Capital WIP) 506 647 742 898 EPS (Rs.) 12.0 21.6 27.3 33.8
Investments 64 132 152 162 Dividend (Rs.) 2.0 3.5 4.0 4.5
Total Current Assets 454 538 623 735 Valuation Metrics
Total Current Liabilities 182 249 259 274 Current Market Price 600
Net Current Assets 272 288 364 461 Shares Outstanding (mn) 11 11 11 11
Application of Funds 842 1,067 1,258 1,521 Market Cap. (Rs. mn) 6,359
Cash Flow Enterprise Value (Rs. mn) 6,492 6,457 6,378 6,326
Cash Flow from Operation 143 320 306 359 EV /Sales (x) 5.6 4.2 3.6 2.9
Cash Flow from Investments (47) (297) (162) (232) Price/Earnings (x) 50.1 27.8 22.0 17.8
Free Cash Flow 96 96 156 129 Price/Book (x) 11.4 8.6 6.5 5.0
Cash Flow from Financing (98) (19) (135) (125) EV/EBIDTA (x) 24.2 15.7 12.9 10.5
Closing Cash Balance 4 8 18 20 Dividend Yield 0.3% 0.6% 0.7% 0.8%
Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
Spark Disclaimer
Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities. Spark Capital is registeredwith SEBI as a Stock Broker and Category 1 Merchant Banker.
This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document isprovided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment orfinancial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in thisdocument (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solelyfor your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report isnot directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within suchjurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come arerequired to inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in anyjurisdiction where such an offer or solicitation would be illegal.
Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital ,its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securitiesmentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in thisreport.
This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While wewould endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory,compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representativesshall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions oractions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential includingwithout limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report.
Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:
Absolute Rating Interpretation
Buy Stock expected to provide positive returns of >15% over a 1-year horizon
AddStock expected to provide positive returns of >5% – <15% over a 1-year
horizon
Reduce Stock expected to provide returns of <5% – -10% over a 1-year horizon
Sell Stock expected to fall >10% over a 1-year horizon
Recommendation History
Date CMP Target price Rating
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Private & ConfidentialTejash Shah – Direct: +9122 4228 8155 Mobile: +9193238 89447 , [email protected]
La Opala RG – In ‘HOT’ pursuit
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the researchanalyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
Additional Disclaimer for US Institutional Investors
This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the SecuritiesExchange Act of 1934, as amended) only by Decker & Co, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Decker & Coaccepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Decker & Co. Allresponsibility for the distribution of this report by Decker & Co, LLC in the US shall be borne by Decker & Co, LLC. All resulting transactions by a US person or entity should be effected througha registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Decker & Co, LLC is prohibited or restricted by any legislation orregulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Decker & Co, LLC and Spark Capital Advisors (India) Private Limited arepermitted to provide research material concerning investment to you under relevant legislation and regulations;
Disclosure of interest statement Yes/No
Analyst ownership of the stock No
Group/directors ownership of the stock No
Broking relationship with the company covered No
Investment banking relationship with the company covered No
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