- 1. La Opala RG LimitedWitnessing a stupendous success in Glass
Industry in France, La Opala RG Ltd, forayed its operation inIndian
market in 1988 with the corporate mantra of Adding Style To Your
Lifestyle. Today it touchesover millions peoples life through its
beautiful products. The Jhunjhunwala led company went for IPO
in1995. The company has the rich experience of over 70+ years in
the industry. The company is movingtowards high growth period &
is bound to grow rapidly in years to come. Business Insight stock
for the month of Sep 2011HBJ Capital, IndiaWeb:
www.hbjcapital.comE-Mail: [email protected]: +91 98867
36791
2. Systematic buying between INR 80 to 1002 Phase Buying
Strategies Suggested [Always buy in SIP ways]1st Phase: Buy at the
current price range Rs 100-110 [50% of investment]2nd Phase: Add if
the price falls down to Rs75-80 [50% of
investment]>>>Expect at least 4-6 times returns in next
2-3 years time frame!!! 3. Table of Contents 1. From the Desk of
CEO, HBJ Capital (Page 4 ) 2. The Indian Table Ware Industry (Page
6) 3. La Opala RG Ltd. (Page 10) 4. Management & Shareholding
Pattern (Page 16) 5. Financial Analysis (Page 19) 6. Technical
Analysis (Page 25) 7. Investment Rationale (Page 28) 4. From the
desk of CEO, HBJ Capital Dear Members, I am sure that the letter
finds you in good spirits, are you ready to jump into the market to
catch gems at the bottom? I hope that most of you must have taken
our advise based on Market Outlook Reports & now sitting on
25-30% of cash in hand. A recap from my earlier letter for our new
investors The Middle Class is undergoing a dramatic change with
focus shifting from fulfilling basic needs to desires and
aspirations. I believe that as the reference point of average
consumer keeps moving up the income ladder, so does the demand for
branded higher performance items, even though at higher values.
Continuing with our focus on India growth story and burgeoning
middle class in particular, our research team has picked a gem from
Opalware crockery segment. India is the second fastest growing
major economy in the world. Indias GDP on purchasing power parity
(PPP) basis was estimated to be USD 4.20 trillion in 2010 making it
the fourth largest economy in PPP terms. Opalware crockery is
estimated to have a market size of Rs. 600-700 crores and is
expected to grow at a CAGR of 20% in the next 5 years. 5. ContdThe
organized Opalware industry is estimated to be around Rs 200
crores. The market size for Crystalware is smaller andis estimated
at around Rs 15 crores. As the number of families in India
increase, the demand for tableware per family willincrease which
will augur well for the industry as a whole.The increase in savings
has raised the standards of living of the society in general. Shift
of consumer preference towardsbranded items is likely to have a
positive impact on the industry. Moreover, as lifestyle improves,
demand for qualitytableware will increase which will increase the
demand for products from the organized sector.Our selection for
Business Insight pick of the month is La Opala RG Ltd.La Opala
deals in Opalware and Crystalware products and has a strong product
portfolio that spans over 100 products. Itis one of the established
crockery brands in the country. Company is increasing its capacity
in Uttarakhand by 4000 MTwhich will take the total capacity of the
company to 12580 MT. The full benefit of this expansion will accrue
to thecompany in FY13.Happy Investing!Regards,Kumar Harendra, CEO,
HBJ Capital, www.hbjcapital.com#912, 1st "F" Main Road, Girinagar
2nd Phase, BSK 3rd Stage, Bangalore 85Call : 098867 36791, 080 6568
1134 or Mail : [email protected] 6. Indian Tableware Industry 7.
Indian Tableware IndustryIndia is the second fastest growing major
economy in the world. Indias GDP on purchasing power parity (PPP)
basiswas estimated to be USD 4.20 trillion in 2010 making it the
fourth largest economy in PPP terms. Opalware crockery isestimated
to have a market size of Rs. 600-700 crores and is expected to grow
at a CAGR of 20% in the next 5 years. Theorganized Opalware
industry is estimated to be around Rs 200 crores. The market size
for Crystalware is smaller and isestimated at around Rs 15
crore.The crockery industry comprises of Dinnerware, Tableware,
Beverage, Barware in general. The Industry is estimated tobe around
500 cr. Billion of which more than 50% market share is dominated by
unorganized sector. La Opala has 10% ofthe market share & plans
to grow by 25% Y-o-Y. In the organized market there are a good
number of domestic players likeLa Opala RG Ltd, Bharat Bone China
Ltd, Hindustan National Glass & Industries , YEAR, TATA
Ceramics along with theirmultinational counterparts like
Rosenthal,Villeroy & Boch, Noritake, Royal Doulton, Dunoon
etc.During the last decade tableware segment of glass industry has
made strong efforts to improve quality of glass
tablewaremanufactured in India. It is heartening to note that by
adoption of latest technology they are now producing
internationalquality glass tableware including those of opal and
crystal glass. However, tableware segment of the industry is
facingtough competition from imports from China and other
countries.Price difference at which imported glass tableware are
being sold in the Indian market suggests not only dumping thegoods
in the Indian market but also evasion of customs duty. Urgent steps
therefore need to be taken for checking thisunhealthy competition.
Indian industry has made concerted efforts to increase exports.
During the last few years theexports have increased many fold. 8.
Key growth drivers of IndustryIncreasing per Capita Income - Per
capita income to growUSD $3600 in 2011 to approx. USD$ 5000 in
2015.IncreasingPer CapitaIncreasing middle class population -
According toImpact of` Income NCAER, middle class population will
increase up to 267 MillionGrowth in in the next five years, up 67 %
from current level.organizedIncreasingsector MiddleClass Growing
Hotel & Catering Industry - Increase in Hotel Population &
Catering industry. There are some 1,980 hotels approved
andclassified by Government of India. The hospitality industry is
Table Ware poised to grow at around 25-30% p.a.IndustryRobust
increase in the food industry It opens newopportunities for
industries like Tableware, Food Processing etc.Attraction
Increasing TowardsHotel &CateringImpact of growth in organized
sector - Growth will LuxuryProductsIndustryattract unorganized
players to organized sector.Change inTax Change in the life Style
of the people -The increase insaving has resulted in standard of
living of the people. There istremendous change with respect to
branded tableware itemswhich is good for the industry. 9.
Contd.Focus towards nuclear familiesThe progressive evolution of
family setup in India towards nuclear settlement will increase the
demand fortableware.As the number of families in India increase,
the demand for tableware per family will increase which will
augurwell for the industry as a whole.Increase in incomeIncome of
Indian households has increased substantially in the last 10 years.
In 2009-10, Indian households whichcome under the middle income
bracket and high income bracket increased to 62% and 20%
respectively from 58%and 7% in 2001-02.Changes in income tax in the
Budget 2011-12 will generate more disposable income in the hands of
the publicleading to higher demand for consumer goods.The rise in
disposable income will benefit the industry as people will have
surplus income to purchase goods suchas tableware.Changing
lifestyle of people The increase in savings has raised the
standards of living of the society in general. Shift of consumer
preference towards branded items is likely to have a positive
impact on the industry. Moreover, as lifestyle improves, demand for
quality tableware will increase which will increase the demand for
products from the organized sector. 10. La Opala RG Ltd 11.
SnapshotTrading volume = 43000 shares (approx) per day Thestock
usually trades with low volumes, only during last 2-3months volume
has increased drastically.EPS ~ 9.69 (TTM) Company has recorded an
EPS of Rs9.69 during last 12 months. PE ~ 11.35 - On the basis of
TTM earnings. The stock isavailable at very moderate PE multiples,
whereas, its margins,ratios, market share, and balance sheet has
grownsignificantly over last couple of years. It should therefore
bere-rated and trade at higher PE multiples. CMP = 110.85 Rs (Sep
29th 2011) Shareholdings : No of shares [% Share Holding] Total
Institution: 11.9 Lakhs [11.28%] Total Individuals Holding: 18.71
Lakhs [19.16%] 52 weeks high/low = Rs 135.8/55.05 The stock Total
Promoters: 71.3 Lakhs [67.28%]after making a 52 week high in Sep11
has Total Others : 2.03 Lakhs [2.28 %]corrected by 18% during the
ongoing marketcorrection. Debt/Equity Ratio = 1.13 [Mar11] Current
Ratio = 1.33 [Mar11] 6 Month peak share price = Rs 135.8 The stock
Interest Coverage Ratio = 2.11 times [Mar11]scaled a new 6 month
high in September 11. The ROCE = 10.83 % [Mar11]stock deserves as
re-rating both owing to the RONW = 7.49 % [Mar11]growth rate and
historical valuations. BSE Code: 526947 12. Basic DetailsLa Opala
started manufacturing Crystal ware in March1996, sourcing the
exclusive right to use the technicalknow-how, information, data for
the manufacture andsale of Crystal ware in India and abroad from
DoosanGlass of South Korea, a leading manufacturer of Crystalware
globally. Headquartered in Kolkata, La Opala hasmanufacturing units
in Madhupur (Jharkhand) andSitarganj (Uttarakhand).The company is
increasing its capacity in Uttarakhandby 4000 MT which will take
the total capacity of thecompany to 12580 MT. This expansion is
likely to becompleted by April 2012 and will entail a
capitalexpenditure of approximately Rs 23 cr. The full benefit
ofthis expansion will accrue to the company in FY13.La Opala deals
in Opalware and Crystal ware productsand has a strong product
portfolio that spans over 100products. Crystal ware has Barware,
Vases, Bowles,Pitchers, Ashtrays, Beer Mugs where as Opalware
hasDinner Sets, Coffee Mug Set, Cup & Saucer Sets, Tea
&Pudding Sets. 13. Contd. La Opala is one of the established
crockery brands in the country. The company has brands that cater
to all sections of the society. Diva is the high end brand of the
company that caters to the upper segment of the market. It
contributes 40% to the companys total sales. The Crystal brand also
caters to the upper segment and La Opala brand is targeted towards
the mass market. La Opala enjoys large & strong distribution
network across all over the country. There are more than 10,000
retail touch points through which the products of La Opala are
sold. The products are supplied directly the leading retailers such
as; Pantaloons, Big Bazaar, Hypercity, Spencers, Reliance,
Lifestyle, etc. The Company is operating in market more than 50% is
dominated by unorganized players. Under organized sector, it might
face stiff competition with some of the International players like
Rosenthal, Royal Doulton etc. These International companies plans
to foray its operation by opening several outlets in cities like
Hyderabad, Gurgeon, & Chandigarh. The company has made strong
presence in countries like U.K., France, Middle East & turkey.
Apart from this, it also participates in International Trade Fair
in New Delhi & the biggest Tableware Fair In Frankfurt in
Germany every year to make presence stronger. 14. Capacity
utilization can be improved by 50-60%During 2007 [Plant capacity
4580 MT] Company has spend Rs 7.73Cr for buying 4952 Metric tons of
Chemical(main raw material).During 2010 [Plant capacity 8580 MT]
Company has spend Rs 9.03Cr for buying 5543 Metric tons of
Chemical(main raw material).Conclusion:We have not see much
increase in the raw material cost from 2007 to 2010, during the
same period wehave seen 87% increase in capacity from 4580 to 8580
MT but there was just 10% increase in the raw material quantity
&just 25% increase in finished product, which clearly shown
that they are using better technology or able to reduce thewastage
but they are under utilized at present and there is huge scope of
increasing production. Expected capacity during2012 will be 12580
MT. Think about the increase in product if these capacities can be
utilized well. 15. Huge scope of increasing the production Now, if
you look at the production of goods in 2007 and again in 2010, you
will realize that they have increased theproduction from 1.6 Cr
units to 1.9Cr units which is a jump of 25% while there was 87%
increase in the capacity for thesame period. Interesting fact is,
they have increase just 10% more raw material to during the same
period.Also notice that there was 51% jump in the sales amount from
2007 to 2010, this is mainly due to the fact that per unitcost of
goods has gone up from Rs30.92 to Rs38.62 which is 25% jump in the
finished product price.Now, we have following area where company
can improve.They have already good capacity and they are planning
to add more, at the same time if they can increase theproduction in
the same proportion then it can do wonders for the company.Price of
the finished product is likely to be in demand & it will remain
strong due to consumption factor. 16. Management & Shareholding
Pattern 17. Shareholding Pattern Particulars June-11
June-10June-09June-08June-07Promoters 67.28 66.12 64.36
64.2764.27Institutions11.28 11.32 12.52 12.7714.55Individuals 19.16
20.22 20.55 20.4118.54Others 2.282.34 2.572.552.64
TOTAL100%100%100%100% 100%Key Persons 1. Mr. A C Chakraborthi
Chairman 2. Mr. Sushil Jhunjhunwal Managing Director 3. Mr. Ajit
JhunjhunwalaDy. Managing Director 4. Mr. G. NarayanaDirector 5. Mr.
Arun ChuriwalDirector 6. Mr. Rajiv Gujral Director The promoters
group has been increasing its stake in small percentage which
clearly shows theconfidence of the futuristic projects. 18. Almost
5-6 times increase in volume during Q2FY12 Sept11 shareholding
pattern of public holding more than 1% stake is very imp? During Q2
FY12, we have seen huge volume at this counter. Volume is nothing
but the activities and there is most likely some accumulation done
by smart folks. Our technofunda team has observed un-usual volume
at this counter and suggested for close watch, stock can move much
higher. Let us wait for shareholding patter of Sept11 to see who
created such volume. As mentioned before, company can enhance their
production by 50-60% or more by just utilizing their current
capacity without any further addition. 19. Financial Analysis 20.
Expect growth of 20% in Sales, 30% in EBITDA/PAT 21. Income
Statement (Annual) The top line of the company has beenshowing
promising figure over theyears. There has been 14% CAGRgrowth in
sales since March 06 & willgrow at 20-22 % CAGR. Sales
increases by 30% from FY10 toFY11. During the same period
PBDTincreased by 100% which showsimprovement in internal efficiency
inthe company. During FY11, PAT was 9.32Cr ascompare to just 2.77Cr
in FY10, anincrease of 236%. We project the turnover of thecompany
to be double from currentlevel in the time horizon of 3 years. The
operating profit margin has goneup from 16.44% to 21.22%. 22.
Income Statement (Quarterly) The sales has gone up by 16.25% in
June- 11 quarter compared to last year figure of the same period
20.81 Cr. The net profit of the company has increased by 62% due to
high turnover & economies of scale, new product offerings,
strong brand image. EBITDA margin has increased by 1.62% over last
year same period, showing the efficiency of the management in
carrying the operation. Interest expense has gone down by 15% in
June -11 compared to last year figure in June -10. The company has
paid off its debt which will increase the profit of the company.
There has been no change in equity capital during last one year.
23. PAT growing 5-10 times faster than Sales A company whose top
line is growing at 25% while the bottom line is growing at almost
200% A company decreasing its interest burden at the rate of 15-20%
year on year. What is more important is to notice the consistency
in growth numbers are maintained during last 4 quarters not onlyin
topline but also in bottomline. If the same growth rate continues,
this company can deliver returns beyond expectations. 24. Balance
Sheet There was no equity dilution duringlast 4 years and most
likely there willbe no equity dilution in next fewyears also.
Company had paid partly its short &long term
debt.Consequently,interest charges will be less incoming quarter
results which willresult in more profit. The Balance sheet of the
company issmall compared to its competitor butthe potential to grow
is clearly visibleby the way management uses thefunds. Company
holds approx 27Cr cash inhand. It can be used further toexpand the
business without anydelay. 25. Technical Analysis 26. Strong
counter likely to rise further High volume trade during last 3
months is a clear indication that this counter is becoming active
now and may rise. La Opala is currently trading at a PE of 9.69x
FY12E and 8.09x FY13E EPS. We recommend buying on the stock inthe
range of Rs80-100 with a 2-3 years holding, target price of Rs
400-600. 27. Rise in EPS & Fall in PE lead to increase in Price
During last 4 quarters company has done very well in terms of
generating consistent profits hence EPS has gone upquarter after
quarter. At the same time PE has come down because there was almost
no increase in price till July2011. Smart money is bound to observe
rise in EPS or say 200% kind of growth in PAT hence get into this
counterbefore it is too late. 28. Investment Rationale 29.
Investment Rationale This segment is expected to grow by 10-12%
CAGR, but some of the brands are expectedto outperform we have
identified La Opala as one of them, which is expected to grow
at25-30% CAGR over next 3-5 years. The management of the company is
not only focusing on Indian market but also targeting toincrease
revenue through export. Investing in plant & machinery &
other CAPEX is in linewith to capitalize on economy of scale
through increasing the plant capacity. All the required factors for
growth are available - The company brand Diva is one of
fastestgrowing brand in the country; The top line and the bottom
line of the company showingoutstanding growth rate. Effective
management, robust growth history along with credit worthiness of
company willhelp the company to raise the capital at lower rate of
interest. In the last few months stock is being recognized by
investors & it has seen the average no oftrades going high. The
correction in market has led to equity being available at cheaper
price for informedinvestors please note that it is already at
discount to fair value. 30. Concerns Rising cost of raw materials
La Opalas raw material costs have increased by 39.18% inFY11 over
FY10. It is expected to increase at a CAGR of23.49% in the period
FY11-13. The high cost of raw materials can to an extent be
attributedto rising lead prices used to make Crystalware. La Opala
uses hydel power which has helped the company toreduce its costs to
a certain extent. Intense competition in the industry The company
faces competition from other players in theglassware segment in
organized as well as unorganizedsegment. Moreover, there is a
threat from cheaper varietiesof goods imported from abroad. La
Opala is handling increased competition by controllingcost, relying
on new technology and following an aggressivepricing policy. New
trends in the market Which will replace the demand for these table
ware productswill prove fatal to the company & industry as
well. 31. HBJ Capital Services Pvt. Ltd.#912, 1st F Main, Girinagar
II Phase,BSK 3rd Stage, Bangalore - 85 Contact: +91 80 65681133/34,
Mob : +91 98867 36791E-Mail: [email protected] |
www.hbjcapital.com Bangalore |Chennai |New Delhi
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