Hi All,
Please find below analysis done on La Opala. Do let me know if I have missed on anything in this analysis
Date of report: | 21-04-2024 | Competitor PE | 43.9 | Sector | Glassware |
---|---|---|---|---|---|
CMP: | 322 | Current PE | 26.8 | No of Years | 37 |
Market Cap: | 3569 Cr | Highest PE | 71 | Key Products | Opalware Crockery |
ROCE / ROE | 22.1% / 16% | Lowest PE | 8.4 | Key Competitor | Borosil, Cello, Unorganised Sector |
Background: A company in Tableware sector specializing in opalware crockery with 50% market share of organized sector and with upside potential of 2.1 times within 3 years. Today the company is cheaply valued as of current price and will be able to generate 2.1 times return in 3 years.
Business Model and Analysis
Overview:
Co produces opal glass tableware from entry level to premium catering to all type of customers. Co also produces items of Borosilicate to cater to “Cook Serve Store” Range
Industry Growth:
Industry for opalware is expected to grow around 6% CAGR till 2030. Growth in industry is primarily due to higher disposable income, increasing middle class base, increasing events and social parties and influence from social media to make home look more “aesthetic”
Capacity Utilisation:
The company has 2 plants one in Uttarakhand and one in Jharkhand. Plants are working at capacity.
Opportunities:
In opalware company operates at 3 price point under different brand to cater to entry level consumer to premium consumer. Co continuously innovates new designs to make its product in trend with market and create brand image. Co has a large market to penetrate as many consumers use unbranded tableware. Further imposing of anti-dumping duties by Indian govt over China and UAE market has made market penetration easier. Inflation for 24/25 is projected to be lower than 23/24 which will provide high disposable income in hands of consumer. The company has increased its number of distributors by 67% in last 3 years to avoid stock out situations. Co exports products in 30 countries which comprises of 10% of its Revenue. Exploring foreign markets will help in increasing topline and bottom line.
Risk:
The company has biggest threat from unorganised sector which operates at lower price point than the company. Entry level consumers are not concerned over brand and looks at price point while buying product. Creating a brand takes a long lead time and historical sales data proves that sales are flattish over 2-3 years period before they take a leap of 30%-40%. Raw Materials like soda ash, borax, sodium silico fluoride, quartz powder although sourced locally are heavily susceptible to price fluctuations.
Future Expansion:
Company is venturing into borosilicate market and plant will commence operation from FY25/26. This business will give direct competition to Borosils’ lunchbox and microwave ware segment. The management is predicting to generate its current OPM level ie 38% in this segment which is doubtful as Borosil generate around 8% in this segment. Due to its widespread distributor segment, co will gain advantage in entering this market
Competion:
- Entry Segment: Borosil is operating at lower price point and with similar ratings on Flipkart. Borosil has received more reviews than La Opala. Cello is also better than La Opala. La Opala is on verge of stock out sitaution in Online Market.
- Premium Segment: La Opala is able to beat its competotors in this segment with higher price point, better reviews and number of reviews. Products are on stock out situation
Further it is heavily vulnerable to competition from unorganised sector operating at low price points
Management:
The company is home run company run by its promoter, his son and daughter in law. Management is strong and has given sufficient information in it’s Annual returns. Further the management has not entered into any related party transaction. Promoters hold 65.64% share in company and has not pledged any share. Concerning points are that management takes around 12% of net profit as salary. Further there are no investor presentation or concalls available during the year by management.
Institutional Investor:
Institutinal investor are holding a steady 20% share in the company with HDFC (~6%) and DSP(~6%) being the constant shareholder*.*
Historical Data and Financials
Profit N Loss Account:
- Sales: Historical trends shows that co shows flattish sales growth for 2-3 years before taking a leap of 30-40%. This can be attributed to time taken for creating brand and penetrating the market. In 22/23 company showed a sales increase of around 40%. The sale has however declined in 23/24.
- Gross Profit: Co is operating at 38% Gross Margin. Borosil operates at 8% Profit Margin whereas Cello operates at 23%. High profit can be attributed due to its Premium product under brand name Diva and Solitaire Crystal
- Other Expenses: Salary cost has increased by 31% which is a sign that business is growing. Further the company has increased its marketing spend by 7x.
- PBT: Co operates at 37% PBT due to very low interest cost and depreciation. Further company gains from interest income and gain from investment to offset its other expenses cost.
- Net profit: Company operates at 27% Net profit.
Balance Sheet:
- Company is expanding its operation and has completed addition 11000mt pa capacity to its existing plants
- Debtor Days (29 days) has improved YoY.
- Inventory Turnover ratio stands 2.19 times and Working Capital Days are at 44 days
- Company has very less debt and has a lean balance sheet
- Care Ratings have given a rating of CARE AA, stable Outlook
- Current Ratio of company stands at 9
- Company maintains low cash balance and invests its excess funds in investments or capital expansions
Cash Flow:
- Has always maintained a positive cash from operations
- Operations are able to fund its investment plans and are also able to provide returns to shareholder in the form of dividend
- Company paid 45% dividend last year
- Co has a healthy CFO/PAT of 1.04 times in last 10 years
Valuation:
Particular | Current | 52W High | 52W Low | Historical High | Historical Low | Industry Average |
---|---|---|---|---|---|---|
Price | 322 | 467 | 298 | 467 | 1.95 | |
PE Ratio | 26.8 | 42.8 | 24.8 | 71 | 8.4 | 36.02 |
EPS | 12.01 | 12.01 | 11.08 | 12.01 | 0.1 | 6.35 |
Price/Book | 4.3 | 7.1 | 4 | 23.8 | 0.4 | 6.15 |
EV/EBITDA | 18.8 | 27.1 | 17.4 | 44.4 | 0.5 | 22.27 |
ROCE | 22% | 17% | 10% | 43% | 10% | 17.59% |
- Current price is expected to grow by 2.1times as tabled in Future growth section.
- PE ratio is below industry average and near its 52W low
- Company EPS is growing and is expected to grow by 30% by FY26/27
- Co is demonstrating high ROCE. Historical low is during COVID times
Company has demonstrated a strong P&L growth by venturing into new markets and by creating branks to cater to different customer segments. Further company has maintained a constant OPM of 38%. Company has maintained a lean Balance sheet by taking very less debt and funding its expansion activity by cash generated from operations. Excess Cash is either invested in good investments which help cover for other expenses, interest and depreciation costs. Company also repays back money to its shareholder in the form of dividend.
Future Growth:
Amt (INR Cr) | 20/21 | 21/22 | 22/23 | 23/24 | 24/25E | 25/26 E | 26/27 E |
---|---|---|---|---|---|---|---|
Sales | 211 | 323 | 452 | 391 | 431 | 594 | 772 |
GP | 69 | 122 | 172 | 151 | 164 | 190 | 246 |
PBT | 64 | 117 | 165 | 160 | 157 | 182 | 237 |
Net Profit | 50 | 87 | 123 | 133 | 115 | 133 | 173 |
EPS | 4 | 8 | 11 | 12 | 10 | 12 | 16 |
PE | 50 | 44 | 31 | 27 | 36 | 36 | 44 |
Price | 222 | 347 | 340 | 322 | 370 | 429 | 682 |
Sales Growth :
- 24/25- Expected to grow at 10%. Historical sales trend shows that company grows for around 10% for 2-3 years before taking big leap of 30%-40%
- 25/26- Expected to grow at 10%. Company will enter into Borosilicate market which is currently a 600 Cr Industry and it’s assumed that company will be able to capture 20% market share due to penetration from its existing channels
- 26/27- Expected sales growth by 30% which is proved by historical data trend
Gross Profit:
Gross Profit rate is at 38% which company has maintained historically. For lunch and micro ware business, gross profit is considered at 8% same as Borosil.
PBT:
Company converts 96% of its gross margin into net profit due to low interest and depreciation cost and high interest income received from its investments.
Net Profit:
Tax rate is assumed to be at 27% same as Tax paid in last year
PE Calculation:
- 24/25- 36 PE is mean PE at which stock traded in past 1 year
- 25/26- Same PE is continued in FY25/26
- 26/27- PE of Borosil is given to the share due to venturing in lunchbox and microwave segment
Disc- Invested
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