Centrum Equity Research is available on Bloomberg, Thomson Reuters and FactSetAspirational, but affordable We initiate coverage on La Opala RG with a BUY rating and believe the company will benefit as the largest organised opalware player in India. Volumes are expected to grow at a CAGR of 21.5% over FY14-17E on the back of doubling of capacity at the Sitargunj plant, pan India distribution network, aggressive investment in brand building, focus on exports, increasing modern trade share with affordable, value for money product positioning in an otherwise upscale market. Improving product mix coupled with operating leverage and savings in power cost will help expand margins. Healthy profitability, strong FCF generation with reducing working capital and improving return ratios augur well for the firm in the long term. Timely capacity expansion to fuel growth: We expect the company to post a CAGR of 21.5% in volumes over FY14-17E as it is planning to double capacity at the Sitargunj plant from 8,000MT to 16,000MT in H1FY16 with a capex of Rs600mn. Our interaction with over 50 dealers across India suggests that affordable pricing along with high product quality and good dealer commission augurs well for La Opala. The company has also focused a lot on the packaging of products along with the release of ~12-15 new designs every year over two tranches as the bulk of sales happen during the festive season. Pan India network of 135 distributors dedicated to general trade is expected to give the company an edge over the competition. Focus on premium products to drive profitability: We believe the shift to premium products under Diva brand will continue as the new capacity being added at the Sitargunj plant will further aid margins. Diva brand accounts for 60% of the sales of the company and Crystal ~10%, both premium products with operating margins of ~30% and ~20% respectively. The share of value for money brand LaOpala reduced to ~30% in FY14. With new capacity expected in FY16 and high demand for quality opalware products, the company is planning to expand its distribution reach outside India to the Middle East, Africa and South East Asia. Strong Financials: We expect sales to grow at a CAGR of 24.8% and operating profit at 30.3% over FY14-17E led by healthy volume growth on the back of new 8000MT capacity at the Sitarganj plant from H1FY16. Despite high A&P spends, operating leverage will help the company expand operating margins from 28.1% in FY14 to 32% in FY17E. With increasing profitability and asset turnover, RoE & RoCE will increase to 36.3% and 31.6% respectively in FY17E. Over the past 5 years, the company has posted strong FCF on the back of marginal capex and improving working capital. With reducing D/E ratio, we believe the company will maintain its ~20% dividend payout going forward. Valuation & Risks: Market leadership positioning in the fast growing category, strong brand presence, healthy momentum of 24.8% revenue and 34% PAT CAGR over FY14-17E, increasing margins, strong balance sheet with FCF generation and improving return ratios make La Opala attractive in the consumer segment. The stock is attractively positioned against peers where it trades at FY16E PEG of 0.65x. We initiate coverage on the stock with a target price of Rs1,270 (22x Sept 2016E EPS of Rs57.7) and 0.9x PEG given that the full benefit of the capacity expansion would come only in FY17. Key risks are removal of anti-dumping duty and delay in capex. Target Price Rs1,270 Key Data Bloomberg Code LOG IN CMP* Rs904 Curr Shares O/S (mn) 10.6 Diluted Shares O/S(mn) 10.6 Upside 40% Mkt Cap (Rsbn/USDmn) 9.6/159.6 Price Performance (%)* 52 Wk H / L (Rs) 1008.9/354 1M 6M 1Yr 5 Year H / L (Rs) 1008.9/16.1 LOG IN (0.7) 50.4 154.9 Daily Vol. (3M NSE Avg.) 9909 Nifty 4.6 20.0 29.4 *as on 27 June 2014: Source: Bloomberg, Centrum Research Shareholding pattern (%)* Mar-14 Dec-13 Sep-13 Jun-13 Promoter 68.2 68.1 68.1 68.1 FIIs 5.5 4.9 3.8 0.1 DIIs 2.2 1.9 1.9 1.9 Others 24.2 25.1 26.2 29.9 Source: BSE, *as on 27 June 2014 Regular capacity expansion Source: Company, Centrum Research Estimates Sales breakup across products/brands Source: Company, Centrum Research Centrum vs. Bloomberg Consensus* Particulars (Rs mn) FY15E FY16E Centrum BBG Var (%) Centrum BBG Var (%) Sales 2,146 2,153 (0.3) 2,671 2,572 3.8 EBITDA 642 627 2.4 825 758 8.8 PAT 404 377 7.1 500 462 8.2 *as on 27 June 2014; Source: Bloomberg, Centrum Research Estimates Bloomberg Consensus* Centrum Target Price (Rs) Variance (%) BUY SELL HOLD Target Price (Rs) 2 0 0 1,017 1,270 24.9 Source: Bloomberg, Centrum Research Estimates Ankit Kedia,
[email protected]; 91 22 4215 9634 Y/E Mar (Rsmn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY (%) EPS (Rs) RoE (%) RoCE (%) P/E (x) EV/EBITDA (x) FY13 1,539 33.8 412 26.8 229 80.2 21.6 35.3 28.7 41.9 23.6 FY14 1,779 15.6 500 28.1 300 30.9 28.3 34.9 28.9 32.0 19.3 FY15E 2,146 20.6 642 29.9 404 34.7 38.1 35.4 30.4 23.7 14.9 FY16E 2,671 24.5 825 30.9 500 24.0 47.2 33.3 29.0 19.1 11.9 FY17E 3,459 29.5 1,108 32.0 722 44.4 68.2 36.3 31.6 13.3 8.5 Source: Company, Centrum Research Estimates 4580 8580 13000 21000 0 5000 10000 15000 20000 25000 F Y 0 6 F Y 0 7 F Y 0 8 F Y 0 9 F Y 1 0 F Y 1 1 F Y 1 2 F Y 1 3 F Y 1 4 F Y 1 5 E F Y 1 6 E F Y 1 7 E ( M T ) Diva, 60% Solitare, 10% La Opala, 30% Consumer BUY Initiating Coverage 30 June 2014 INDIA La Opala RG 2 La Opala RG Table of Contents Niche industry with demand drivers in place .................................................................................... 3 Opalware industry to grow at a CAGR of 10-12% ...................................................................................................... 3 Demand drivers in place ...................................................................................................................................................... 4 Timely capacity expansion to fuel growth ......................................................................................... 5 Rs600mn capex in H1FY16 to help achieve growing demand ............................................................................. 5 21.5% CAGR in volume growth over FY14-17E .......................................................................................................... 6 Pan-India distribution network ......................................................................................................................................... 6 Strong product positioning, as evident from our survey ....................................................................................... 7 Focus on premium products to drive profitability ............................................................................ 8 Improving product mix to drive margins...................................................................................................................... 8 To start exporting opalware products ........................................................................................................................... 8 Increasing A&P spends for brand building… .............................................................................................................. 9 …with reducing fuel cost.................................................................................................................................................... 9 Healthy balance sheet; Strong FCF generation ............................................................................... 10 Healthy improvement in working capital cycle........................................................................................................ 10 Strong FCF generation despite high capex ............................................................................................................... 10 Return ratios to improve going forward ..................................................................................................................... 11 Financial Analysis .............................................................................................................................. 12 Revenue to grow at a CAGR of 24.8% over FY14-17E led by strong volume growth ................................ 12 Steady expansion in operating margin to 32% in FY17E from 28.1% in FY14 ............................................. 12 Valuation ............................................................................................................................................ 14 Key Risks ............................................................................................................................................. 16 Company Background ....................................................................................................................... 17 Financials ........................................................................................................................................... 18 Financials - Historical ......................................................................................................................... 19 3 La Opala RG Niche industry with demand drivers in place Opalware industry to grow at a CAGR of 10-12% Indian opalware industry is currently worth Rs3-3.5bn of the ~Rs20bn Indian tableware industry excluding stainless steel. Unorganised players account for ~15% of the industry while imports form 40- 45% of the market with the remaining from La Opala. Inadequate investment in advertising on building the category and brand coupled with weak distribution by international players who rely on trade partners or importers hampered the growth of this industry which has been growing in double digits. Corelle is the largest international player in the opalware market with sales of ~Rs0.6bn followed by RAK and Luminarc among others. Glassware accounts for more than 35% of the tableware industry with Melamine and BoneChina contributing 20% and 15% share respectively. Exhibit 1: Market size of Indian tableware industry (Rsbn) Source: Industry presentation by Mr.Swapan Guha (C MD, Hopewell Tableware Pvt Ltd and is associated with tableware industry for 3 decades) We believe the tableware industry’s growth will be similar to that of other industries such as cookers, cookware, luggage and innerwear over the long term. These industries grew on the back of better product substitutes, urbanisation, demographic change, aspirational need coupled with highly unorganised market in the initial years with cheaper imports. Indian tableware industry is in a similar position now and we believe growth of this industry will follow that of some of these industries over the long term with a shift to organised players and higher penetration levels. Penetration level in most consumer durables have reached upwards of 50% in urban areas as shown in exhibit 4. We believe over a period of time, opalware products would have similar penetration levels aiding growth. Opalware, 3.0 Glassware, 6.3 Glass bakeware, 0.7 BoneChina, 3.0 Melamine, 3.8 Other Ceramic & Pottery, 2.5 Exhibit 2: TTK Prestige sales across products Exhibit 3: Indian luggage market (USD mn) Bag Segment 2006 2010 2015(E) CAGR (%) CAGR (%) (2006-2010) (2010-2015E) Travel 225 412 866 16.4 16.0 Casual 172 321 687 16.9 16.5 Business 111 183 321 13.3 11.9 Total 508 916 1,874 15.9 15.4 Source: TTK Prestige, Centrum Research Source: Frost & Sullivan, Samsonite Prospectus 7 3 2 5 , 1 0 6 1 3 9 2 , 4 4 9 0 1000 2000 3000 4000 5000 6000 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 ( R s m n ) Cookers Cookware 4 La Opala RG Demand drivers in place Microwave friendly: Opalware is microwave friendly and hence is positioned accordingly by dealers. Microwave industry is expected to grow at a CAGR of 16% over 2013-16E which will boost sales of opalware products as well. Exhibit 6: Market size of microwave Ovens Source: Euromonitor India consumer appliances report, 2013 Change in demographic profile: Increasing urbanization, growing disposable income levels, shift towards nuclear family from joint family and rising number of working couples. Gifting concept: Gifting crockery and dinner sets have become a common trend in urban India during marriages, festive seasons and house warming functions. Hence 32% of La Opoala’s sales are in December quarter on the back of festive season demand. Replacing steel / owning multiple dinner sets: Customers prefer to own multiple dinner sets these days which are used for parties and entertaining guests. It is also the preferred choice over Bone China. Exhibit 7: Comparison between close substitutes Bone China Tableware Opal Glass Tableware Rich & classy look, used for fine dining Rich & classy look. Suitable for daily use Easily gets chipped, needs to be handled with care Is not unbreakable but more stable than bone china Is microwave & dishwasher safe if gold/platinum is not used on them. Gets scratches easily. Is microwave & dishwasher safe and is scratch proof Is price sensitive Is value for money Low on durability More durable Low on sustainability Can go into generations More variety in product range Limited variety Soft cleaners required, high maintenance Easy to clean Heavy & cannot be held in your hand to eat. Difficult to handle. Is lighter than bone china. Easy to handle Source: Industry presentation by Mr.Swapan Guha 4.8 5.8 7.0 8.6 10.6 13.3 15.5 18.1 21.0 24.2 0 5 10 15 20 25 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 E 2 0 1 5 E 2 0 1 6 E ( R s b n ) Exhibit 4: Ownership of consumer durables (% households) Exhibit 5: Market size of Indian innerwear industry Source: Industry, Centrum Research Source: Industry, Rupa Company presentation 46 80 53 88 89 56 54 34 12 8 38 69 76 48 19 17 19 3 0 20 40 60 80 100 R e f r i g r a t o r P r e s s u r e C o o k e r s B i c y c l e W r i s t W a t c h C e i l i n g F a n M i x e r / G r i n d e r C o l o r T V M o t o r C y c l e C a r ( % ) Urban Rural 810 1540 2790 0 500 1,000 1,500 2,000 2,500 3,000 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 ( R s b n ) 5 La Opala RG Timely capacity expansion to fuel growth Rs600mn capex in H1FY16 to help achieve growing demand To meet growing demand and healthy double digit volume growth, the company is planning to double capacity at the Sitargunj plant from 8,000MT to 16,000MT in H1FY16 with a capex of Rs600mn funded through internal accrual and marginal debt as in FY14. Capacity utilisation at the Madhupur plant was 95% and 80-85% at the Sitargunj plant. This plant is contemporary and fully automatic with an electric furnace which offers significant cost savings. As the company manufactures its premium brand Diva at this facility, margins are expected to increase steadily. The company has sufficient land and infrastructure in place for future capex at the same place. Typically, a La Oplala plant can achieve an asset turnover of 2.5x. Hence the company needs to plan in advance for the future due to healthy demand and strong volume growth. The company increased its capacity in FY13 from 8580MT to 13000MT with a capex of Rs230mn as capacity utilisation was peaking. Hence, it commissioned brownfield expansion at Sitarganj plant and expanded capacity for the Diva brand. Currently, the company has 2 plants in Madhupur, Jharkhand with a capacity of ~5000MT where it manufactures LaOpala (4000MT) and Solitare (1000MT) while the Sitarganj plant in Uttarakhand has a capacity of 8000MT for producing Opalware under the Diva brand. Exhibit 8: Regular capacity expansion Source: Company, Centrum Research Exhibit 9: Asset turnover ratio trend over years Source: Company, Centrum Research Estimates 4580 8580 13000 21000 0 5000 10000 15000 20000 25000 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E ( M T ) 1.3 1.3 0.9 0.8 1.0 1.2 1.4 1.7 1.7 1.7 1.7 1.9 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 F Y 0 6 F Y 0 7 F Y 0 8 F Y 0 9 F Y 1 0 F Y 1 1 F Y 1 2 F Y 1 3 F Y 1 4 F Y 1 5 E F Y 1 6 E F Y 1 7 E ( x ) 6 La Opala RG 21.5% CAGR in volume growth over FY14-17E We expect the company to post a CAGR of 21.5% in volumes over FY14-17E on the back of new capacity expansion coupled with growing demand. The bulk of revenue growth was on the back of healthy volume growth historically. FY14 volume growth was mere 14% against 30% in FY13 as the company had a one-time corporate order of Rs120mn in FY13. Excluding the one-time order, FY13 and FY14 volume growth was 21% and 24% respectively. Management hiked prices by 7-8% in the Diva brand in April 2014 which contributes ~60% to sales. This should help the company get 4-5% pricing growth in FY15. In FY14, management did not increase prices for any product while in FY13, pricing growth was ~3% as the company raised prices by 7-8% for the La Opala brand. The company has witnessed strong demand from the modern trade segment which now contributes ~15% of the sales from 11% in FY13. Management is also focussing on the catering segment which contributes only 1-2% currently but is expected to increase to 4-5% over the next 2 years. Currently, the company has 12 distributors for this segment and is planning to increase it on the back of healthy demand. Exhibit 10: Strong volume growth Source: Company, Centrum Research Estimates Pan-India distribution network La Opala has a pan-India distribution network with 135 distributors dedicated to general trade. The products are available in more than 500+ towns and 10K+ dealers / retail points. Management is increasing the distribution network by 15-20 every year. Compared to competitors, La Opala is far ahead not only in terms of the number of distributors but also in terms of towns covered giving the company an edge. Typically, the company gives 10% distributor margin and dealer margin of 30-35% which is similar to that of the competition while the unorganised segment offers higher trade margin. North India is the largest contributor to sales followed by South, West and East India. Exhibit 11: Pan India distribution network Reach Distributors Towns LaOpala 135 500+ Corelle ~30 60-70 Luminarc ~35 60-80 Source: Company, Industry, Centrum Research 15 17 17 18 20 27 32 41 47 54 66 84 8.1 11.6 -0.8 7.2 11.1 34.5 18.5 30.0 14.0 16.0 22.0 27.0 -10 0 10 20 30 40 0 20 40 60 80 100 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E ( % ) ( m n U n i t s ) Pieces Sold (mn) Volume Growth (%) 7 La Opala RG Strong product positioning, as evident from our survey In our interaction with more than 50 dealers across India, we gauged that dealer discount along with product pricing plays a very important role in customer’s decision making process followed by quality, design, shapes/sizes and weight. We understand that La Opala is well positioned to take advantage of its superior product quality, vast distribution reach and affordable pricing. La Opala, through its Diva brand, sells mostly dinner sets while La Opala - Melody brand (60% of sales) sells non-dinner sets and is positioned as a value-for-money brand. We believe La Opala is the best player in the market to cater to the loose segment where demand is high from customers who do not want to buy the full set but purchase only part sets such as cups, saucers, coffee mugs, tea sets, soup bowls, dessert sets etc. La Opala is competing with players such as Corelle (USA), Luminarc (France), Bormioli Rocco (Spain), RAK (UAE), Larah and Roxx (India) in the opalware category. However, dealer interaction suggests that Corelle is the most expensive brand in the market with the best quality and caters to the high end segment but has limited stock in the market and design has not changed in the past years. Luminarc has distribution issues though the product is widely accepted with some new designs available in the market. RAK brand was abolished on 1 st Jan 2014 and hence only limited stock is available in the market. Lara and Rosa are two new brands available in the market in recent months from another Indian manufacturer Hopewell Tableware of Jaipur. However, product quality is very low and there are a lot of customer complaints on breakages. However, they are giving high dealer discounts, increasing their sales. Hopewell is contract manufacturing for Roxx brand which has entered the market in the past 1 month but received limited acceptance from the trade. Advantage for La Opala is its affordable pricing along with high product quality and good dealer commission. La Opala also focuses on packaging of the products as many customers buy them for gifting. The company also releases ~12-15 new designs every year over two tranches as the bulk of sales happen during the festive season. Exhibit 12: Ranking across categories for different opalware brands Brand Name Weight Quality Shapes/Sizes Design Dealer Discount Luminarc 2 2 1 4 3 Corelle 1 1 2 5 5 La Opala – Melody 5 4 5 3 3 Diva by La Opala 3 3 3 1 2 Larah 4 5 4 2 1 Source: Centrum Research, Note: Rank on a scale of 5 with 1 being the best Exhibit 13: Price points across brands (27 piece dinner set) Source: Industry, Centrum Research 7,000 5,000 3,000 2,600 2,400 2,000 1,700 0 1000 2000 3000 4000 5000 6000 7000 8000 C o r e l l e L u m i n a r c D i v a - I v o r y D i v a - C l a s s i q u e R o x x L a O p a l a - M e l o d y L a r a h ( R s ) 8 La Opala RG Focus on premium products to drive profitability Improving product mix to drive margins 60% of the sales of the company is from Diva brand and ~10% from Crystal, both premium products with operating margins of ~30% and ~20% respectively. The share of value-for-money brand LaOpala has reduced to ~30% in FY14. The company started manufacturing Diva brand at its Sitargunj plant in 2008 and since then operating margins have increased from 13.3% to 28.1% despite high A&P spends. We believe the shift towards premium products under Diva will continue as new capacity is being added at the Sitargunj plant which will further aid margins. Gross margins for the company have improved by ~500bps from FY07-FY14 on the back of steady increase in sales of Diva brand given its high realisation and premium positioning. To start exporting opalware products With new capacity expected in FY16 and high demand for quality opalware products, the company is planning to expand its distribution reach. Currently, it has 35 distributors outside India and plans to focus on the Middle East, Africa and South East Asia. From FY15 onwards, the company will export ~Rs200mn of opalware apart from crystal products as the market will stabilise before the new capacity comes in FY16. The share of exports has reduced to mere ~10% of sales compared to 31% in FY09 as the company exports mostly its crystal products to USA, France & Italy apart from 50 other countries with marginal exports of opalware products because crystal capacity was only 1000MT and its share is reducing. The margin for exports is at ~20% compared to domestic margins of ~30% for the Diva brand. Exhibit 16: Exports to pick up with new capacities in place Source: Company, Centrum Research 196 177 183 204 236 180 31.5 23.5 19.0 17.7 15.3 10.0 0 5 10 15 20 25 30 35 0 50 100 150 200 250 FY09 FY10 FY11 FY12 FY13 FY14 ( % ) ( R s m n ) Exports Revenue Share of exports (RHS) Exhibit 14: Sales breakup across products/brands (FY14) Exhibit 15: Operating margins* across products/brands Source: Company, Centrum Research Source: Company, Centrum Research; * Approximate margins, may not add up Diva, 60% Solitare, 10% La Opala, 30% 30 15 20 0 5 10 15 20 25 30 35 D i v a L a O p a l a C r y s t a l ( % ) 9 La Opala RG Increasing A&P spends for brand building… We believe the company will continue to invest aggressively on brand building over the next 2-3 years with A&P spends at ~12% of sales. ~70% of the advertising is on television with the remaining in print which gives the company an edge over competition. Brand recall is high with retail customers as LaOpala is the biggest player in the Indian market. When the company started its premium brand Diva in 2008, it signed actress Bipasha Basu as brand ambassador. It also had an exclusive design range from Manish Malhotra. This gave the brand much needed push to stand out against international players apart from helping dealers and distributors to sell to retail customers. …with reducing fuel cost Fuel cost for the company has reduced steadily over the past few years to 13.9% of sales from 24% in FY08. The company’s new plant at Sitarganj is fully automatic and has an electric furnace while the Madhupur plant is semi-automatic and the furnace was running on furnace oil resulting in high power cost. In FY14, the company converted the Madhupur furnace to electricity with a capex of Rs120mn which led to significant savings in power cost. Company sources electricity from the state grid. Power cost is expected to be ~13.4% of sales and the incremental benefit will either be used for high A&P spends or help in margin expansion. Exhibit 19: Steady reduction in power cost as % of sales Source: Company, Centrum Research Estimates 20.8 21.4 24.0 28.9 17.3 17.0 17.4 16.0 13.9 13.4 13.3 13.1 0 5 10 15 20 25 30 35 F Y 0 6 F Y 0 7 F Y 0 8 F Y 0 9 F Y 1 0 F Y 1 1 F Y 1 2 F Y 1 3 F Y 1 4 F Y 1 5 E F Y 1 6 E F Y 1 7 E ( % ) Exhibit 17: Investment in A&P to remain high Exhibit 18: Best margins despite high A&P spends across midcap consumer companies Source: Company, Centrum Research Estimates Source: Company, Centrum Research 15 19 12 41 59 77 95 148 208 249 311 420 3.6 3.8 2.4 6.7 8.0 8.2 8.5 9.8 11.9 11.8 11.8 12.3 0 2 4 6 8 10 12 14 0 100 200 300 400 500 F Y 0 6 F Y 0 7 F Y 0 8 F Y 0 9 F Y 1 0 F Y 1 1 F Y 1 2 F Y 1 3 F Y 1 4 F Y 1 5 F Y 1 6 E F Y 1 7 E ( % ) ( R s m n ) A&P Spends % of sales (RHS) 1.3 2.8 3.1 3.2 3.2 4.5 4.6 5.1 5.6 5.8 7.7 9.8 0 10 20 30 40 0 2 4 6 8 10 12 B a j a j E l e c t r i c a l s H a w k i n s P a g e I n d u s t r i e s G r e e n p l y H a v e l l s V G u a r d S y m p h o n y V I P I n d u s t r i e s B e r g e r P a i n t s T T K P r e s t i g e R e l a x o F o o t w a r e L a O p a l a ( % ) ( % ) Ad Spends as % of sales (2013) EBITDA Margin 2013 (RHS) 10 La Opala RG Healthy balance sheet; Strong FCF generation Healthy improvement in working capital cycle The company currently has a working capital cycle of 76days with reducing debtor and inventory days. Inventory days have been reducing over the past 6 years from a high of 148 days in FY09 to 58 days in FY14. As the furnace is operated to full capacity irrespective of demand, inventory increased in FY09 on the back of high supply and low demand. However, with good sales push, increasing distribution reach and penetration coupled with strong brand building, inventory reduced gradually. But, we expect the inventory to increase to 100 days in FY16E as the new capacity will come only in H1FY16 and sales will gradually increase over time. Debtor days have come down from 71 in FY08 to 44 days in FY14 on the back of strong brand. The company also offers cash discount of 1% to its distributors for prompt payment within 7 days which ~30% of the distributors avail of. Strong FCF generation despite high capex Over the past 5 years, the company has posted strong FCF on the back of marginal capex as most expansion has been brownfield. We expect the company to post healthy FCF in FY17E against negative FCF in FY16E on the back of 8000MT capacity expansion in FY16 at the existing Sitarganj plant at a cost of Rs0.6bn. We expect the D/E to decline as most funding for the capex would be through internal accrual as the company has healthy operating cashflows. We believe the company would maintain its ~20% dividend payout going forward on the back of strong profitability and healthy cashflows. Exhibit 20: Strong check on inventory/debtor days Exhibit 21: Largely a debt free company now Source: Company, Centrum Research Estimates Source: Company, Centrum Research Estimates Exhibit 22: Strong FCF generation Exhibit 23: Steady dividend payout Source: Company, Centrum Research Estimates Source: Company, Centrum Research Estimates 71 72 89 148 113 86 83 73 58 54 77 71 71 63 65 52 44 44 0 20 40 60 80 100 120 140 160 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 ( D a y s ) Inventory Days Debtor Days 0.1 0.6 0.9 1.2 1.0 0.4 0.3 0.3 0.1 0.1 0.2 0.1 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 F Y 0 6 F Y 0 7 F Y 0 8 F Y 0 9 F Y 1 0 F Y 1 1 F Y 1 2 F Y 1 3 F Y 1 4 F Y 1 5 E F Y 1 6 E F Y 1 7 E ( % ) (17) (103) (110) (53) 104 136 94 95 159 176 (103) 517 (200) (100) 0 100 200 300 400 500 600 F Y 0 6 F Y 0 7 F Y 0 8 F Y 0 9 F Y 1 0 F Y 1 1 F Y 1 2 F Y 1 3 F Y 1 4 F Y 1 5 E F Y 1 6 E F Y 1 7 E ( R s m n ) 34 20 20 19 21 20 20 20 0 5 10 15 20 25 30 35 40 F Y 1 0 F Y 1 1 F Y 1 2 F Y 1 3 F Y 1 4 F Y 1 5 E F Y 1 6 E F Y 1 7 E ( % ) 11 La Opala RG Return ratios to improve going forward With increasing profitability and asset turnover, we expect the RoE of the company to increase from 34.9% in FY14 to 36.3% in FY17E while RoCE should increase from 28.9% in FY14 to 31.6% in FY17E. We believe return ratios are among the best in the midcap consumer space in India as shown in exhibit 33. Exhibit 24: Steadily increasing return ratios Source: Company, Centrum Research Estimates Exhibit 25: Dupont Analysis FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E PAT/Sales (x) 0.04 0.10 0.11 0.15 0.17 0.19 0.19 0.21 Sales/Assets (x) 0.89 1.25 1.56 1.71 1.59 1.56 1.45 1.49 Assets/Equity (x) 2.28 1.84 1.46 1.39 1.30 1.21 1.22 1.17 RoE (%) 7.5 22.3 24.9 35.3 34.9 35.4 33.3 36.3 Source: Company, Centrum Research Estimates 3.3 3.5 6.6 15.3 21.0 28.7 28.9 30.4 29.0 31.6 2.8 2.3 7.5 22.3 25.1 35.3 34.9 35.4 33.3 36.3 2.9 3.2 6.7 16.8 20.0 26.7 28.1 30.2 26.3 33.0 0 5 10 15 20 25 30 35 40 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E ( % ) RoCE RoE RoIC 12 La Opala RG Financial Analysis Revenue to grow at a CAGR of 24.8% over FY14-17E led by strong volume growth We expect the company to post total net sales of Rs3459mn by FY17E at a CAGR of 24.8% over FY14- 17E led by healthy volume growth on the back of new 8000MT capacity at the Sitarganj Plant from H1FY16. FY14 sales growth was mere 15.6% against 33.8% in FY13 as the company had a one-time corporate order of Rs120mn in FY13. Excluding the one-time order, FY13 and FY14 revenue growth were 23.4% and 25.3% respectively. Exhibit 26: CAGR of 24.8% over FY14-17E led by strong volume growth Source: Company, Centrum Research Estimates Steady expansion in operating margin to 32% in FY17E from 28.1% in FY14 We expect the company to post operating profit of Rs1108mn in FY17E at a CAGR of 30.3% over FY14- 17E on the back of stable gross margins. Borax (imported) and silica sand (locally sourced) account for ~50% of the raw material and pricing has been stable for both of them. Despite high A&P spends, we expect operating leverage to help the company expand operating margins from 28.1% in FY14 to 32% in FY17E. On the back of strong operating profit, we expect PAT to increase 2.4x over FY14-17E to Rs722mn at a CAGR of 34%. Exhibit 27: Operating profit to grow at a CAGR of 30.3% over FY14-17E Source: Company, Centrum Research Estimates 494 509 620 750 964 1,150 1,539 1,779 2,146 2,671 3,459 13.5 3.0 21.9 20.9 28.6 19.3 33.8 15.6 20.6 24.5 29.5 0 5 10 15 20 25 30 35 40 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E ( % ) ( R s m n ) Net Sales Growth (RHS) 87 68 104 132 212 269 412 500 642 825 1,108 17.5 13.3 16.8 17.6 22.0 23.3 26.8 28.1 29.9 30.9 32.0 10 15 20 25 30 35 0 200 400 600 800 1,000 1,200 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E ( % ) ( R s m n ) Operating profit Operating Margins (RHS) 13 La Opala RG Exhibit 28: 2.4x increase in PAT over FY14-17E Source: Company, Centrum Research Estimates 10 8 28 93 127 229 300 404 500 722 (78.1) (18.6) 240.1 236.8 36.2 80.2 30.9 34.7 24.0 44.4 (100) (50) 0 50 100 150 200 250 300 0 100 200 300 400 500 600 700 800 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E ( % ) ( R s m n ) Adj Net Profit % Growth 14 La Opala RG Valuation Market leadership in the fast growing category, strong brand presence, healthy momentum of 24.8% revenue and 34% PAT CAGR over FY14-17E, increasing margins, strong balance sheet with FCF generation and improving return ratios make La Opala an attractive bet in the Indian consumer segment. The stock is attractively positioned against peers on PEG basis where it is currently trading at FY16E PEG of 0.65x. The stock is currently trading at 23.7x and 19.1x FY15E and FY16E respectively. We initiate coverage on the stock with a target price of Rs1270 (22x Sept 2016E EPS of Rs57.7) and 0.9x PEG given that full benefit of the capacity expansion would come only in FY17. Exhibit 29: 1 year forward EV/EBITDA chart Exhibit 30: 1 year forward P/E chart Source: Bloomberg, Company, Centrum Research Estimates Source: Bloomberg, Company, Centrum Research Estimates Exhibit 31: P/B vs RoE Exhibit 32: Earnings growth vs PE Source: Bloomberg, Company, Centrum Research Estimates Source: Bloomberg, Centrum Research Exhibit 33: Comparative Valuations Company Mkt Cap (Rs mn) CAGR FY14-FY16E (%) EBITDA Margin (%) PE (x) EV/EBITDA (x) RoE (%) Div Yield (%) Rev. EBITDA PAT FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E LA Opala RG* 9,579 22.8 28.5 29.2 28.6 30.4 31.3 32.0 23.7 19.1 19.3 14.9 11.9 34.9 35.4 33.3 0.6 0.7 0.9 Kajaria Ceramics* 39,432 21.3 24.2 29.8 15.2 15.7 15.9 31.3 24.7 19.5 14.9 12.6 10.0 28.3 26.7 26.2 0.7 0.9 1.1 Havells India 146,546 10.3 17.0 24.9 9.6 10.4 10.8 32.8 24.5 21.1 15.0 15.9 13.8 28.7 31.1 30.0 1.3 1.4 1.6 Berger Paints* 98,438 14.9 18.3 21.5 11.1 11.4 11.8 39.5 34.4 26.7 23.3 20.2 16.2 24.1 23.6 25.8 0.8 0.9 1.1 VIP Industries 15,100 15.8 40.1 30.5 8.5 10.6 12.4 26.2 21.8 15.3 18.0 12.9 9.4 21.2 22.8 29.2 1.6 2.3 3.3 TTK Prestige 41,539 17.9 24.5 22.9 12.4 13.4 13.8 37.2 29.5 24.4 22.0 NA NA 22.8 21.9 22.4 0.5 0.7 0.9 Page Industries 82,622 27.6 26.6 28.8 21.4 20.9 21.1 53.7 41.6 32.6 29.4 NA NA 61.2 58.4 55.6 0.7 1.1 1.3 Astral Polytechnik 38,114 26.2 26.1 38.5 14.5 14.4 14.5 49.4 33.9 25.8 17.4 19.9 16.0 27.7 28.7 28.4 0.1 0.1 0.3 Bajaj Electricals 33,742 17.1 128.1 NA 2.0 7.1 7.7 (634.9) 20.2 14.8 39.0 NA NA (0.7) 21.2 23.7 0.6 0.9 1.2 Whirlpool of India 40,542 17.8 22.3 25.1 7.8 7.9 8.4 33.0 26.8 21.1 12.5 NA NA 18.1 18.1 19.3 0.0 0.0 0.0 Relaxo Footwear 22,828 18.9 19.1 28.0 12.2 12.1 12.2 34.8 28.2 22.2 13.1 NA NA 26.7 25.1 27.4 0.1 0.4 0.4 Symphony 34,737 25.9 29.1 30.6 23.6 24.0 24.8 38.3 29.9 22.4 29.3 23.4 23.4 36.7 37.8 39.0 0.9 1.4 1.7 Source: Bloomberg consensus, Companies; *Centrum Research Estimates 0 2 4 6 8 10 12 14 16 O c t - 0 7 F e b - 0 8 J u n - 0 8 O c t - 0 8 F e b - 0 9 J u n - 0 9 O c t - 0 9 F e b - 1 0 J u n - 1 0 O c t - 1 0 F e b - 1 1 J u n - 1 1 O c t - 1 1 F e b - 1 2 J u n - 1 2 O c t - 1 2 F e b - 1 3 J u n - 1 3 O c t - 1 3 F e b - 1 4 J u n - 1 4 EV/EBITDA Mean Mean + Std Dev Mean - Std Dev 0 20 40 60 80 O c t - 0 7 F e b - 0 8 J u n - 0 8 O c t - 0 8 F e b - 0 9 J u n - 0 9 O c t - 0 9 F e b - 1 0 J u n - 1 0 O c t - 1 0 F e b - 1 1 J u n - 1 1 O c t - 1 1 F e b - 1 2 J u n - 1 2 O c t - 1 2 F e b - 1 3 J u n - 1 3 O c t - 1 3 F e b - 1 4 J u n - 1 4 P/E Mean Mean + Std Dev Mean - Std Dev 0 2 4 6 8 10 18.0 23.0 28.0 33.0 38.0 P / B F Y 1 6 E ROE FY16E Kajaria Berger TTK Prestige Astral Poly Relaxo Havells VIP Ind LA Opala Symphony Whirlpool La Opala 5 10 15 20 25 30 35 22.0 24.0 26.0 28.0 30.0 32.0 34.0 P / E F Y 1 6 E Earnings CAGR (FY14-16) Kajaria Berger TTK Prestige Relaxo Havells VIP Ind Page Ind LA Opala Symphony Whirlpool La Opala 15 La Opala RG Exhibit 34: Quarterly Financials Y/E Mar (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Total Income 270 371 502 399 322 398 570 489 COGS 92 62 100 73 87 90 123 96 Staff cost 36 49 54 53 46 51 62 59 Admin & other expenses 38 63 58 61 39 42 57 77 Power 38 63 74 67 47 54 70 72 A&P Expenses 11 39 69 29 21 48 91 46 Total Expenditure 215 276 356 283 240 286 403 351 EBITDA 55 95 145 116 82 113 167 138 Depreciation 11 15 15 14 15 18 19 19 EBIT 44 80 131 102 67 95 148 119 Interest 8 12 11 10 10 11 8 4 Other Income 4 2 3 1 2 2 5 2 Exceptional Item 0 0 0 0 0 0 0 0 PBT 39 70 122 93 60 86 145 117 Total tax 11 25 30 30 15 27 34 32 Reported PAT 28 45 93 63 45 59 110 85 Adj PAT 28 45 93 63 45 59 110 85 Growth % Revenue 11.4 19.1 71.7 31.2 19.4 7.3 13.6 22.4 EBIDTA 1.4 26.0 82.5 91.7 49.3 18.4 14.9 18.6 Adj PAT 14.5 14.3 110.5 227.9 61.1 31.9 18.8 34.7 Margins % Gross Margin 65.9 83.3 80.0 81.8 72.9 77.4 78.5 80.3 EBIDTA 20.4 25.6 29.0 29.2 25.5 28.2 29.3 28.3 EBIT 16.2 21.6 26.0 25.5 21.0 23.8 26.0 24.4 Adj PAT 10.4 12.0 18.5 15.9 14.0 14.8 19.4 17.5 Source: Company, Centrum Research Exhibit 35: Assumptions Assumptions FY12 FY13 FY14 FY15E FY16E FY17E Volume Growth % 18.5 30.0 14.0 16.0 22.0 27.0 Source: Company, Centrum Research Estimates Exhibit 36: Sensitivity Analysis Sensitivity Analysis - FY16E EPS Gross Margins (%) -2% -1% Base 1% 2% V o l u m e G r o w t h -2% 41.3 43.1 44.9 46.7 48.5 -1% 42.4 44.2 46.1 47.9 49.7 Base 43.5 45.4 47.2 49.1 50.9 1% 44.7 46.5 48.4 50.2 52.1 2% 45.8 47.6 49.5 51.4 53.2 Source: Centrum Research Estimates 16 La Opala RG Key Risks Removal of anti-dumping duty Removal of anti-dumping duty by the Government of India which was imposed in August 2011 for 5 years in the range of 41-110% from China and 36.7% from UAE could increase competition and put pressure on realisations. Organised and unorganised imports continue to account for more than 50% of the market in India. Exhibit 37: Anti-dumping duty across different countries Sr No Country Producer Exporter Rate of duty (%) 1 China PR M/s WenzhouHuishunda Industrial Trade Co. Ltd. 41.61 2 China PR Any other combination of producer/exporter 110.17 3 UAE Any producer Any exporter 36.73 Source: GoI-Ministry of Finance, Centrum Research Delay in capex The company has been able to grow aggressively on the back of timely capex. Any delay in new capex could impact volume growth given that by FY16 the company would reach its peak sales. Reducing consumer demand Moderation in consumer spending could impact volume growth given that opalware is a replacement product and not a necessity. Downtrading to cheaper substitutes could further impact margins. 17 La Opala RG Exhibit 38: Shareholding pattern (%) Q4FY14 Q3FY14 Q2FY14 Q1FY14 Promoter 68.2 68.1 68.1 68.1 FIIs 5.5 4.9 3.8 0.1 DIIs 2.2 1.9 1.9 1.9 Others 24.2 25.1 26.2 29.9 Source: BSE Company Background La Opala RG promoted by Sushil & Ajit Jhunjhunwala is headquartered in Kolkata and is a manufacturer of opalware and crystalware products in India. The company has two manufacturing plants in Madhupur, Jharkhand and Sitarganj, Uttarakhand with total capacity of 13,000 MT. In started manufacturing crystalware in 1996 with a tie-up with Doosan Glass, South Korea which was later discontinued. Exhibit 39: Milestones 1988 Pioneering in Opal Glass technology in India, the first Opal Glass plant was set up at Madhupur, Jharkhand 1991 La Opala earned the honor to be the first exporter of Opalware 1995 La Oplala became the first Public Limited tableware Company 1996 Pioneered 24% Lead Crystal Glassware technology in India and set up the first Crystal Glass plant at Madhupur, Jharkhand 1996 Launched India’s first 24% Lead Crystal Glassware, under the brand name ‘Solitaire’ 1997 Became the first Indian company to export 24% Lead Crystal tableware 1999 The merger of La Opala Glass Ltd ,with Radha Glass & Industries Ltd, forming La Opala RG Ltd 2005 Received the honors of recognition as Export House from the Government of India 2007 First Indian company to supply 24% Lead Crystal Glassware to world renowned ‘Rosenthal’ 2007 Fully automatic state-of-the-art plant set up at Sitarganj, Uttarakhand, to produce world class Opal Glass tableware 2008 Witnessed the launch of ‘Diva’ , the hi-tech, world class opal brand in the premium segment 2012 The company completed the major expansion plan at their Sitarganj, Uttarakhand plant Exhibit 40: Board of Directors Name Designation Profile Mr A C Chakrabortti Chairman He was appointed as the Chairman and Non-executive Director in 1994. He is the fellow member of the Institute of Chartered Accountants in England & Wales and India. He is formerly, Senior Partner of S R Batliboi & Co., Chartered Accountants, Chairman of Ernst & Young, President of ICAI and a Governing Committee Member of International Federation of Accountants. He is also the Chairman of Peerless Funds Management Co. Ltd., Grindwell Norton Ltd. and also on the Boards of numerous prominent companies. Mr Sushil Jhunjhunwala Vice Chairman & Managing Director He is the Promoter and Managing Director of the Company and has over 40 years of specialisation in the Glass Industry. He has held important honorary positions in many organisations that include, the President of All India Glass Manufacturers Federation, President of Society of Glass Technology (Indian Section) and President of Calcutta Chamber of Commerce. He is also a Non-executive Director of M/s RSWM Limited and M/s BSL Limited. Mr Ajit Jhunjhunwala Joint Managing Director He is the Promoter and Dy Managing Director of the Company. He has over 20 years of experience in the Glass Industry. He is the former President of Eastern India Glass Manufacturers Association and Committee Member of Confederation of Indian Industries (Marketing Committee). Ms Nidhi Jhunjhunwala Executive Director She was appointed as an Executive Director on the Board in 2010. She is responsible for the marketing, planning and product designing of the Company. She is an active member of Ladies Study Group, Indian Chamber of Commerce. Mr G Narayana Non-Executive Director He was appointed as a Non-executive Director in 1996. He has over 45 years of experience in the field of Engineering, General Management, Human Relations, developing leaders and in teaching. He has authored many path making books on management and leadership. At present he is a Chairman Emeritus of Excel Industries Limited and Chairman of M/s Punjab Chemicals & Pharmaceuticals Limited. Mr Shakir Ali Non-Executive Director He was appointed as a Non-executive Director in 1987. He is a reputed lawyer and specialises in Industrial & HR Relations. He is associated with many companies of repute, such as, M/s Century Ply Limited and M/s Manaksia Group of Industries Mr Arun Churiwal Non-Executive Director He was appointed as a Non-executive Director in 2004. He has over 40 years of experience in the segments of textiles and agro products. He is currently the Managing Director of M/s RSWM Limited and Chairman & Managing Director of M/s BSL Limited, a part of M/s LNJ Bhilwara Group. He has held many important positions of honour in many organisations such as President of Merchants’ Chamber of Commerce, Kolkata, Chairman of Indian Woolen Mills Federation, Mumbai and President of Mewar Chamber of Commerce & Industry Bhilwara, Rajasthan. Mr Rajiv Gujral Non-Executive Director He was appointed as a Non-executive Director in 2007. He has been associated with the Tata Group for over 38 years and has been in senior management positions with Taj Group of Hotels. Presently he is the CEO of Tata International / Taj Hotels JV for Africa. He is also on the Board of M/s Peerless Hotels Ltd. and Ex Board Members of Taj International Hotels (HK) Ltd. and Oriental Hotels International (HK) Ltd. Source: Company 18 La Opala RG Financials Exhibit 41: Income Statement Y/E March (Rs mn) FY13 FY14 FY15E FY16E FY17E Net Sales 1,539 1,779 2,146 2,671 3,459 Growth (%) 33.8 15.6 20.6 24.5 29.5 Employee Cost 189 218 253 311 379 %of Sales 12.3 12.2 11.8 11.6 11.0 Material cost 327 403 481 593 769 %of Sales 21.2 22.7 22.4 22.2 22.2 Admin & other expenses 612 658 770 943 1,203 % of sales 39.7 37.0 35.9 35.3 34.8 EBIDTA 412 500 642 825 1,108 EBIDTA Margins (%) 26.8 28.1 29.9 30.9 32.0 Depreciation 56 70 81 108 114 Interest expenses 42 33 20 44 18 PBT for operations 314 397 541 672 975 Other income 10 11 12 13 14 Exceptional item - - - - - PBT 325 408 553 685 990 Provision for tax 96 108 149 185 267 Effective tax rate (%) 29.5 26.5 27.0 27.0 27.0 Net Profit 229 300 404 500 722 Adj Net Profit 229 300 404 500 722 Source: Company, Centrum Research Estimates Exhibit 42: Key Ratios Y/E March FY13 FY14 FY15E FY16E FY17E Growth ratios (%) Revenues 33.8 15.6 20.6 24.5 29.5 EBIDTA 53.4 21.3 28.5 28.5 34.3 Adj Net Profit 80.2 30.9 34.7 24.0 44.4 Margin ratios (%) EBIDTA Margins 26.8 28.1 29.9 30.9 32.0 PBIT Margins 23.1 24.2 26.1 26.8 28.7 PBT Margins 21.1 22.9 25.8 25.7 28.6 PAT Margins 14.9 16.8 18.8 18.7 20.9 Return Ratios (%) ROCE 28.7 28.9 30.4 29.0 31.6 RoNW 35.3 34.9 35.4 33.3 36.3 RoIC 26.7 28.1 30.2 26.3 33.0 Turnover Ratios (Days) Inventory period 73 58 75 100 100 Collection period 44 44 45 45 45 Payment period 56 34 50 50 50 Net Working Capital 70 76 78 102 103 Solvency Ratio Debt-equity 0.3 0.1 0.1 0.2 0.1 Net Debt-equity 0.2 0.1 -0.0 0.1 -0.1 Current ratio 1.9 2.9 2.6 2.9 3.1 Interest coverage ratio 8.5 13.1 28.2 16.1 53.9 Dividend Dividend (Rs) 3.5 5.0 6.5 8.0 11.5 Dividend yield (%) 0.4 0.6 0.7 0.9 1.3 Dividend Payout (%) 19.0 20.7 20.0 19.8 19.7 Per Share (Rs) Basic (end pt) EPS - Rep 21.6 28.3 38.1 47.2 68.2 FDEPS (Adjusted) 21.6 28.3 38.1 47.2 68.2 Basic (end pt) EPS - Adj 21.6 28.3 38.1 47.2 68.2 FDEPS (Reported) 21.6 28.3 38.1 47.2 68.2 CEPS 26.8 34.9 45.7 57.4 78.9 Book Value 69.9 92.3 122.8 160.6 215.4 Valuations (x) PER 41.9 32.0 23.7 19.1 13.3 P/BV 12.9 9.8 7.4 5.6 4.2 EV/EBIDTA 23.6 19.3 14.9 11.9 8.5 EV/Sales 6.3 5.4 4.4 3.7 2.7 M-cap/Sales 6.2 5.4 4.5 3.6 2.8 Source: Company, Centrum Research Estimates Exhibit 43: Balance Sheet Y/E March (Rs mn) FY13 FY14 FY15E FY16E FY17E Share Capital 106 106 106 106 106 Reserves & Surplus 635 872 1,195 1,596 2,176 Total Shareholders’ Funds 741 978 1,301 1,702 2,282 Loan Funds 208 142 142 342 142 Deferred Tax Liabilities 75 94 94 94 94 Total Capital Employed 1,024 1,214 1,537 2,138 2,518 Fixed Asset Gross Block 989 1,152 1,352 1,802 1,902 Less:- Accumulated Depreciation 351 421 502 610 724 Net Block 639 731 850 1,192 1,178 Capital WIP 9 22 50 50 50 Total fixed assets 647 753 900 1,242 1,228 Investments 75 1 1 1 1 Inventory 308 283 441 732 948 Debtors 186 215 265 329 426 Loans & advances 68 81 107 134 173 Other Current Assets 24 24 24 24 24 Cash & bank balances 8 91 179 145 315 Total current assets 594 694 1,015 1,364 1,886 Current liabilities and provisions 292 235 380 469 597 Net current assets 302 459 636 895 1,289 Total 1,024 1,214 1,537 2,138 2,518 Source: Company, Centrum Research Estimates Exhibit 44: Cash Flow Y/E March (Rs mn) FY13 FY14 FY15E FY16E FY17E CF from operations Profit before tax 325 408 553 685 990 Depreciation & amortisation 56 70 81 108 114 Others 66 22 8 31 4 CF before WC changes 446 500 642 825 1,108 Working capital changes (40) (75) (88) (293) (224) Cash inflow from operations 406 425 553 532 884 Income tax paid (86) (90) (149) (185) (267) Cash from Operations 320 335 404 347 617 Cash from investing Capex (224) (176) (228) (450) (100) Investments (74) 74 0 0 0 Others 1 11 12 13 14 Cash from investing (297) (91) (216) (437) (86) Cash from financing Borrowings/ repayments 46 (66) 0 200 (200) Interest paid (36) (33) (20) (44) (18) Equity/ Share Capital 0 0 0 0 0 Dividend & Dividend Tax (28) (62) (81) (99) (143) Cash from financing (19) (161) (100) 56 (361) Net change in cash 4 83 88 (34) 170 Source: Company, Centrum Research Estimates 19 La Opala RG Financials - Historical Exhibit 45: Income Statement Y/E March (Rs mn) FY08 FY09 FY10 FY11 FY12 Net Sales 509 620 750 964 1,150 Growth (%) 3 22 20.9 28.6 19.3 Employee Cost 77 96 103 134 159 %of Sales 15.2 15.4 13.8 13.9 13.8 Material cost 143 75 182 247 251 %of Sales 28.2 12.2 24.3 25.6 21.8 Admin & other expenses 220 345 332 371 472 % of sales 43.3 55.7 44.3 38.4 41.0 EBIDTA 68 104 132 212 269 EBIDTA Margins (%) 13.3 16.8 17.6 22.0 23.3 Depreciation 35 46 43 45 46 Interest expenses 19 41 46 35 41 PBT for operations 14 16 43 132 182 Other income 2 1 1 2 2 Exceptional item - - - - (1) PBT 16 17 45 134 183 Provision for tax 6 9 17 41 57 Effective tax rate (%) 37.6 52.3 38.2 30.3 31.0 Net Profit 10 8 28 93 126 Adj Net Profit 10 8 28 93 127 Source: Company, Centrum Research Exhibit 46: Key Ratios Y/E March FY08 FY09 FY10 FY11 FY12 Growth ratios (%) Revenues 3.0 21.9 20.9 28.6 19.3 EBIDTA (21.9) 53.8 27.1 60.8 26.4 Adj Net Profit (78.1) (18.6) 240.1 236.8 36.2 Margin ratios (%) EBIDTA Margins 13.3 16.8 17.6 22.0 23.3 PBIT Margins 6.4 9.3 11.9 17.4 19.4 PBT Margins 3.2 2.8 6.0 13.9 15.9 PAT Margins 2.0 1.3 3.7 9.7 11.0 Return Ratios (%) ROCE 3.3 3.5 6.6 15.3 21.0 RoNW 2.8 2.3 7.5 22.3 25.1 RoIC 2.9 3.2 6.7 16.8 20.0 Turnover Ratios (Days) Inventory period 88.7 147.7 112.8 86 83 Collection period 70.7 70.7 62.8 65 52 Payment period 67.3 51.7 45.9 77 63 Net Working Capital 100.4 182.8 143.8 72 84 Solvency Ratio Debt-equity 0.9 1.2 1.0 0.4 0.3 Net Debt-equity 0.9 1.2 1.0 0.4 0.3 Current ratio 2.3 4.0 3.6 1.7 2.0 Interest coverage ratio 1.7 1.4 1.9 4.8 5.5 Dividend Dividend (Rs) 0.7 0.0 0.7 1.5 2.0 Dividend yield (%) 0.1 0.0 0.1 0.2 0.2 Dividend Payout (%) 92.9 0.0 33.6 19.8 19.5 Per Share (Rs) Basic (end pt) EPS - Rep 0.9 0.8 2.6 8.8 11.9 FDEPS (Adjusted) 0.9 0.8 2.6 8.8 12.0 Basic (end pt) EPS - Adj 0.9 0.8 2.6 8.8 12.0 FDEPS (Reported) 0.9 0.8 2.6 8.8 11.9 CEPS 4.2 5.1 6.7 13.0 16.2 Book Value 33.4 34.2 35.9 42.9 52.5 Valuations (x) PER 957.5 1,176.6 346.0 102.8 75.5 P/BV 27.1 26.5 25.2 21.0 17.2 EV/EBIDTA 146.5 96.4 75.4 45.9 36.3 EV/Sales 19.5 16.2 13.3 10.1 8.5 M-cap/Sales 18.8 15.4 12.8 9.9 8.3 Source: Company, Centrum Research Estimates Exhibit 47: Balance Sheet Y/E March (Rs mn) FY08 FY09 FY10 FY11 FY12 Share Capital 106 106 106 106 106 Reserves & Surplus 248 256 274 349 451 Total Shareholders’ Funds 354 362 380 455 557 Loan Funds 334 446 390 186 161 Deferred Tax Liabilities 41 47 67 62 57 Total Capital Employed 729 856 838 702 774 Fixed Asset Gross Block 746 754 777 797 820 Less:- Accumulated Depreciation 170 214 256 300 334 Net Block 576 540 520 497 487 Capital WIP 1 0 10 8 20 Total fixed assets 577 540 530 506 506 Investments 1 1 1 1 1 Inventory 124 251 232 227 260 Debtors 99 120 129 171 163 Loans & advances 32 24 42 29 72 Other Current Assets - 14 8 13 18 Cash & bank balances 11 4 11 6 4 Total current assets 265 413 423 446 517 Current liabilities and provisions 114 98 116 250 250 Net current assets 151 314 306 196 267 Total 729 856 838 702 774 Source: Company, Centrum Research Exhibit 48: Cash Flow Y/E March (Rs mn) FY08 FY09 FY10 FY11 FY12 CF from operations Profit before tax 16 17 45 134 183 Depreciation & amortisation 35 46 43 45 46 Others 16 59 47 36 42 CF before WC changes 67 123 135 215 271 Working capital changes (8) (157) 14 (28) (65) Cash inflow from operations 59 (34) 149 187 206 Income tax paid (7) (3) (9) (29) (63) Cash from Operations 52 (37) 141 158 143 Cash from investing Capex (160) (16) (35) (21) (47) Investments 7 0 0 0 0 Others 0 0 0 0 1 Cash from investing (153) (15) (35) (21) (47) Cash from financing Borrowings/ repayments 134 113 (56) (99) (39) Interest paid (19) (41) (40) (26) (24) Equity/ Share Capital 0 0 0 0 0 Dividend & Dividend Tax (17) (26) (3) (18) (34) Cash from financing 98 46 (99) (143) (98) Net change in cash (3) (7) 7 (5) (1) Source: Company, Centrum Research 20 La Opala RG Appendix A Disclaimer Centrum Broking Limited (“Centrum”) is a full-service, Stock Broking Company and a member of The Stock Exchange, Mumbai (BSE) and National Stock Exchange of India Ltd. 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No representation is made that this report is accurate or complete. 21 La Opala RG The opinions and projections expressed herein are entirely those of the author and are given as part of the normal research activity of Centrum Broking and are given as of this date and are subject to change without notice. Any opinion estimate or projection herein constitutes a view as of the date of this report and there can be no assurance that future results or events will be consistent with any such opinions, estimate or projection. This document has not been prepared by or in conjunction with or on behalf of or at the instigation of, or by arrangement with the company or any of its directors or any other person. Information in this document must not be relied upon as having been authorized or approved by the company or its directors or any other person. Any opinions and projections contained herein are entirely those of the authors. 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Rating Criteria Rating Market cap < Rs20bn Market cap > Rs20bn but < 100bn Market cap > Rs100bn Buy Upside > 25% Upside > 20% Upside > 15% Hold Upside between -25% to +25% Upside between -20% to +20% Upside between -15% to +15% Sell Downside > 25% Downside > 20% Downside > 15% Member (NSE, BSE, MCX-SX), Depository Participant (CDSL) and SEBI registered Portfolio Manager Registration Nos. CAPITAL MARKET SEBI REGN. NO.: BSE: INB011454239, NSE: INB231454233 DERIVATIVES SEBI REGN. NO.: NSE: INF231454233 (TRADING & SELF CLEARING MEMBER) CDSL DP ID: 12200. SEBI REGISTRATION NO.: IN-DP-CDSL-661-2012 PMS REGISTRATION NO.: INP000004383 MCX – SX (Currency Derivative segment) REGN. NO.: INE261454230 Website: www.centrum.co.in Investor Grievance Email ID:
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