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CMP

Rs. 1281

Target

Rs.1361

Rating

Add

La Opala RG

1

Stock performance (%)

1m 3m 12m

LOG 17% 49% 223%

Sensex 3% 8% 47%

CNX FMCG

Index 3% 6% 17%

Financial summary

Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA(x)

FY14 1,779 500 300 28.3 45.3 27.2

FY15E 2,227 640 418 37.7 34.0 20.2

FY16E 2,694 786 514 46.3 27.7 16.3

Initiating Coverage - ‘Add’ – TP:Rs.1361

Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset

Date Aug 22, 2014

Market Data

SENSEX 26360

Nifty 7891

Bloomberg LOG IN

Shares o/s 11mn

Market Cap Rs. 14bn

52-wk High-Low Rs. 1,450-384

3m Avg. Daily Vol Rs. 13mn

Index member BSESMCAP

Tejash Shah

[email protected]

+91 22 4228 8155

Gnanasundaram S

[email protected]

+91 44 4344 0062

Madhav PVR

[email protected]

+91 44 4344 0060

Initiating Coverage Driven by penetration opportunities and conversion from the unorganised segment, several organised retail players

continue to emerge in the niche retail categories. Taking advantage of being the first-movers, on several occasions these

niche companies embark on a lucrative growth path in line with the category. Though the scale of opportunity remains

unabated in the Indian retail space, only a few companies have managed to build an economic moat envisioning their long

term objectives. We believe pioneer companies would be able to hold on to their forte only by developing distinct economic

moat that are not easily replicable. La Opala RG (LOG), the pioneer in the Indian opal-ware market is one such emerging

retail company who we believe has the potential to tap into the underpenetrated and unorganised tableware space in India.

Having been in business for ~28 years, LOGs ability to understand consumer needs in the tableware category and transform

offerings as per the needs of the consumer have led to their success. Having withstood wide array of competition from

MNCs & regional unorganised players, LOG is beginning to pioneer the growth of Indian Opalware market. Despite being

manufacturing oriented, we believe LOGs focus on building brands has emerged as their strongest competitive advantage

off-late. We believe, LOG today stands to take definitive advantage of the macro economic growth drivers primarily backed

by its strong brand equity. Having transformed into a customer centric company, we believe even if anti dumping duties are

relaxed on the Chinese imports or several international players venture into the opalware space, LOG stands at a definitive

advantage to sustain growth and margins through its strong brands. Macro growth drivers coupled with strong entry

barriers should enable LOG to sustain the growth momentum. Having identified that potential of LOG early, we have been

actively tracking the company under our Mid@s coverage (Click here to view our visit note on LOG) but now formally

initiate coverage on the stock and assign an Add Rating on LOG with a TP Of Rs.1361 (~29x FY16EPS).

Investment rationale

• Prominence & Penetration of opalware gaining significance: Opal tableware category having a low penetration represents a

wide growth opportunity. Further, given that unorganized players (steel, melamine and plastic) dominate the current tableware

offerings, we believe LOG with a strong brand, affordable pricing and good reach should be able to tap into the market

successfully.

• Premiumization & Product extension to lead to operating leverage: LOG’s efforts of transforming into an asset light model

through portfolio expansion (New categories as bakeware, tumbler etc) and increasing premiumization (higher contribution from

premium brands) is expected to lead margin expansion and improve capital efficiency in the medium to long term.

• Passive competitive intensity: We note that with majority of the MNC competitors still struggling to establish a scalable and

profitable distribution model in India, competitive intensity in the segment has dwindled. Further, volumes of Chinese imports too

have significantly declined post the antidumping duty imposition in ~2011. Being a pioneer and having spent persistent amount on

brand investments, we believe LOG would sustain its competitive edge even if competition intensifies.

mailto:[email protected]



La Opala RG - Mid@s Screener-Final.pdf


















Private & Confidential

CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

2

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 into one of the leading brands in the Indian crockery market through its three brands, La Opala, Diva and

Solitaire.

Presence Headquartered in Kolkata, LOG operates dual facility at Madhupur (Jharkhand) and Sitarganj (Uttarakhand).

Management depth Mr . A C Chakrabortti - Non executive 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 (FY14) Three Brands – La Opala (~60%), Diva (~30%) and Solitaire (~10%)

Capacity Madhupur (Jharkhand) (~5000 MT) and Sitarganj (Uttarakhand) (~8000 MT)

Key Clientele Aspiring middle class retail population

Key Vendors LOG currently has ~135 distributors with a reach of ~10,000 retail outlets. ~75 employees are involved in selling to Modern

Retail. Modern Retail contributes ~15% of total revenues.

Key Success Factors Brand strength and expanding distribution network

Capital History Rs.34mn in February 1995; Announces in July 2014- Rs.553mn to be raised through preferential allotment

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


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

3

1987 •La Opala Glass Private Limited commences operations

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', a 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

Source: Company, Spark Capital

Kolkata (Head Office)

Madhupur (Plant) (La

Opala opalware &

Solitaire crystalware

Sitarganj (Plant)

(Diva opalware)

La Opala RG’s presence in India



CMP

Rs.1281

Target

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Rating

Add La Opala RG

4

Business Overview

Well positioned brands straddling across price points to assist in growth and expansion of margins.

Time Tested

Positioning

Contribution

Since 1996

Aesthetic, Premium

Waterford, Zrike, Lauren Ralph

~10% - FY14 Sales

~1000 MT

Since 1988

Value For Money

~60% - FY14 Sales

~4000 MT Capacity

Since 2008

Premium Affordable

~30% - FY14 Sales

~8000 MT

Madhupur, Jharkhand Madhupur, Jharkhand Plant Loacation Sitarganj, Uttarakhand

Competitors Hopewell, Unorganized players,

Cheap Chinese imports Luminarc, Corelle, Vanras


CMP

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Target

Rs.1361

Rating

Add La Opala RG

5

Company

specific

drivers

f

Growth – function of (f) Importance Outlook

f

Distribution

expansion

opportunity

Growing aspiration

to use/consume

organized/branded

products

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

s

Macro

drivers

Increasing disposable

income

Urbanisation drive gaining

momentum

Rising working women

population

Increasing propensity to

spend

Shift towards fashionable

crockery

f

f Branding led

Premiumisation

Wide unorganized market

presents lucrative growth

opportunity

Demographic

Dividend

• Though on a small sample set, random channel checks

with households makes us believe that there is almost no

other brand that the typical household 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.

Low penetration

and huge

unorganized

market

Anti Dumping duty

imposed on cheap

Chinese imports

f

f

Currently caters to just ~135

distributors and ~10000 retail

outlets

Amount spent on A&P

should enable them to build

a brand equity

f

Source: Spark Capital Research - Negative - Strong - Weak - Positive - Neutral

Industry

drivers

f

Improving product

mix

Increasing contribution from

premium opalware (Diva) to

assist in margin expansion

f f

Imposed in 2011 on import of

opal/glassware from China

f

f

• Most of the products sold are 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 for a period of five years starting

from December 2011. Since the imposition of the duty,

proportion 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 opalware in India.

• Aesthetic appeal and social strata associated with

opalware is also beginning to significantly contribute to

their superior growth in recent times.


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

6

LOG deriving economic moat from its unparalleled capacity in 2007-11

Source: Industry sources, Spark Capital

…transforming into a efficacious brand play from being just a

manufacturer

Source: Industry sources, Spark Capital

Incessant A&P investments have led to Brand equity emerging as the strongest business moat

Capacity expansion has kept abreast to rising demand leading to…


However, incessant A&P led to LOG creating strong brands thereby…


746 753 775 796 820

989

1,114

200

300

400

500

600

700

800

900

1,000

1,100

1,200

FY08 FY09 FY10 FY11 FY12 FY13 FY14

Rs.m

n

Gross Block

12 41 59

77 95

148

208

2.4%

6.5%

7.9% 8.0% 8.3%

9.6%

11.7%

0%

2%

4%

6%

8%

10%

12%

14%

0

50

100

150

200

250


Rs.m

n

A&P A&P/Sales

Brand Strength Pricing power Distributor terms of trade

Reach Supplier credit terms

Technological Superiority

Capacity

Reach Supplier credit terms

Technological Superiority

Distributor terms of trade

Capacity Pricing Power Brand Strength


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

7

Strong growth drivers and deeply rooted Economic moat

#1 Prominence of Opal-ware

rising

#2 Penetration opportunities

#3 Premiumization

drive

#4 Product Extension

Opportunities

#5 Pioneer of Opal-ware in

India

#6 Persistent brand

investments

#7 Potent operating

leverage play

7P growth strategy

Growth driver

Economic Moat


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

8

Homeware industry growth on stable trend

Source: Bloomberg business intelligence, Spark Capital

Strong volume and usage growth drivers to lead to opalware

prominence rising

Source: Spark Capital

#1 – Prominence of opalware in India on the rise

Diningware in homeware gaining higher prominence off-late…


Niche categories as opalware though outpacing industry trend.


Homeware (~100bn)

Dining (~47%)

Beverage ware (~3%)

Cutlery (~4%)

Dinnerware (~40%)

Kitchen (~53%)

Cookware (~40%)

Kitchen ware

(~13%)

52 58

65

73

83

91 95

101

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011 2012 2013

Rs.b

n

Homewares marketsize India

Ceramic/ Opal

Ware, 8%

Glass, 13%

Metal, 34%

Plastic, 40%

Others, 5%

Dinnerware Share (2013)

20.0%

1.8%

8.0%

12.2%

9.3%

0.0% 10.0% 20.0%

Ceramic/Opal Ware

Glass

Metal

Plastic

Others

2010-13 growth CAGR

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.

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


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

Availability and affordability have led to unorganised players

dominating the dinnerware market…


9

…growth in opalware to be a function of sophistication; microwave

growth a lead indicator of increasing sophistication of Indian kitchens


Opalware penetration opportunity

Source: Census India 2011, Spark Capital

#2 – Wide unorganised market and low product awareness leads to huge penetration opportunity

SEC Classification % of households # of households (mn) Potential

households

A1 0.4% 1

A2 1.8% 5

~76mn

A3 3.2% 8

B1 4.3% 11

B2 5.3% 13

C1 7.5% 19

C2 7.9% 20

D1 11.4% 29

D2 14.7% 37

E1 18.4% 47

E2 15.4% 39

E3 9.7% 25

Organised, 5%

Unorganised, 95%

Key penetration drivers

1. Increasing awareness of opalware benefits

through mass media advertisements and

effective activation programs.

2. Expanding distribution network and modern retail.

3. Bridging the price gap between unorganized

(majorly plastic and stainless steel) and

organized.

4. Social strata pressure exerted in favor of

sophisticated dinnerware.

5. Opalware products usage increasingly becoming

daily use offerings from being occasion based.

7 8

9 10

12 13.3

15.5

18.1

21

24.2

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Microwave Market Size India Reason for a huge unorganised

market

• Utensils and cutlery continued

to be perceived as

commodities by Indian

consumers

• 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

We believe

the potential

market size

based on SEC

estimates to

be ~76mn

households


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

245 369 444

558 703

962 1133

0

200

400

600

2008 2009 2010 2011 2012 2013 2014

Gross Profit

10

Gross profit growth outpacing revenue growth indicating rising

favourable product mix.

Source: Company filings, Spark Capital

La Opala brand remains the recruiter offering, while brand Diva to drive

up-gradation.

Source: Industry, Spark Capital

#3 – Favourable product mix leading to premiumization

Diva brand in Opalware positioned at a price premium to La Opala

brand offerings by at-least 70-80%


Contribution from Diva has doubled in the past two years…


30% 40%

60%

55% 48%

30%

15% 12% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014

Diva La Opala Solitaire

509 620 750 964

1150 1539

1779

-200

300

800

1300

1800

2008 2009 2010 2011 2012 2013 2014

Sales CAGR

Brand # no of pieces in the

dinner set Price Range (Rs.)

La Opala Diva 35 4085

La Opala Diva 27 3000-3500

La Opala 35 2295

La Opala 29 2175

La Opala 19 2000


CMP

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Target

Rs.1361

Rating

Add La Opala RG

11

Potential for extension remains lucrative


High capacity and plenty of room for increased utilization to lead to

better capital efficiency with launch of additional product lines


Return ratios on the uptrend reflecting the potential of these offerings.


#4 – Portfolio expansion at minimal cost to improve capital efficiency and lead to growth in earnings momentum

Plates

Existing

Opalware

offerings

Bowls

Dinner Sets

Cup-Saucer sets

Coffee Mugs

Coffee Cups

Tea Sets

Soup Sets

Pudding/Dessert sets

Casserole

Containers

Microwave Cookware

Borosilicate products

Barware

Existing

Crystalware

offerings

Vases

Bowls

Stemware

Salad Bowls

Baking containers

Potential new

offerings

746 753 775 796 820

989

1,114 1,186

1,786

200

300

400

500

600

700

800

900

1,000

1,100

1,200

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E

Rs.m

n

Gross Block

4%

7%

16%

20%

27% 28%

2%

8%

22% 25%

35% 35%

0%

5%

10%

15%

20%

25%

30%

35%

40%

FY09 FY10 FY11 FY12 FY13 FY14

ROCE ROE


CMP

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Rating

Add La Opala RG

12

#5 – Pioneer benefits – Being one of the first mover into the unattended opalware market, LOG has managed to build strong economic moat in the category.

Brand

Reach

Capacity

Consumer

knowledge

Extension

opportunities

Competitive

leverage

Quality

Market-

leadership

Operating

leverage

Having established La Opala brand, LOG managed to introduce Diva brand seamlessly into the market. Historical

evidence suggest that pioneers with strong brands embracing consumer change have seldom been toppled from being

the market leader

Wide knowledge of operating economics should assist in evolution of significant economies of scale in the long run.

Operational savings coupled with increasing benefits from favourable product mix expected to lead to operating margins

expansion.

We believe the early entry should also pave the way for long term market-leadership in the category. As LOG strives to

educate consumer on opalware, we believe LOG brands would be the immediate beneficiaries. Brand awareness should

also enable straddling brands across super-premium offerings

Having been in the industry for ample amount of time has also enabled LOG to consistently modify its consumer offerings

to suit consumer wants. LOG was the pioneer to ‘scratch proof’ opalware offerings and has since consistently modified

offerings to suit changing consumer needs

LOG enjoys significant edge over its competitors given that a few have been able to replicate the success of LOG.

International players continue to struggle to tap into the local market (Corelle ending its opalware distribution pact with

World Of Kitchen) and domestic players struggling to match the brand equity of LOG.

Exemplary brand couple with well established capacity and wide spread distribution network places enables LOG to

effortlessly introduce product extensions without any additional costs, leading to improved capital efficiency and operating

margins in the long term.

Wide knowledge of consumer needs & taste based on age, demographics and socio-economic backgrounds has enabled

LOG to increase the proportion of customised offerings in its portfolio. Given the sophisticated nature of the category,

remaining relevant by understanding change to be the long term growth driver.

Understanding the needs and necessities of consumers, LOG has constantly modified its capacity to suit modern

consumer needs. The plant at Sitargunj comes with a promise of ‘whiter/lighter/stronger/brighter offerings, indicating LOGs

focus towards having the largest & pertinent opalware capacity in India.

LOG has managed to build a strong network with ~135 dealers and ~10000 retail touch points. Lucrative trade margins

coupled with increasing the ‘pull demand’ for the brands through incessant A&P have led to strong retail network and

healthy brand equity which we believe would be difficult to replicate in the near to medium term.


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

13

#6 – Persistent Brand investments

Significant brands at affordable price points augur robust growth

Source: Industry, Spark Capital

Significant A&P investments leading to building brands of the future…


12 41 59

77 95

148

208

2.4%

6.5%

7.9% 8.0% 8.3%

9.6%

11.7%

0%

2%

4%

6%

8%

10%

12%

14%

0

50

100

150

200

250


Rs.m

n

Brand # of pieces Price (Rs.)

Lazzaro 21 8000-12000

Corelle 30 7315-7700

Corelle 21 5420-7145

Valerio 33 6750

Luminarc 27 5999

Bormioli Rocco 33 4700

Luminarc 21 4179

Borosil 32 4150

IVEO 29 4000-6000

Clay Craft 18 3000-6000

IVEO 23 3120

RAK 21 2495

La Opala Diva 35 4085

La Opala Diva 27 3000-3500

La Opala 35 2295

La Opala 29 2175

La Opala 19 2000

To change consumption habit to ‘impulse’ from ‘need-based’

LOG engaged in several initiatives in an attempt to ‘impulse-

ivisation’ and build on long term brand equity.

1. Mass media advertisement campaigns.

2. Celebrity endorsements – Mr.Manish Malhotra and Ms.Bipasha

Basu in 2012 and 2009 respectively.

3. Promotional campaigns trying to associate opal-ware offerings

with ‘special moments’.

We believe LOG evolving from functional to experiential

promise and associating a sense of pride with the ownership

of the brand has been the transforming stones into evolving

as a consumer-centric brand company from being just an

another product based company.


CMP

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Target

Rs.1361

Rating

Add La Opala RG

14

#6 – Potent Operating leverage play

Imported raw material that contributes to ~28% of input basket however

mostly non-commodity based exposure…


Margin levers


…modernisation should result in power savings, fuel cost though

remain a key risk


Input Costs

(~36% of

sales)

Power & Fuel

Employee

cost

f

f

f

Other

Operating

expense

(~24% of

sales)

Imported

Raw material

Advertisemen

ts

Promotional

expenses

f

f

f

- Negative - Strong - Weak - Positive - Neutral

A&P

expenses

(~12% of

sales)

f

Modernisation of plants to lead to

stable power cost. Fuel cost threat

though lingers.

f

With Rupee appreciating off-late, we

believe cost of imported raw material

should come down on a y-o-y basis

Celebrity led advertisements behind

its key brands to lead to long term

brand equity.

Promotions and activation programs

to improve consumer association with

the brand

Labour cost savings to emerge as

plants get modernised and reduce

the need for manual labour.

Employee cost currently are ~12%

of sales.

Other

Operating

expenses f

Other operating expenses should

remain stable given that increasing

freight and conveyance cost would

be offset by rise in operating

leverage.

function of (f) Weight Outlook

Imported 28%

Indigenous 72%

128 160 196 243 242 320 352

17.1% 16.6% 17.0% 15.8%

13.6% 14.0% 13.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-

50

100

150

200

250

300

350

400

FY 10 FY 11 FY 12 FY 13 FY 14 FY 15E FY 16E

Power & Fuel % of sales


CMP

Rs.1281

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Rating

Add La Opala RG

Consistent revenue growth performance across several years.


15

Significant proportion of sales in the December quarter – as festive

demand leads to better offtakes.


Margins have been expanding consistently driven by favourable

product-mix and operating margin levers


Healthy revenue growth coupled with healthy margins have lead to

good PAT growth


LOG has displayed strong earnings momentum driven by robust revenue growth and consistent margin expansion

Q1, 18%

Q2, 22%

Q3, 32%

Q4, 27%

0.62 0.75 0.96 1.15 1.54 1.78 2.23 2.69

22% 21%

29%

19%

34%

16%

25%

21%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

1

1

2

2

3

3

FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15E FY 16E

Rs.B

n

Revenue Revenue growth YoY (%)

59.5% 59.2% 57.9% 61.2% 62.5% 63.7% 65.5% 65.9%

12.7% 16.1% 17.5%

22.0% 23.3% 26.8% 28.1% 28.8%

1.3% 4.0%

9.7% 11.0% 14.9% 16.8% 18.8% 19.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%


Gross Margin EBITDA Margin PAT Margin

0.01 0.03 0.09 0.13 0.23 0.30 0.42 0.51 -21%

264%

210%

36%

80%

31% 40% 23%

-50%

0%

50%

100%

150%

200%

250%

300%

0

0

0

0

0

1

1


Rs.B

n

PAT PAT growth (%)


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

16

Working Capital days have improved from 139 days to 96 days in 3 yrs


Cash flows from business have consistently improved and remain

heathy.


Strong operating performance has enabled to build a healthy balance sheet over the years

Steady net block increase to meet rising demand


Debt/Equity ratio to significantly slide post the preferential allotment

approval in August 2014.


505 506 647 753 872 1,068 0

200

400

600

800

1000

1200

FY 11 FY 12 FY 13 FY 14 FY 15E FY 16E

Net Block

139

124

108 95 96 96

65 52

44 44 44 44

86 83 73

58 59 59

12 11 9 7 7 7

0

20

40

60

80

100

120

140

160

FY 11 FY 12 FY 13 FY 14 FY 15E FY 16E

Working Capital Days Debtor Days

Inventory Days Creditor Days

291 202 239 142 102 102

0.8

0.4 0.4

0.2

0.1 0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0

50

100

150

200

250

300

350

FY 11 FY 12 FY 13 FY 14 FY 15E FY 16E

Debt D/E

158 143

311

393 392

492

137 96 96

231 192 192

0

100

200

300

400

500

600

FY 11 FY 12 FY 13 FY 14 FY 15E FY 16E

OCF FCF


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

17

Risks & Concerns

Risks/Concerns

Anti-dumping duty if not extended

beyond 2016 can increase

competition from imports

~28% exposure to imported raw

materials exposes the company to

currency fluctuation risks

Prolonged consumer

slowdown and weak discretionary

spending

Change in consumer

fashion/trend preference

Increased competition from

regional unorganised

players International

players spending heavily on brands and wresting away

market share

Rising power & fuel cost could impact

profitability.

Failure to adapt to consumer changes and preferences.



CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

18

Remuneration details of key management personal

Name Category of

Directorship

Remuneration

(Rs.mn) ^

Mr Sushil Jhunjhunwala, Vice Chairman and Managing Director 17.63

Mr Ajit Jhunjhunwala, Joint Managing Director 16.49

Ms Nidhi Jhunjhunwala, Executive Director 7.30

Mr. A C Chakrabortti Non-executive Chairman 0.360

Mr. G Narayana Non-executive Director 0.360

Mr. Shakir Ali Non-executive Director 0.345

Mr. Arun Churiwal Non-executive Director 0.355

Mr. Rajiv Gujral Non-executive Director 0.330

Total 43.17

% of EBITDA 8.6%

Note: ^ - (Salary & perquisites + Commission). Source: FY14 La Opala RG Annual Report, Spark Capital

Consistent dividend pay Out


Holding structure (June 2014) – Promoter holding has

slightly increased in the recent past

Source: BSE INDIA, Spark Capital

Corporate Governance

Board of Directors: There are 5 Independent directors out of total 8

directors on the board. Most of the directors have extensive 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.

Management Tenets

Promoter, 68.0% FII, 5.7%

DII, 2.2%

Others, 23.9%

1.5 2.0 3.5 5.0 7.0 9.0

19.8% 19.4% 19.0% 20.7%

22.4% 23.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

1

2

3

4

5

6

7

8

9

10

FY 11 FY 12 FY 13 FY 14 FY 15E FY 16E

Dividend per share Payout ratio


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

19

Management Tenets

BOD/Top

Management

CSR &

Cases/Litigations

against the

company

Management and

Succession

Planning

Remuneration to

Promoter Family

Investor

Grievance

FY14 FY13 FY12 FY11 FY10

Total no. of queries/grievances received and attended by the

company in the nature of non-receipt of dividend/share

certificate/annual report.

2 4 3 5 6

FY14 FY13 FY12 FY11 FY10

Total No. of Directors 8 8 8 8 7

No. of Independent Directors 5 5 5 5 5

No. of changes in directors over last year - - - 1 -

The company is managed by the father-son duo of Mr. Sushil Jhunjhunwala and Mr.Ajit Jhunjunwala respectively

who manage the day to day affairs of the business.

Total Remuneration received by promoter directors

2013-14 2012-13 2011-12 2010-11 2009-10

In Rs. Million 41 33 20 13 7

As a % of

Adjusted PAT 13.8% 14.3% 15.5% 14.4% 23.5%


The company undertakes CSR activities majorly in the fields of education and healthcare . However, the quantum

of spending on the same is not known. Other than conventional cases like in the nature of tax/excise duty there

have been no known binding cases/litigations against the company.


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

20

Trading at 28x FY16E – Sharp re-rating in the last 24 months

Source: Bloomberg, Spark Capital

5 years one year forward multiple


5 years one year forward multiple

P/E Multiple

range

No. of days

traded % of no. of days

Cumulative

traded no. of

days

%of Cumulative

no. of days

5x 439 17% 439 17%

5 - 7x 889 34% 1328 50%

7 - 9x 168 6% 1496 57%

9 - 11x 108 4% 1604 61%

11 - 13x 167 6% 1771 67%

13 - 15x 87 3% 1858 70%

15 - 17x 120 5% 1978 75%

17 - 19x 112 4% 2090 79%

19 - 21x 67 3% 2157 82%

21 - 23x 91 3% 2248 85%

23 - 25x 67 3% 2315 88%

25 - 27x 28 1% 2343 89%

27 - 29x 40 2% 2383 90%

29 - 31x 35 1% 2418 92%

31 - 33x 60 2% 2478 94%

33 - 35x 96 4% 2574 98%

35 - 37x 65 2% 2639 100%

Total 2639 100% 2639 100%


Reaching a considerable size led to sharp re-rating in last ~12 months

-1 Std Dev

+1 Std Dev

Avg. PE

-2 Std Dev

+2 Std Dev

0

5

10

15

20

25

30

35

40

Au

g-0

9

Fe

b-1

0

Au

g-1

0

Fe

b-1

1

Au

g-1

1

Fe

b-1

2

Au

g-1

2

Fe

b-1

3

Au

g-1

3

Fe

b-1

4

Au

g-1

4

22.0x

16.0x

10.0x

34.0x

28.0x

0

200

400

600

800

1000

1200

1400

1600


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

21

Abridged Financial Statements

Rs. mn FY13 FY14 FY15E FY16E FY13 FY14 FY15E FY16E

Profit & Loss Growth Ratios (%)

Revenue 1,539 1,779 2,227 2,694 Revenues 34% 16% 25% 21%

EBIDTA 412 500 640 786 EBIDTA 53% 21% 28% 23%

Other Income 10 11 25 34 PAT 80% 31% 40% 23%

Depreciation 56 70 82 104 Margins (%)

EBIT 367 440 584 716 Gross 62.5% 63.7% 65.5% 65.9%

Interest 42 33 15 12 EBIDTA 26.8% 28.1% 28.8% 29.2%

PBT 325 408 569 704 PAT 14.9% 16.8% 18.8% 19.1%

Tax 96 108 151 190 Leverage Ratios (x)

Normalised PAT 229 300 418 514 Debt to Equity 0.3 0.1 0.1 0.0

Balance Sheet Current Ratio 2.2 2.9 5.4 5.6

Net Worth 741 978 1,856 2,249 Return Ratios (%)

Loan Funds 239 142 102 102 RoCE 27.1% 28.2% 26.0% 23.1%

Sources of Funds 1,067 1,230 2,067 2,460 RoE 35.3% 34.9% 29.5% 25.0%

Gross Block 989 1,114 1,336 1,636 Total Asset Turnover (x) 1.6 1.5 1.4 1.2

Capital WIP 9 22 - - Per Share

Net Block (incl. Capital WIP) 647 753 872 1,068 EPS (Rs.) 21.6 28.3 37.7 46.3

Investments 132 52 52 52 Dividend (Rs.) 3.5 5.0 7.0 9.0

Total Current Assets 538 643 1,401 1,635 Valuation Metrics

Total Current Liabilities 249 219 258 294 Current Market Price 1281

Net Current Assets 288 425 1,144 1,341 Shares Outstanding (mn) 11 11 11 11

Application of Funds 1,067 1,230 2,067 2,460 Market Cap. (Rs. mn) 13,575

Cash Flow Enterprise Value (Rs. mn) 13,674 13,574 12,912 12,818

Cash Flow from Operation 311 393 392 492 EV /Sales (x) 8.9 7.6 5.8 4.8

Cash Flow from Investments (289) (81) (175) (266) Price/Earnings (x) 59.3 45.3 34.0 27.7

Free Cash Flow 96 231 192 192 Price/Book (x) 18.3 13.9 7.3 6.0

Cash Flow from Financing (19) (229) 405 (133) EV/EBIDTA (x) 33.2 27.2 20.2 16.3

Closing Cash Balance 8 91 713 807 Dividend Yield 0.3% 0.4% 0.5% 0.7%


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

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 registered with 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 is provided 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 or financial 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 this document (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 solely for 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 is not 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 such jurisdiction. 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 are required 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 any jurisdiction 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 securities mentioned 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 this report.

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 we would 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 representatives shall 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 or actions 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 including without 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

Add Stock 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

22


CMP

Rs.1281

Target

Rs.1361

Rating

Add La Opala RG

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 research analyst’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 Securities Exchange 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 & Co accepts 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. All responsibility 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 through a 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 or regulation 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 are permitted 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

23

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