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Wednesday, March 23, 2016

BHARTI INFRATEL LTD : BEST STOCK TO OWN !!!

Scrip Code: 534816 INFRATEL
CMP:  Rs. 390.85;   Market Cap: Rs. 74,131.23 Cr; 52 Week High/Low: Rs. 499.65 / Rs. 341.35.
Total Shares: 189,66,67,069 shares; Promoters : 136,00,00,000 shares – 71.70 %; Total Public holding : 53,66,67,069 shares – 28.29 %; Book Value: Rs. 94.73; Face Value: Rs. 10.00; EPS: Rs. 8.80; Dividend: 110.00 %; P/E: 44.41 times; Ind. P/E: 26.32; EV/EBITDA: 19.88.
Total Debt: NIL; Enterprise Value: Rs. 69,639.41 Cr.

BHARTI INFRATEL LIMITED: The Company was incorporated on November 30, 2006, Bharti Infratel Limited is a provider of telecom tower and related infrastructure. Bharti Infratel is one of the world's largest telecom tower infrastructure providers which deploys, owns and manages telecom towers and communication structures for all wireless operators. The business of Bharti Infratel and Indus is to acquire, build, own and operate telecom tower and related infrastructure. The company come with an IPO in December 14, 2012 issuing 18,89,00,000 equity shares of face value of Rs. 10 each at an issue price of Rs. 220 raising Rs. 4,155.80 cr. The company got listed on December 28, 2012 at Rs. 200 which was also its days high and making a low of Rs. 188.70. The object of the issue was raise money for installation of 4,813 new towers, to arrange funds for up gradation and replacement on the existing towers, to facilitate green initiatives at tower sites, and for the other general corporate purposes and to get the benefits of listing of the equity shares on the stock exchanges. The company has not declared splits in face value of its shares nor have given bonus shares till now. Bharti Infratel and Indus currently provides access to their towers primarily to wireless telecommunications service providers. Bharti Infratel's and Indus's three largest customers are Bharti Airtel (together with Bharti Hexacom), Vodafone India and Idea Cellular. They are the three leading wireless telecommunications service providers in India by wireless revenue. In India, Infratel with Indus has over 88,000+ towers, across 18 states, and 22 Telecom circles, and still growing. Bharti Infratel also has a 42 % stake in Indus Towers which was created as a Joint Venture in 2007 between Bharti Infratel (42 %),  Ortus Infratel Holding (Vodafone 42 %) and IDEA Aditya Birla Telecom (16 %) to hive off the Towers business in 15 telecom circles. BHARTI INFRATEL LTD is locally compared with GTL Infrastructure Ltd, Sujana Towers Ltd, Kalpataru Power Transmission Ltd, BS Limited, KEC International Ltd, Technofab Engineering Ltd, Jyoti Structures Ltd, Premier Energy and Infrastructure Ltd, Shriram EPC Ltd, Om Metal Infraprojects Ltd and globally compared with American Tower of USA, Crown Castle of USA, SBA Communication of USA, United States Cellular Co. of USA, Vertical Bridge of USA, Insite Towers of USA, BNSF Railroad of USA, Time Warner of USA, Phoenix Tower International of USA, Tower Ventures of USA, AT&T Towers of USA.

Investment Rationale:
Bharti Infratel Limited is an India-based company engaged in providing tower and related infrastructure sharing services. The Company has operations in around 22 telecommunication circles. Bharti Infratel has been the industry pioneer in adopting green energy initiatives for its operations. The business of Bharti Infratel and Indus is to acquire, build, own operate tower and related infrastructure. Bharti Infratel received the prestigious Golden Peacock Awards in 2015 for their unique initiatives and significant contribution towards corporate social responsibility. This award recognises and felicitates institutions, corporates and government enterprises for their dedication and high level of quality at work. Bharti Infratel and Indus currently provide access to their towers primarily to wireless telecommunications service providers on a shared basis, under long term contracts with Bharti Airtel, Vodafone India and Idea Cellular, which are the three leading Wireless telecommunications service provider in India by wireless revenue. As on September Dec 31, 2015, Bharti Infratel owned and operated 37,801 towers with 78,949 co-locations in 11 telecommunications Circles while Indus operated 1,17,579 towers with 2,61,159 co-locations in 15 telecommunications Circles. The Company's towers come in two varieties, which include ground-based towers (GBT) and roof-top (RTT) towers. The Indian telecommunications industry is one of the most competitive globally. The focus of Indian operators in the last ten years or so has been to develop an affordable mass market telecommunications service model which allows for service availability across India’s urban and rural areas at affordable prices. A strong focus on optimization of operational expenses through the outsourcing of non-core areas, process innovation, cost to serve alignment and strategic partnerships has also resulted in steady growth of the Telecom Tower Industry in India. Today, all operators prefer to lease towers from tower companies rather than build them for captive use. Infrastructure sharing is effective in optimizing the utilization of available resources and helps to bring down the cost of providing telecommunications services. With the reduction in overall tariffs and restrictions placed by various local regulatory bodies on the installation of telecom towers, infrastructure sharing amongst service providers has become the norm rather than the exception in the Indian telecommunications industry. Tower companies provide the entire range of tower infrastructure that is required by wireless telecommunications service providers to offer mobile telephony services to their subscribers. Tower infrastructure refers to equipment’s such as towers, shelters, power regulation equipment, battery banks, diesel generator sets, air conditioners, fire extinguishers and a security cabin, required at a site where such towers are installed. There are generally two types of towers – the Ground Based Towers (GBTs) and Roof Top Towers (RTTs). India will emerge as a leading player in the virtual world by having 70 Cr internet users from the 4. 7 billion global users, by 2025. With the government’s favourable regulation policies and 4G services hitting the market, rapid growth is expected in the Indian telecommunication sector in the next few years. Also, with developments in this sector, services such as security and surveillance, remote monitoring of ATM machines, home automation, traffic management, retail, logistics and grid energy could eventually facilitate optimisation of resources. Mobile Data is going to be the key pillar of growth for the Indian telecom industry. In addition, the sector is also seeing increased focus on quality of service and a possible utilization of unused spectrum. These trends are positive for tower companies. The Telecom towers have changed the skylines of India’s cities—or even its towns and villages dramatically over the past 10 years, but one of the most striking differences has been the appearance of telecom towers which are 30-70 meter-high structures that mostly crown the tops of the tallest buildings. India’s telecom boom has been well charted. Some 18 years after the mobile phone first appeared on the Indian consumer stage, there are more than 90 Cr mobile phone users in a country of 1.2 billion, which is more numbers than have access to a toilet, according to a statistic often touted by development agencies, and three times the entire population of the US. And the growth of the sector in the last decade has been explosive—in 2002, the number was just 6.68 million. India’s telecom sector is now the second largest in the world, and the fastest growing. Providing network coverage to these hundreds of millions of users are around 500,000 telecom towers, covering more than 90 % of the country’s land area, and unnoticed for the most part by the people who rely on them. Most are made of iron girders painted red and white, with up to six long, bar-shaped antenna pointing skywards, linked with wires to a small shed at the base. A tower connects two callers to each other via switching centres or telephone exchanges, providing urban and rural India with access to mobile communication on a scale which is just second to China. Not only do the towers provide a crucial service, they represent an annual Rs. 1.36 trillion revenue industry, for India’s economy, mobile phones mean money: for every 10 % of the population using basic services (voice and SMS) in the country, national gross domestic product rises by 0.5 %, according to a department of telecommunications (DoT) report, and for Internet and other non-voice communications (data), the same penetration adds 1 %. It’s not surprising then that the telecom tower sector has become an industry in its own right. The government granted towers an “infrastructure” status, putting them on the same footing as roads, ports, hospitals and even electricity generation. This brought encouragement and investment in this sector, which was crucial for the growth of the country. These towers were proving expensive at Rs. 20 lakhs to 40 lakh each and so the idea of tower sharing, encouraged by the government, became popular. Today, a single tower is often shared by multiple tele-coms. The capital deployed is much more efficient and it offers considerable savings in operational expenditure. It’s a win-win for the telcos and the towercos. A telco renting 75 % of its sites from tower companies can reduce its first-year costs by 60 %. 
Building up towers is complex thing. There are two types of tower requirements: green-field i.e. for expanding into a new area and brownfield which is to fill a gap in an existing network. Once the choice has been made, it’s up to the network provider to decide on the location. The telcos, along with their network partners, vendors and towerco, come up with a “network design” for a particular region, based on anything from the amount and quality of spectrum available, to the amount of concrete and height of buildings at the location. The design of a tower must take into account the wind velocity in an area, its proximity to an airport runway and even the curvature of the earth. Each tower must have line of sight with its neighbour, with all of them being arranged in a hexagonal or octagonal pattern. The shorter the tower, the more towers or repeaters are needed to amplify the signal—a particular problem in the Indian context, where operators work with one-tenth of the spectrum that’s available in developed markets and need to serve a much larger user base. Telecom towers are a lot like real estate—everything depends on the location. Land must be acquired at the exact coordinates where the tower is needed. After the telco has decided on a location, the coordinates are given to the towerco, which checks to see if there are any other towers in the area that can be used. To cut costs, towercos rent the land for a tower on a long-term lease. That brings the challenge of dealing with landlords, which can be something of an ordeal. If there are no unforeseen delays, a ground base station takes around 60 days to build and roof top takes around 45 days to build the tower. The biggest challenge, however, is not in the building of a telecom tower, but in its maintenance: the rising cost of fuel and the need to be environmentally responsible, as well as reassuring the public that its structures are not health hazards, is proving a sticking point for the towercos. Trai had directed all towercos to reduce their dependence on diesel and cut carbon emissions by running at least half of all rural towers and 20 % of urban towers on hybrid power by 2015. The problem for the towercos is that due to an unreliable grid, and the remote locations of some towers, more than 60 % of the towers currently depend solely on diesel for power generation. The rise in diesel prices may increase the troubles. The Tower and Infrastructure Providers Association is working on a model where towercos partner with renewable energy service providers to make a viable business case for both, the idea is that the towercos buy energy from a renewable energy provider in rural areas. Few years back Bharti Infratel and Indus announced to replace their diesel generators with batteries. Bharti Infratel already generates as much as 5 million units of solar power every year. While continual growth of the tower sector has led to much scrutiny, their ubiquity and importance to the economy has forced a significant amount of innovation and research that can be tapped by other industries. There is tremendous demand for data in India and the telecom towers can become the focal point for delivery of broadband, at least outside the urban markets, these towers can be connected to the ATMs and even computer kiosks. As with the tower, you get both communication capabilities and power, which are difficult to find in rural areas.  

Outlook and Valuation: 
BHARTI INFRATEL is the largest telecom tower provider company and enjoys a good position in the industry. Recently, Bharti Infratel will be included in Nifty 50 from April 1, 2016, this would bring more interest of institutional and funds managers into the stock. Telecom towers are the integral part of the telecom network infrastructure. In fact they are the most expensive to build and the valuations are heavy. This business has outgrown itself that most of the companies have hived off the tower business as its own entity. Tower business is making explosive growth and exponential investments are involved. It requires a lot of investment to survive and the smaller companies are finding it difficult. There has been massive consolidation in the telecom space with players such as Videocon, Reliance Communications, Systema Shyam, Aircel etc. either scaling down its operations or contemplating merging with each other, like American Tower Corp acquird Xcel Telecom for Rs. 700 Crs, Quippo Telecom acquired Spice Telecom’s tower business and Tata Teleservices WITIL is merged into it. Bharti Infratel did face loss in tenancies owing to such a phenomenon, which also led to 610 exits in the quarter on a consolidated basis. However, the management reiterated that the loss in tenancies is only temporary and weeding out inefficient players leads to higher room available for efficient telcos. Consolidation trends are also visible in the tower space with ATC emerging as a competition to Infratel post the acquisition of Viom. Because of the intense competition each tower needs more than 2 tenants to stay profitable. The current rates are a bit low and hence the sharing and consolidation. The independent mobile tower companies will gain a lot as it is difficult for new companies to build their towers. If the established player too shares their towers then the new telecom players can roll out their networks quickly and the tower companies can increase their revenues. There are 13 major tower companies in India – Indus towers has approx. 80,000 towers; Reliance Infratel has 31,000 towers; Quippo Telecom Infrastructure has 23,000 towers; GTL has 9,000 towers, Essar Telecom has 6,000 towers, American Tower Corp has 4,000 towers, Tower Vision has 3,000 towers, Aster Infrastructure has 1,000 towers, India Telecom Infra Ltd has 1,000 towers, KEC Internatioal has 400 towers, Independent Mobile Infrastructure has 400 towers and Bharti Infratel has 20,000 towers. The Telecom Regulatory Authority of India (TRAI), has proposed levying penalties on companies whose calls are getting dropped. Call traffic increases with dropping call rates but the spectrum is limited and companies need to put more and more sites and finding sites is a difficulty. This difficulty in getting sites is also due to the myth and fears about radiation and also due to some prime location where there is government property. Hence in order to avoid call drops tower sharing becomes more important and hence tenancy for these tower companies increases. 
Bharti Infratel has tenancy around 3,000 and as more and more data networks get rolled out, acceleration would happen. Also with the launch of Rel Jio and with the 4G roll out would mean more tenancy for tower companies and more data volumes. Airtel and Idea are expected to post data volume growth of 55 % CAGR in FY16E-18E to 695 and 415 billion MB, respectively. Hence, data revenues may then form about 23 % to 25 % of total revenues from 15 % to 17 % currently. Bharti Infratel Ltd with Airtel, Idea and Vodafone as anchor tenants, who together control about 70 % revenue market share, is certain to benefit from increasing tenancies as data volumes increase. With the call drops issue coming into limelight and the government’s stance to make telcos liable for the breach in quality standards, this would increase the demand for installation of more cell sites, thus benefitting Bharti Infratel Ltd. In addition, installation of a single RAN would also augur well for the company as equipment’s in such a case are smaller, thus freeing up more room for more tenancies. Bharti Infatel Ltd has an annuity led business with a remaining estimated contract life of 5.9 years, which lends certainty of future cash flows to the tune of more than Rs. 47,500 Cr. The company delivered 2.8 % dividend yield by declaring a dividend of Rs. 11 in FY15. Bharti Infratel is expected to pay dividends to the tune of Rs. 11.0 and Rs. 12.1 per share in FY16E and FY17E, respectively. Bharti Infratel is also awaiting regulatory clarity about buyback norms, which could help in optimising the capital structure and, hence, improve return ratios. On financial side Bharti Infratel reported its Q3FY16 numbers with revenues at Rs. 3,093 crore, up 4.9 % YoY. Revenues from rentals grew 9.0 % YoY to Rs. 1,966.7 crore as consolidated tenancies grew from 2.08 to 2.17 over the same period. Energy revenues declined 2.0 % YoY to Rs. 1,126.3 crore as input prices declined. Bharti Infratel’s EBITDA came in atRs. 1,343.0 crore, up 5.5 % YoY. EBITDA margins came in at 43.4 %, up 25 bps YoY, as expenses towards rent & other expenses were up 12.4 % YoY and 37.5 % YoY, respectively. Energy margins remained at 4.8 % as it continued to pass on the energy benefits. PAT came in at Rs. 565.4 crore, due to higher other income, which came in at Rs. 132.9 crore. With robust growth in data volumes, there are an increasingly higher number of tenants on the company’s network. The average tenancy at the Consolidated level has grown from 1.90 x in FY12 to 2.06 x by FY15 leading to 32 % CAGR in FY12-15 in sharing revenues from Rs. 3,099.9 crore in FY12 to Rs. 7,126.1 crore in FY15. Going ahead, it is expected that the average sharing factor at the consolidated level to reach 2.28 x. Bharti Infratel Ltd is a play on the operating benefits that would flow in with increasing tenancies. As a new tenant comes on board, rentals multiply whereas costs do not have a linear increase. Loading revenues are also highly margin accretive and would flow in directly into margins. As tenancies rose from 1.9x to 2.13x in the last few years, margins for the consolidated entity have risen to 43 % in the current quarter from 37 % in FY13. However, as there is currently higher tower requirement in cities, which command a higher rental expense, the growth in EBITDA margins would be slower than expected earlier. With ballooning data growth and tremendous opportunity, going ahead, considering the kind of spectrum purchased by telcos and stable annuity based business model, Bharti Infratel Ltd looks attractive. At the current market price of Rs. 390.85, the stock is trading at a PE of 32.03 x FY16E and 27.14 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 12.20 in FY16E and Rs. 14.40 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

SOTP Valuation :- 
Business Subsidiary 
Per Share (₹ Rs) 
Enterprise Value of Standalone business
 262.13
Enterprise Value of Indus Towers Rs. 678.91 per share
 BIL holding (42%) in IT Rs. 285.15 per share 
      (Less) Holding discount (15%)
242.37 
 Total Enterprise value
 504.50
Less: Net Debt (Rs. Cr)
 4.22
 TOTAL Value per Share (Rs.)
 500. 28 

KEY FINANCIALSFY15FY16EFY17EFY18E
SALES ( Crs) 11,668.3012,322.5013,553.3014,950.10
NET PROFIT (₹ Cr)1,992.402,296.002,727.403,122.50
EPS () 10.5012.2014.4016.50
PE (x)35.0030.4025.6022.30
P/BV (x)4.905.105.405.50
EV/EBITDA (x)14.1013.2011.5010.10
ROE (%) 13.40 16.5020.5024.40
ROCE (%)18.3022.4027.5032.10

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*As the author of this blog I disclose that I do not hold  BHARTI INFRATEL LTD in my any of the portfolios.


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Sunday, March 13, 2016

LA OPALA RG LTD : A CLASSIQUE !!!

Scrip Code: 526947 LAOPALA
CMP:  Rs. 577.90 ;   Market Cap: Rs. 3,207.35 Cr; 52 Week High/Low: Rs. 670 / Rs. 313.60.
Total Shares: 5,55,00,000 shares; Promoters : 3,60,87,500 shares – 65.02 %; Total Public holding : 1,94,12,500 shares – 34.98 %; Book Value: Rs. 41.41; Face Value: Rs. 2.00; EPS: Rs. 9.94; Dividend: 65.00 %; P/E: 58.17 times; Ind. P/E: 47.45; EV/EBITDA: 84.65 times.
Total Debt: Rs. 7.86 Cr; Enterprise Value: Rs. 3,214.80 Cr.

LA OPALA RG LIMITED: La Opala RG Limited was founded in 1987 and is headquartered in Kolkata, India. La Opala RG Limited manufactures, sells, and exports lifestyle products in India and internationally. The company offers opal glass tableware products, such as plates, bowls, dinner sets, cup-saucer sets, coffee mugs, coffee cups, tea sets, soup sets, pudding, and dessert sets; and crystal-ware products comprising barware, vases, bowls, and stemware. It provides its products under La Opala, Diva, and Solitaire brands. The company had declared splits in face value of its shares from Rs. 10 to Rs. 2 in May 2014 and gave bonus of 1:1 in March 1994 and again 1:1 bonus in August 2006. Company manufacture’s glass and glassware products like plates, bowls, dinner sets, cup-saucer sets, coffee mugs, coffee cups, tea sets, soup sets, pudding and dessert sets; its crystal ware products comprises of barware, vases, bowls and stemware. Company’s brands include LaOpala, Diva, and Solitaire. The company’s manufacturing facilities are in Madhupur (Jharkhand) and Sitarganj (Uttarakhand). In 1999, Radha Glass and La Opala merged to become La Opala RG Limited. The Company is one of the largest organised crockery players in India with an installed capacity 13,000 MT TPA as on 31 March 2014. LaOpala, currently exports its brands to more than 40 countries which includes US, UK, Singapore, South Korea, Australia, New Zealand and Spain as well as the Middle East, Africa, Latin America and the ASEAN region. La Opala Rg Ltd is locally compared with Asahi India, Hindustan National Glass Ltd, Borosil Glass, Saint-Gobain Ltd, Gujarat Borosil, Haldyn Glass, Nile Ltd, Swiss Glascoat, Sezal Glass, Triveni Glass, FGP Ltd, Jai Mata Glass and globally compared with Industrial Glass & Mirror Inc of USA, Bassett Furniture Inds of Virginia, Beazer Homes Usa Inc of USA, Cavco Industries Inc of USA.

Investment Rationale:
La Opala RG Limited is the largest glassware manufacturer in India. The Company is engaged in manufacturing and marketing of opal glass tableware and crystal-ware products within and outside India. In 1999, Radha Glass and La Opala got merged and become La Opala RG Limited. The company mainly manufactures glass and glass products of all types and exports its 85 % of crystal ware around the world. La Opala RG Ltd has a network of 125 distributors with 10,000 dealers across country and the number is increasing at the rate of 15 per cent annually. Company also exports 10 % of its opal ware production to 20 countries. La Opala has a grand 70 years of experience & has a strong presence in the national glass industry in India. La Opala products are widely distributed in all major towns of the country through a network of distributors and sales representatives covering all states of India. There are about 10,000 retail touch points through which the products of La Opala are sold. La Opala deals in Opal-ware and Crystal-ware products and has a strong product portfolio that spans over 100 products. La Opala is one of the established brands in the country. The company has brands that cater to all the sections of the society. For example, ‘Diva’ is the high end brand of the company and contributes around 40 % to the company’s turnover. Apart from ‘Diva’, the company has brands like ‘Crystal’ which caters to the upper segment and ‘La Opala’ which is targeted towards the mass market. Till the early eighties, kitchenware in the average Indian home would constitute primarily copper, aluminium and stainless steel utensils; cutleries in the form of tea-cups, saucers and spoons; cookware of aluminium; plastic bottles to store spices, sugar, salt and edible oil. The only sophisticated gadgetry was perhaps the pressure cooker. Gradual changes were seen with stainless steel utensils replacing copper and aluminium. Then microwave made a grand entry in a number of kitchens in mid-90s, and then, the newer kinds of utensils and storage vessels started forming a vital part of the Indian kitchen. Indian kitchens and kitchenware are now evolving from being purely functional to convenient and fashion driven. This gradual shift in lifestyle brought changes in the cooking and eating habits of the Indian consumer. Convenience has now become an important factor for selecting kitchenware and now there is more emphasis on aesthetics, novelty and style. Kitchen utensils like pots and frying pans, woks, saucepans, pressure cookers and glass items such as heat resistant casseroles and vitro-ceramic pans also form part of the products found in the cookware sub-segment. A third group of items such as plates, bowls, serving dishes, dinner sets, serving ware placemats and coasters form the tableware and crockery market sub-segment. Then there are cutlery items like cutting tools and instruments, knives forks and spoons, etc. and glassware items like tumblers, stemware, bottles, and jugs. Global Sources classifies Indian houseware suppliers into four categories- household supplies, kitchenware, pet supplies and tableware. Kitchenware, in turn, is segmented further into bake-ware & cookware, kitchen accessories and kitchen storage. The market can be classified in several ways with ceramic, china and porcelain, metal-ware, plastic-ware and wood-ware being the major sub-segments. As is evident, there is a considerable overlap between these different product sub segments. The cookware segment dominates the Indian house-ware market and with significant growth in rural incomes there is an inspiring shift in lifestyles from traditional bone china crockery to modern alternatives. This is expected to plug the extensive crockery-ware which is under-penetrated with a 24 % share in India’s total dinner set market. India is possibly the largest relatively under-explored tableware market in the world. There is a visible transition from conventional crockery to modern equivalents on the one hand and the use of unbranded to branded products on the other. The use of opal glassware products has gone a transition, from special occasions in the past to everyday use today. The opal glassware product is considered more durable compared to its bone china equivalent. The opal glassware product is completely hygienic and vegan, an advantage over its bone china competition that contains animal matter. There has been a steady growth in urbanisation and nuclear families, catalysing tableware consumption. The entry of international brands is helping widen the opal glassware market and enhance category visibility. In India, more than 90 % of sales in this segment happen through traditional channels but now modern retail methods & direct sales method are gaining popularity and also online retailers are fastly increasing their market share. Kitchenware market in India is still very much driven by purely functional requirements and there is a huge scope for market expansion. It is a very niche market today and features mostly imported brands. The future trends are likely to remain focussed around products and retail formats. In terms of product range, non-stick cookware, healthy eating, wider range of cutlery and storage containers are some of the areas where we should see interesting developments in the near future. On the health concerns, there is an increasing growth seen in utensils that can be used to cook food without the use of oil and the fact that for effective storage of different food items, a special set of containers is required is again a trend, which is just being explored in India. La Opala is prepared for the next phase of growth by brown field expansion at its Sitargunj unit with an additional capacity of 8000 MTPA and has started operations in November 2015. This will increase the capacity from 8000 MTPA to 16,000 MTPA creating enough room to scale the mid premium brand ‘Diva’, rapidly in the years to come. In FY14, the company modernised its Madhupur plant and successfully replaced fuel fire furnace by electric arc furnace thereby improving operating efficiency. In the anticipation of increasing capacity, the company has been steadily investing in the distribution channels over the years and currently its retail points stand at about 11,500-12,500. The company funded this expansion plan by offering private placement to the tune of Rs. 55.3 Cr in FY15 avoiding the possible leverage on the balance sheet and hence without increasing any related interest outflow. To widen its product portfolio, the company introduced a new range of borosilicate cookware products in FY15 sourced from the Europe, diversifying the products offered. The management is committed to focus on the brand creation by continuous investing in the advertisement spends leading to the increased brand visibility among the potential consumers. La Opala’s revenue tripled in six year from Rs. 75 Cr in FY10 to Rs. 223.3 Cr in FY15, witnessing a 24 % CAGR growth. The company is mulling to launch new brands and will increase its ad spends which will help company to make its presence across the market. LA OPALA RG is looking at product extension and plans to sell products like water glasses, juice glasses, and Wine glasses and also bake and serve products. It will outsource the manufacture of these products and leverage on brand equity of La Opala apart from its distribution reach. This will significantly improve revenue and RoCE of LaOpala. Currently, the company caters to four different price segments - La Opala catering to the economic segment, Diva Classic, Diva Ivory and Diva Designer Collection catering to basic, medium and premium segments, respectively. Diva Classic enjoys a 35 % premium to La Opala, Diva Ivory enjoys around 15 % premium to Diva Classic and Diva Designer Collection enjoys a premium of 15 % to Diva Ivory. The current ad spends stands at about Rs. 35 Cr. It also got benefited by government’s imposition of anti-dumping duty in 2011 on cheap Chinese crockery imports. Increased capacity, new product launches and increase in the disposable income would propel the growth of LA Opala Rg and has greater prospects ahead.

Outlook and Valuation:
La Opala RG Ltd (La Opala) promoted by Mr. Sushil Jhunjhunwala and Mr. Ajit Jhunjhunwala, is engaged in manufacturing of Opalware and Crystalware products. La Opala started manufacturing Crystalware in March 1999, sourcing the exclusive right to use the technical know-how, information, data for the manufacture and sale of Crystalware in India and abroad from Doosan Glass of South Korea, a leading manufacturer of Crystalware globally. Headquartered in Kolkata, La Opala has manufacturing units in Madhupur (Jharkhand) and Sitarganj (Uttarakhand). La Opala RG Ltd has market share of 24 % in crystalware products. It offers opal glass tableware products such as plates, bowls, dinner sets, cup-saucer sets, coffee mugs, coffee cups, tea sets, soup sets, pudding and dessert sets as well as crystal-ware products comprising barware, vases, bowls and stemware under various brand names like Diva, La Opala and Soliatre Crystal. The company has also introduced the heat-resistant borosilicate range of cookware during the last fiscal year. It has two manufacturing facilities located at Madhupur, Jharkhand and Sitargunj, Uttarakhand with a combined capacity of 13,000 MTPA and has installed additional 8,000 MTPA capacity at its Sitargunj unit increasing the total capacity to 21,000 MTPA. The company is consciously building the brand and has celebrity endorsements from actor Bipasha Basu and fashion designer Manish Malhotra. Company have launched Opalware Cup-Saucer range and its commercial production has started at its Sitarganj plant from November 2015. The product was launched on 1 February 2016 under Diva brand. It is 25 % to 30 % more expensive than La Opala brand and the product has already been placed on important counters. The management believes that it won’t cannibalise La Opala brand as it has different price points. La Opala RG Ltd has launched a new category of ‘cook-n-serve’ product. The product is imported from Europe. The company has kick-started marketing campaign for the product. The gross margin of the product will be on the higher side as no overhead costs are involved. The product will be marketed under La Opala brand. La Opala RG Ltd has increased the number of distributors from 150 a few quarters ago to 170 currently. Headcount also increased because of the rise in Capacity, thereby driving up employee costs. Currently, combined capacity utilisation of its Sitarganj and Madhupur plants is 85 %. The new facility will be operating at full capacity and therefore there will be a rise in inventory level, which will be absorbed once traction occurs in Cup-saucer segment. As a major portion of the expansion is complete and there is no major expansion plan for FY17, the management believes that there will be only routine maintenance capex. It is also looking for inorganic growth via acquisition, if anything good comes by. Currently, exports account for 14 % to 15 % of sales, mainly because domestic volume has picked up significantly. The Middle East, Asia, Africa and Latin America are key areas where LORL is looking to export its new launched cup–saucer range. Export margins are 5 % to 10 % lower compared to domestic business. Modern retail currently accounts for 12 % to 13 % of sales. The Contribution of e-commerce is not significant currently. As per the management, Chinese products are priced 10 % to 15 % cheaper, domestic Indian products are priced 25 % cheaper while European products are priced 15 % to 20 % higher than LORL products. As per the management, Tier 2 and 3 cities are growing at a faster pace than metros and are good potential markets in Future. On financial side, during the period between FY11-15, the company sales witnessed a growth of 23 % CAGR, while in the same period its EBITDA grew at 33 % CAGR. This performance was due to two reasons, the company’s sales growth which was mainly from the volume growth of 14 % CAGR with the modern manufacturing facilities and increased realisation per unit at 9 % CAGR reflecting the pricing power enjoyed by the company. While on the expense side raw material witnessed a growth of 14 %, power cost grew at 11 % mainly on account of installation of cost efficient modern electric arc furnace at Sitargunj unit. Company will continue with the robust performance as the company have ramped up its capacity at Sitargunj helping the company to scale in terms of volumes of brand ‘Diva’ and also it enjoys certain pricing power in the market. Replacement of fuel furnace by electric arc furnace at madhupur plant in FY14 helped the company to better control the power cost, hence expanded its operating margins and will continue for coming years also. During Q3FY16, La Opala reported net sales of Rs. 80.48 Cr registering growth of 27 % y-o-y basis and 28 % growth q-o-q basis, its sales grew by 21 % during 9MFY16. Diva brand contributed 70 % to the total revenues during the quarter, followed by La Opala at 20 % and Solitaire at 10 %. EBIDTA Margins have improved significantly to 36 % during the quarter vis-à-vis 32.9 % in corresponding quarter last year and PAT margins have improved from 22 % to 25.1 % during the same period. Improvement in margins is on account of better product mix, reduction in raw material & fuel cost and better operating leverage. The Company enjoyed EBIDTA margin of 33.8 % during 9MFY16. The company is well positioned itself to gain the benefits from increased urbanisation, rising disposable income, improving lifestyles and home ownership. Rising urbanisation will significantly expand the market for the company’s products and also with rising disposable income leading to the higher discretionary spending would translate into increased spending on tableware products, hence benefiting the company. Improving lifestyle would induce people from traditional tableware such as stainless steel and melamine towards branded and premium products such as opalware and crystalware. These augers well for the company. At the current market price of Rs. 577.90, the stock is trading at a PE of 50.69 x FY16E and 38.52 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 11.40 in FY16E and Rs. 15.00 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

KEY FINANCIALSFY15FY16EFY17EFY18E
SALES ( Crs) 223.33270.78344.17428.17
NET PROFIT (₹ Cr)41.7463.0583.15108.17
EPS () 7.5011.4015.0019.50
PE (x)81.2053.8040.8031.30
P/BV (x)18.3014.3011.008.40
EV/EBITDA (x)51.5036.6027.5021.60
ROE (%) 22.50 26.5027.0026.90
ROCE (%)28.8033.3034.2034.30

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