INSUBCONTINENT EXCLUSIVE:
Nirmal Bang Securities has a buy call on La Opala RG with a target price of Rs 299.
The current market price of La Opala RG is Rs
223.25.
Time period given by the brokerage is one year when La Opala RG price can reach the defined target.
Investment rationale by the
brokerage:
La Opala RG (LORL) ventured into the opalware segment in late 1980s, while its competitors entered this space only a few quarters
In fact, we view the entry of new players as a positive signal for the industry and its future growth prospects
LORL is on the path to increase its total capacity by 71 per cent to 36,000tpa by FY21E
Economies of scale should also play its part
With the buoyant and favourable consumer sentiment, we expect LORL to increase its revenues and EBITDA at 13.2 per cent and 14.2 per cent
Our growth rate estimate is lower than Bloomberg consensus estimate and presents our base case scenario
We initiate coverage on LORL with a Buy rating and a target price of Rs 299, up 35 per cent from the CMP.
15 per cent volume CAGR expected
during FY18-FY21E: In FY18, LORL achieved total production of 16,000tpa with an installed capacity of 21,000tpa (80 per cent capacity
The recent 4,000tpa capacity additionin FY19 and further planned expansion should support 15 per cent volume growth over FY18-FY21E
Over the same time, we expect the company to also improve its pricing which was down nearly 8 per cent-10 per cent because of Goods and
Services Tax or GST benefit pass-through to consumers
In total, we expect the company to increase revenues at 18 per cent CAGR over FY19-FY21E
Following the change in accounting, FY19 reported revenues are not directly comparable with FY18
Also, because of GST benefit pass-through, product prices have already declined close to 10 per cent YoY.
Front-runner to benefit from
This trend is now changing with rising income and as a result the size of the opportunity is huge
Of this, opalware accounts for close to 5 per cent, while steel, bone china and melamine account for 60 per cent, 31 per cent and 9 per
Thus, the shift from steel to opalware presents a huge opportunity for LORL which holds the No.1 position in the market with 48 per cent
revenue share and 43 per cent installed capacity share
Taking into account the ongoing capacity expansion at LORL (both Cello and Borosil have done expansion recently, but no new plans), it
should hold over 52 per cent installed capacity in the opalware industry in India by FY21E
Cello, with 18,250tpa capacity, holds 32 per cent and Borosil (Larah Brand) with 14,600tpa holds 25 per cent installed capacity share
Other players like Corelle, RAK and Luminarc import the product
The recent entry of Cello and Borosil will give some competition to LORL, but will also help in expanding the market and create awareness
