SKP Securities - La Opala RG

SKP Research report on La Opala RG:

La Opala RG’s net sales were up by 17.93% at Rs 13.81 crores in Q4FY07 over Q4FY06. Out of the total sales, Opalware contributed 74.65%, Crystalware contributed 20.44% and the rest of the sales came from some trading activities and sale of energy generated from windmill.


Operating Margins (OPM) of the company stood at 16.15% for Q4FY07 in comparision to 14.52% in the same period last year. The improvement came mainly due to higher realisations as the company increased their prices by 10-12% at the start of this fiscal, optimum utilisation of resources by lowering the weight per piece for some of their products and better product mix.

Profit After Tax (PAT) was down by 9.45% due to higher interest and depriciation costs. However, PAT for the whole year was up by 6.51% compared to last year.

Exports as a percentage of total sales increased to 24.38% in Q4FY07 in comparision to 17.86% in the same period last year. Contribution of Opalware & Crystalware to total exports was 37.92% and 62.08% respectively.

Owing to the established brand name and high quality products, the demand for La Opala's products is increasing. To meet the growing demand, the company is scaling up its capacity by 80% from the present levels with a capex of Rs. 37 crores, which is expected to be operational by September, 2007.

They will have a locational advantage as they will avail an exemption of excise duty for 10 years and income tax for 5 years for manufacturing in Uttaranchal. With the abundance of cheap electricity, Uttaranchal is considered to be the ideal location for the expansion. These will help in improving margins of the company.

Recently, the company tied-up with some retail chains like Reliance, Pantaloon, Metro, Shopper's Stop and Pyramid for supplying its products.

Outlook & Recommendation

We are reducing our FY08 sales and profit estimates by 23.00% and 37.89% respectively, due to the delay in expansion. It was scheduled to be operational by April ‘07, which will now be operational by September '07. Our revised estimates for sales and profit after tax in FY08 are Rs. 63.91 crores and Rs. 5.41 crores respectively. We have also incorporated the estimates for FY09. The company is expected to make net sales of Rs. 90.35 crores and profit after tax of Rs. 10.22 crores in FY09.

At current market price, the stock is currently trading at 6.02 x FY08E and 3.38 x FY09E EPS of Rs. 5.41 and Rs 9.64 respectively. We maintain our BUY recommendation on the stock with a price target of Rs 68 at 7 x FY09E EPS of Rs. 9.64.