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Plant visit takeaways - “Simplicity is the ultimate sophistication”

During our recent visit to La Opala’s Sitarganj (Uttarakhand) plant, it was evident that the company has been effectively managing its production with the help of technology. La Opala uses state of the art equipment which have been sourced from the best manufacturers globally. We continue to believe that the demand for Opalware products is at an inflection point, with increasing awareness among consumers regarding the benefits of the product. We continue to rate the stock a BUY with a TP of Rs400.

* State of the art manufacturing facility: The Company’s manufacturing plant in Sitarganj is spread across 10 acres and is highly technology driven. La Opala has acquired most of its machinery from countries like UK, Italy, etc. Further, we believe one of the biggest advantages the company has over its peers is that almost all the key raw components (decal plant, moulds, etc.) are manufactured in-house, thereby reducing dependency on external suppliers.

* New capacity to augment growth: The Company’s new greenfield facility is spread across almost 14 acres and is expected to be commissioned by Q4FY22. The plant once commissioned is likely to take ~25 days to ramp up. The new facility is expected to have a capacity of 45 tonnes per day with 3 lines, which can be further increased by 10 tonnes per day and with an additional line. Overall the capacity thus is likely to be increased by 11,000 tonnes pa. La Opala has further room to set up an additional furnace, if the need arises, in 12-15 months’ time.

* Demand shaping up well: While interacting with senior members at the plant, it was clear there was an added spring to their step. They believe demand for Opalware products has been better than ever and shipments are better than pre-Covid levels. The following sentiment was echoed by dealers during our channel checks: dealers envisage that demand for Opalware products is growing in prominence; further, they expect the upcoming festive and wedding season to provide an additional fillip.

* Valuation and rating: We value La Opala at 36x on Sept.23 EPS of Rs11.8 leading to a TP of Rs400, an upside of 33%. The company’s state of the art manufacturing facility has always kept them ahead of the competition; further, strategic location of the plant is an added advantage, with huge benefits being offered by the Uttarakhand government. We believe these factors will always help the company deliver industryleading margins that are likely to be sustained. We further project that demand for Opalware products is on the rise and new capacity expansion coupled with launch of two new brands is expected to drive growth. With channel checks also echoing a similar trend and given La Opala’s brand pedigree and impressive financials we believe the premium valuation is justified.

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