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Recovery Mode on

We maintain a BUY rating on the stock and increase our target price to Rs.400 (Rs.380). The company reported revenue growth ahead of our estimates. We believe demand inflection of Opalware is already underway as it transforms its image from a luxury to an aspiration if not a necessity. During the truncated quarter, La Opala’s performance was better than anticipated; a testament to the brand pedigree, the company saw recovery across all the channel verticals.

With restriction now easing the recovery is expected to be elevated. We introduce FY24E numbers and increase our overall earnings estimate by 6.2% and 2.8% for FY23E and FY24E respectively (lead by an increase in revenue by 2.3% for FY23E and FY24E). We continue to believe in the structural story Opalware and LA Opala being the market leader with an excellent track record and credible financial performance stands to gain from the same.

* Revenue growth ahead of estimates-

La Opala reported revenue growth of 218% YoY to Rs 321.7mn (MNCL Est- Rs.253mn). The company demonstrated growth in all the verticals. With many states easing restrictions, the company believes the demand should see a sharp recovery.

* Margins Surprise:

EBITDA for the quarter came in at Rs.95.2mn vis-à-vis a loss of Rs.27.4mn (-65% QoQ) (MNCL EST-Rs.30mn). OPM for the quarter stood at 29.6%. The company reported a PAT of Rs.89mn vis-à-vis a loss of Rs.30.4mn YoY.

* Dealer feedback remains Positive-During our channels check with dealers, they highlighted an improvement in demand conditions. Footfalls had started to increase and retail demand was extremely high. They are anticipating this healthy growth to continue as we enter the festive and wedding season.

* Valuation and rating:

We value La Opala at 36x on Sept.23 EPS of Rs 11.8 leading to a TP of Rs 400 (Rs.380) an upside of 47%. The increase in target price is due to the upward revision in earnings by 6.2% and 3.8% for FY23E and FY24E and due to shift in valuation on Sept’23 basis (Mar’23 previously). The Company started the quarter on a very promising note, however, lockdown truncated the overall enthusiasm. However, with restrictions now being lifted and the number of cases on a steady decline, the company is cautiously optimistic.

Going forward the company is looking at introducing two new brands in premium range, which is expected to improve all product offerings. We believe as we entering the festive season and wedding season, we could see a sharp recovery in sales. We continue to believe in the Opalware story and given LA Opala’s brand pedigree and its impressive financials we believe the premium valuation is justified.

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