IGI Logo

Healthy growth trajectory continues

La Opala clocked best quarter in terms of sales and profitability. Sales stood at Rs1349m (+46% YoY), EBITDA of Rs532mn (+50% YoY) and PBT of Rs516mn (+42%). Sales, EBITDA and PAT grew at CAGR of 26/25/16% respectively over 2QFY20-23. Durga Puja and Diwali this year were earlier than last year. Hence the impact of festival sales was larger in 2QFY23 vs. last year. Also, the newly commenced (in June’22) opalware facility of 11,000tn contributed to the sales during the quarter. Gross margins and EBITDA margins remained steady at 79% and 39% respectively. We maintain our bullish stance on the business and Buy rating on the stock. We revise our estimates upwards (+4/1% EPS for FY23/24) and roll forward to FY25 to arrive at new TP of Rs484, valuing at 35x 1HFY25E EPS.

Healthy demand with multiple growth drivers

Strong demand in domestic market continued in 2QY23 led by healthy organic demand for opalware category. Durga Puja and Diwali this year were earlier than last year. Hence the impact of festival sales was larger in 2QFY23 vs. last year. Demand remained healthy equally across urban and tier II/III towns. Export markets struggled a bit during the quarter and its contribution declined to 13-14% in 2QFY23 vs. 16-17% of total sales in FY22. Channel wise mom and pop outlets continue to contribute most with ~80% sales coming it while Modern Trade (MT) contribution stood at 10-15%. Rest 5-7% contribution came from e-commerce channel. 3Q is also supposed to be equally strong.

Strong capacity expansion in pipeline

La Opala’s Greenfield plant in Sitarganj, Uttarakhand with 11,000tn of capacity has commenced and has started to contribute to total sales from July’22. Based on the current demand scenario management sounded confident that ~50% of the new capacity will get utilized by end of FY23 and will take 2-2.5 years for full utilization contributing ~Rs1.8bn to the sales. Apart from this, the company’s Greenfield unit in Sitarganj for Borosilicate glass is expected to commence in less than two years. Total capex is ~Rs700mn and peak sales would be Rs1.1bn from this unit. We estimate all these capacities combined can clock sales of Rs6.5bn by FY26.

Sequential performance to remain strong

As pet the feedback from management demand trend remains strong even in 3Q. We expect 3Q to be atleast as good as 2Q. 2H usually makes up ~55% of the total sales for La Opala. As per the CAIT ~3.2mn weddings are expected to happen during November 4 th – December 14th. Total spends during the wedding is expected to be Rs3750bn. Marriage gifting generates ~35% of Opalware’s demand. Branded players also continue to benefit on account of supply chain disruption led by pandemic.

Valuation and key risks

We continue to remain bullish on the La Opala’s secular growth story. Significant capacity addition, venturing into new product category, favorable consumer demand is expected to provide the growth impetus to the company over next three years. Balance sheet remains lean with liquid investment and cash of Rs3.9bn at end of 1HFY23. We maintain our bullish stance on the business and Buy rating on the stock. We revise our estimates upwards and roll forward to FY25 to arrive at new TP Rs484, valuing at 35x 1HFY25E EPS.

Valuations

We maintain our Buy rating with revised target price of Rs484 valuing at 35x 1HFY25 EPS. Our target multiple is 10% premium to average of 5-yr PE (FY17-22).

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer