Annual Review – La opala

La Opala is one of the prominent kitchen utensils (tableware) companies in India, The Company’s brands comprise La Opala, Diva and Solitaire. Solitaire is directed at the high-end segment, Diva caters to the mid-end while the La Opala brand addresses the first-time requirements
They are engaged in the manufacture and marketing of opal glass tableware and 24%-lead crystalware products. Their opal glassware portfolio comprises plates, bowls, dinner sets, coffee mugs, tea sets, soup sets and dessert sets. Their crystalware portfolio comprises barware,vases, bowls and stemware. They introduced the heat-resistant borosilicate range of cookware during the fiscal gone by (Outsourced)
The company had another good year in terms of numbers
Sales, Profit and CFO all went up

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Key developments during the year

  • Equity dilution via qualified institutional placement to generate about INR 55 Cr (~11 million USD)
  • The addition of tea and coffee range products to broaden glassware portfolio
  • Start of importing of glassware and then selling them with a mark up

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La Opala strengthened its business model around asset lightness when it selected to import a borosilicate cookware range for onward sale in India. This opens the Company to an attractive opportunity, whereby it may select to plug product gaps in the country through prudent import and sales arrangement without making expensive corresponding investments in manufacturing facilities

This outsourcing model enhances the attractiveness of the Company’s Balance Sheet in what is otherwise a capital-intensive business

Before we begin to dig deep into each of the above developments, another key monitoring item for me is the advertisement spent . This year as well the company spent heavily on advertising and publicity

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even with such increase PAT margins increased

I am always wary of companies diluting equity and then throwing away that cash. let see if this was case at La opala

Generally with spare cash, you would

  • Expand (Capex or acquisition)
  • Invest in operations (Working capital)
  • Repay debt

The management decided prudently to reduce some debt

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There was not a significant investment in working capital as well

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Most of funds generated along with surplus cash from operations have been parked in current investment in mutual funds

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This is will be a key watch item for us next year on how company is deploying this excess cash

One thing which stood in PL was increase in other expense

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The reason was steep increase in advertising expense and in repairs to machinery – We need to monitor if this one time or would be ongoing

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Overall the company is growing at a fast clip with huge runway in front of it, We will see how the Jockey rides the horse !

The company has about 30 pages in AR with theme BRAND AT WORK

For Fun I leave with you some high grandiose verbose non sense in AR

Spot the contradiction between A & B – Share in comments

A

The contextual landscape is always the most important index by which the performance of a Company needs to be judged. In our case, the industry scenario was as discouraging as the prevailing consumer sentiment. This subsequently affected residential apartment offtake across the country

B

People are opting for a better quality of tableware because there is a greater need to enhance the quality of one’s lifestyle, a greater need to bring world-class practices home and a greater need to inculcate hygienic eating habits. And best of all, all this comes at a fraction of most other home building and decoration costs

Read this and re read this and tell me what it means in comments

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Finally all you MOAT lovers here is new angle to MOAT

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12 comments

  1. saurabh kurichh says:

    Vivek, how do u get this data in excel format. From what I have is annual report in PDF and not getting a way to put them in excel. Please help

  2. GM says:

    Hi,

    To your point – the A/B variance – seems like the AR is saying on one hand, we aren’t doing well because consumers aren’t spending, and later on they are contradicting themselves by saying that – well, actually, consumers want to upgrade their tableware sets due to hygiene/quality,

    So that makes me wonder – what are they actually? And why La Opala versus any other tableware company?

    And regarding the next extract, they are saying something a little disingenuous i believe. equity isn’t free. so you raised equity is great, but congrats, you just diluted your existing shareholders. The dilution could be great if you got a plant that makes some super awesome tableware (umm, don’t know about that), and could be disastrous if management just went and bought some goodies for themselves. The reality perhaps is somewhere in between.

    I could be way off base, but would be great to hear your comments. And very much enjoy these annual reviews!

    • Vivek Bothra says:

      Man you are spot on – Do participate more !!
      Why La opala is because of brand recall, no other big branded local player in this segment

      • GM says:

        Hi Vivek,

        Thanks! Actually just happened to come by your site only a few days ago. And spent a while reading your articles to figure out your style and content. Will certainly share and comment more often – and do please continue what you’re doing – its great stuff!

  3. saurabh says:

    hello Vivek, Nice to know that u are holding the stocks from very low levels . I wish i too in due time could figure out such a comapny and reap the benefits .

    Till that time :-

    Why is this contradiction in the statements A and B ? On one hadnd they are saying that the offtake was low due to low consumer sentiment and on the other hand in statement B , they are saying that people are opting for better products .

    my twiiter id is pspreader5, I could not post a long query there so asking abt it , here

    To be very fair, I am new to fundamental analsysis . It has been about a month and a hlf that i reading up fundamental blogs( including yours ) . Purchased a book too that u once refered 🙂 . Given the amount of data available , and the multitude of financial ratios giving rise to varied financial analysis I seem to have lost in the world . I do understand that rising sales and profits are important , but at what point to bring ROCE , ROIC etc etc into picture and how to use them. Guidance is needed from you 🙂

    • Vivek Bothra says:

      My friend that’s a decision you have to take on your own 🙂 I am not a buyer at this m-cap and invested from very low levels

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