A Good Bet

One of the largest brands in the domestic crockery market, La Opala RG seems to be making the right moves. As part of a restructuring exercise, La Opala, which has a portfolio of over 100 products ranging from casseroles to mugs, merged with itself Radha Glass, a group company manufacturing plain opalware. The merger was effected from January 1999 with the shareholders of Radha Glass getting five shares of La Opala for every three shares they owned.

Prior to the merger, Radha Glass sold plain opalware to La Opala. The latter then embellished it to sell a value-added product. Radha Glass also exported opalware. Says Sundar Subramoney, an analyst at Insight Asset Management, "The merger is expected to boost operating margins since the manufacturing margins on opalware will come on the books of La Opala now."

 

Besides, the topline will also get a boost to the extent of the direct exports of Radha Glass. Now, La Opala has also started participating in various domestic and international trade fairs to push exports.

In the domestic market too, it has lined up an aggressive sales strategy. It began advertising its products on television for the first time in September 1999. A month earlier, it had opened its first exclusive retail

outlet in Calcutta. Now it is increasing its focus on the smaller towns and cities, where grey market products have a relatively low penetration.

La Opala has one of the largest distribution networks in the country. This comprises 35 distributors and stockists covering over 5,000 retail outlets. La Opala has a 35-member sales team servicing this network. Besides, each distributor also has a sales and marketing team to service retailers. The main outlets currently include departmental stores, general utensils merchant and gift retailers. In fact, La Opala's reach is said to be unmatched by any competitor or even a grey market operator.

For the nine months ended December 1999, La Opala's posted net sales of Rs 26.98 crore while net profit grew 63 per cent. After hitting a high of Rs 70.38 on December 31, 1999, the stock is currently trading at 32.30.

Opalware and crystalware market

La Opala derives 91 per cent of its sales from opalware or opaque glass products and nine per cent from crystalware, which is clear glass with a 24 per cent lead content. The company has an installed capacity of 4,200 tonne per annum (tpa) for opalware and 540 tpa for crystalware.

Although accessing technology per se is not a problem in the industry, assimilating it and adapting it to local conditions is very difficult. That's where La Opala stands out for apart from it, none of the other local players have met with any significant success. That's primarily because the business is extremely labour-intensive. La Opala employs around 1,000 skilled workers for manufacturing opalware and another 300 to manufacture crystalware.

Opalware: The company sells opalware under the brand name, La Opala, one of the largest brands in the domestic crockery market today. Under this, it has a range of 100 products including teacups, mugs, plates, bowls, casseroles and the like.

The domestic market accounts for around 87 per cent of its total sales with retail sales accounting for around 90 per cent of this. The balance 13 per cent of total sales comes from exports primarily to the Middle East, South Africa, Sri Lanka and Bangladesh.

Crystalware: La Opala started manufacturing crystalware in March 1996 sourcing technology from Doosan Glass of South Korea, a leading manufacturer of crystalware globally. The company sell crystalware under the brand name, Solitaire. This comprises around 80 products from tumblers, glasses and beer mugs to vases, bowls, ashtrays, ice buckets and the like. The company sell around 80 per cent of its crystalware in the domestic market with retail sales again accounting for around 90 per cent of this. The major export destinations are France, USA and Japan.

Business strategy

La Opala has lined up an aggressive strategy to push sales. The idea is to gain market share by focusing and expanding its reach to small towns and cities. In metros like Mumbai and Delhi, La Opala's main competition is from grey market imports.

Analysts point that the rising purchasing power and living standards in small towns and cities offer a tremendous growth opportunity for the company. Besides, the company is also looking at opening exclusive outlets of its own. So last August, it invested Rs 50 lakh on its first exclusive retail outlet in Calcutta. Now, it plans to set up more such outlets but primarily in the smaller metros where real estate costs are relatively low.

The sales thrust has also been coupled with a brand-building exercise, especially by advertising on television at prime time. Strong advertisement support has given the company a competitive edge, further boosting its business prospects.

Then there is the export thrust. Over the next five years, La Opala plan to generate 25 per cent of total opalware sales and 40 per cent of total crystalware sales from exports.

Financial performance

La Opala posted excellent results for the third quarter ended December 1999. Its net sales grew from Rs 7.51 crore in the previous period to Rs 12.29 crore. Diwali sales, which came in the third quarter of 1999-2000, were largely responsible for the strong performance.

As a result, net profit improved from Rs 0.45 crore in the previous year to Rs 1.56 crore in December 1999. For the whole year, La Opala is likely to achieve net sales in the region of Rs 36-38 crore and net profits of around Rs 5-6 crore. On a equity capital of Rs 5.30 crore, this will translate into an earning per share of Rs 11.

Business upsides

E-commerce: Opalware and crystalware are products that don't require the touch and feel factor that covers most other purchasing decision. Both are aesthetic products suited for selling on the Internet. The possibilities of La Opala setting up its own portal to sell its products cannot be ruled out. Alternatively, it can tie-up with popular community shopping sites to market its products. Analyst feel that e-commerce presents tremendous opportunities to La Opala not only in the domestic market but also in the overseas one. This channel could open up new markets with little start-up or fixed costs.

Retail boom: India is set to witness a retail boom. After all, in the last year several large shopping malls like Crossroads in Mumbai have mushroomed across the country. And more are lined up with chains like Shoppers Stop and Akbarallys drawing up expansion plans. Traditionally, shopping malls and departmental stores have been the main channel for opalware and crystalware sales. Hence, La Opala stands to benefit from this retailing boom that is covering both the big and small metros.

Franchisee network: La Opala's large portfolio of opalware and crystalware products offers a tremendous scope for setting up a mass franchise network a la Titan, Bata, Navneet and Archies. Having set up its first company-owned exclusive outlet in Calcutta, La Opala is now exploring the possibility of setting up a franchisee network that will cover all the major markets. This could not only propel La Opala's overall business prospects but also its valuation.

Should one invest?

La Opala is currently trading at Rs 32, which discounts the latest earning by around three times. The company hopes to achieve a net profit of Rs 5-6 crore for the whole year, which will translate into an earning per share of Rs 11.32. Since the stock is already trading at its rock-bottom price, investors could pick it up with a medium to long-term perspective.