Saurabh Shah

AUM Fund Advisors LLP

July 2018
 Disclaimer

 This is not a recommendation but an analysis

 In preparing this document, we have relied upon and assumed, without independent verification, the
accuracy and completeness of all information available from public sources or which was otherwise
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 AUM Fund Advisors LLP is an Investment Advisor registered with SEBI
 Disclosure: AUM Fund Advisors LLP clients and principals may be invested in this stock at any time

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AUM Investment Approach

 Large market opportunity - cornerstone for profit compounding

Market Opportunity  Size of pond vs size of fish
 Less about “what is”; more about “what can be”

 Simple model, leadership

Business Quality  Volume growth at least 2-3x GDP growth
 Low capital intensity, high efficiency

 Consistent and predictable growth

Earnings
 Operating cash flow finances growth

 Demonstrated capability, “X factor”

 Scalable
Management Quality
 Good governance
 Skin in the game

 Margin of safety important

Valuation  Superior business at “reasonable” price rather than inferior business at
“cheap” price

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 La Opala RG: Overview
Products: Opalware Brands (Diva, La Opala) Crystalware (Solitaire)

 MRP for typical 27 piece set : Rs.2,400-4,300

 FY2018: Revenue: Rs.260cr EBITDA: Rs.107cr (41%) OCF: Rs.80cr Net Income: Rs.73cr (28%)

 Capacity utilization: 85%

Capacity Sales Mix

Export East,
Madhupur, Soltaire, 8% 17% 21% North
5,000MT 27%

La
Opala,
20% West
Diva, Domestic, 22% South
Sitargunj,
72% 83% , 24%
20,000 MT

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 Timeline

Net Revenue (INR Cr)

300

259
250
223

200

150
115

100

49
50

Diva Classique Diva Ivory Diva Sovrana, Quadra

0
2007 2012 2015 2018

Installed Capacity 9,000MT 13,000MT 21,000MT 25,000MT

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Market Opportunity
 2017 Indian tableware market*: ~10,000cr
Borosil
Glass, Melamine, , 20%
Bone China, 3,500cr
Corelle, 50cr

Opalware,
500cr

Cello,
15% La Opala,
Steel, 6,000cr
65%

Tableware Market Opalware

 Opalware expected to grow at 15-20%* p.a.

 L2Ygrowth: ~25% p.a.
 Higher penetration of tableware
 More middle-income households
 Market share expansion
 Drivers: Awareness Availability Price Convenience

* Trade, analysts, managements

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 Tableware Comparison

Properties Opal Ware Porcelain/ Bone Glassware/ Glass Melamine Steel

China Bakeware
Durability Breakable, but far Chips easily Fragile Unbreakable Unbreakable
more stable than
bone china, glass
Scratch resistant Scratch proof Scratch easily Scratch easily Scratch easily Scratch easily

Microwave/ Yes Yes, if no metal Microwave safe, No No

Dishwasher safe used not dishwasher
safe
Variety High High Low High Low

Cleaning/ Easy Soft cleaners Soft cleaners Easy Needs scrubbing

Maintenance required, high required, high
maintenance maintenance
Weight Light weight, easy Heavier to rest Heavy but less Light weight, easy Light weight
handling than handling
porcelain/bone
china
Pricing 1x 1.25x 1.1x 1.15x 0.6x

Source: Trade, [Link]

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Competition

La Opala Borosil Cello

Overall FY18 Revenue 260cr 633cr NA

Other business None Industrial lab and solar Plastics, kitchen

glass, consumer-ware equipment, stationery,
and storage products furniture, air-coolers

Opalware from 2007 2016 2017

Capacity 25,000MT 10,000MT 16,000MT

Utilization (%) Madhupur (100%) 70% NA

Sitargunj (80%)

Opalware FY18 Revenue 260cr 100cr 75cr (Est)

EBITDA (Margin) 107cr (41%) 7cr (7%) NA

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Summary Financials
Financials CAGR
(Rs. cr) FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 3 Yrs 5 Yrs
Net Sales 154 178 223 249 235 259 5.1% 11.0%
EBITDA 41 50 66 86 88 107 17.5% 21.0%
EBITDA Margins 26.7% 28.1% 29.4% 34.7% 37.3% 41.1%
PAT 23 30 42 59 62 73 20.7% 26.3%

OCF 31 39 47 61 72 80 19.8% 20.9%

FCF 10 23 39 16 57 45 5.0% 36.3%

ROACE 35.2% 36.5% 34.0% 32.5% 25.3% 26.2%

ROAE 35.3% 34.9% 29.5% 26.8% 22.4% 22.1%
ROAIC 36.8% 39.4% 49.1% 55.7% 45.4% 53.6%

Net Debt / Equity (x) 0.3x 0.1x -0.4x -0.3x -0.4x -0.4x

NWC Days 108 95 78 87 93 88

Until FY16 sales includes sales promotion and trade discount.
FY18 sales excludes GST
CMP 250
M Cap 2,779 Pre-tax ROACE and ROAIC. Net Worth excludes OCI
52 Wk H/L 372 / 223

P/E FY18 (x) 37.8x

EV/EBITDA FY18 (x) 24.2x

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Select Consumer Valuations

Com pany Nam e CMP Mcap Sales EBITDA PAT P/E ROE ROCE
Rs. Cr CAGR FY18-20E (%) FY18 FY19 FY20 FY18 FY18

La Opala RG Lim ited 250 2,779 14.9% 19.4% 15.5% 37.8x 28.3x 25.8x 18.9% 14.9%
Borosil Glass Works Lim ited 1,166 2,693 NA NA NA 54.8x NA NA 5.8% 3.6%
Berger Paints India Lim ited 318 30,830 16.0% 17.8% 20.5% 67.0x 46.0x 37.1x 22.5% 17.4%
Whirlpool of India Lim ited 1,674 21,242 16.7% 23.9% 24.2% 60.6x 39.3x 31.5x 21.4% 17.5%
Astral Poly Technik Lim ited 1,108 13,271 21.4% 26.7% 30.3% 75.8x 44.6x 36.8x 18.6% 13.9%
Relaxo Footw ears Lim ited 815 9,803 15.3% 19.7% 19.9% 60.9x 42.4x 35.1x 23.6% 18.6%
V-Guard Industries Lim ited 207 8,795 16.0% 35.6% 37.1% 66.6x 34.4x 31.8x 19.5% 15.4%
Sym phony Lim ited 1,131 7,912 28.2% 17.7% 14.5% 41.1x 31.3x 21.1x 36.0% 23.8%
TTK Prestige Lim ited 5,945 6,926 14.8% 17.2% -8.6% 26.1x 31.4x 25.6x 28.1% 13.3%
Kajaria Ceram ics Lim ited 432 6,874 12.0% 12.8% 14.5% 29.3x 22.3x 18.3x 17.1% 15.2%
VIP Industries Lim ited 483 6,826 14.7% 15.7% 16.9% 53.9x 39.4x 33.1x 28.3% 25.4%
Bajaj Electricals Lim ited 597 6,093 17.0% 24.5% 69.7% 72.8x 23.7x 19.6x 9.3% 9.3%
Median 57.7x 34.4x 31.5x

Source: Capital IQ consensus

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Going forward

 Greenfield expansion 12,000MTPA by FY20

 Capex 135cr, at full utilization can generate revenues of Rs.200cr with current margins,
overall pre-tax ROCE of 35+%

 Incremental brownfield expansions at significantly higher ROCE

 E.g. Sitargunj 6,000MT expansion should require incremental Rs.50cr investment

 Product mix changes

 Launched two premium ranges in FY18, more profitable

 A&P to reduce as % of sales over next 3-5 years

 14% currently to about 10%

 Entry into complementary products?

 Organic / Contract manufacturing / Inorganic

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Shareholding

Non Public shareholding above 1%

Institutional,
Other 14.39%
DIIs,
Shareholders %
0.83% holding
Mutual Westbridge Capital 6.8%
Funds,
1.31% Steadview Capital 4.7%
Malabar India Fund 4.4%
Matthews India Fund 2.7%
FIIs, UTI Mid Cap Fund 1.2%
18.45%
ABG Capital 1.1%
Promoters,
65.02%

As of June 30, 2018

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What we like

Market Government Company

• Opalware only~5% of • ADD reduced from • Strong free cash flow
tableware market 110% to 31% in 2017 generation in spite of
• Cheapest non-metal for 5 years significant expansion.
alternative FY18 net cash of
• Strong multi year • Continued growth in Rs.200cr
growth story FY18
• Expansions to generate
• Urbanisation • Competitor announced incremental ROCE of
price hike in Q1FY19 35-40%
• Higher disposable
income • La Opala yet to • Dominant and focused
player
• Convenience, announce results
Aesthetics, Recyclable
• Good capital allocation,
debt averse. Only 1
capital raise in 2015
since IPO

• Reducing working capital

days in spite of 1.7x
revenue in 5 years

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Risks

Market Company Price

• Continued category • Increase in competitive • 37x FY18 Earnings

acceptance intensity
• Delays/ disruptions will
• ADD of 31% on China • Delays in commissioning cause volatility
beyond 2022?
• Needs other
• Discretionary item – manufacturing locations
susceptible to income
growth

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To summarize
 Potential long term market transformation
 Tableware market penetration ) Last 2Y growth ~25%p.a.
 New middle-income households ) Expected growth 15-20% p.a.
 Increasing category share )

 Other trends
 Convenience: Microwave, Dish-washer safe
 Sustainable model: Price, recyclable, institutional market

 Strong leadership and execution record

 Dominant market share and scale 65% share, 41% EBITDA margins
 Strong returns focus >25% ROCE, last 8 years should
increase. OCF/EBITDA>70% last 6
years
 Alignment 66% ownership, only business
 Expansion 50% in FY20, modular later

 ALL this 37x FY18PE

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Contact Details

Website: [Link]

Email: ss@[Link]

Tel: 022 22022001

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