La Opala RG - Aspirational consumer story

The RoCE and RoE both have been inching lower as sales & profitability have stagnated in the last couple of years. All expectations are on the new greenfield capex coming onstream which would lead to improved sales traction in the next few years.

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Anyone here who follows Laopala closely can help me regarding an anomaly in the 2018 annual report. If we look at the 2017 annual report there is a heading in the Other expenses column that mentions “Advertisement expenditure” of Rs 30 odd crores. However in the 2018 version the other expenses have reduced by Rs 30 odd crores and no expense under the head advertisement expenditure exists. What is surprising is that it is not visible even in the year 2017. Even under any other expense this heading does not exist for the years 2018 & 2017. Could someone tracking the company closely know why? I have attached the extracts of the annual report for 2018 & 2017 highlighting the same

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Hi

As per my understanding this is the explanation for the same.

In FY19 AR
if you check the schedule 33 for
FY 19 Advertisement & Sales Promotion is 598.29L and for FY 18 it is 85.82L. In the same AR look at the Miscellaneous Expenses for FY 19 it is 279.91L and FY 18 it is 240.10.

In FY18 AR
as you rightly said there is no advertisement & sales line item but look at the miscellaneous expense if you check schedule 32 for
FY 18 it is 325.93 L

Now I think the Advertisement & Sales Promotion expenses for FY 18 in FY18 AR is included in Miscellaneous Expenses because 325.93 - 240.10 = 85.83L which is exactly the expense on advertisement & promotions as per FY19 annual report.

So when I had observed this I felt in FY18 AR they have done some reclassification of heads then again made it fine in FY19 AR. FY17 and before ARs have advertisement & sales heads in other expenses.

From what I have been able to make out the below data is the ads & promo spend as a % of revenues for the company.

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Regards
Deepak

disc: not sebi registered. follow this company because I am tracking borosil.

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It is surprising to note a huge drop in Advertising/ Promotional expenses specially when your competitor is too aggressive in last couple of years. I again reiterate that business lost to competitor will require huge effort to regain. I tried getting clarity on this from company but the response is not encouraging.

Few key notes from annual report & recent developments

Tax rate was approx 35% for previous years & current budget has proposed tax rate of 25% for companies having TO<400 Cr. As per below statement they may save approx 11.2 Cr, which is considerable amount as per current PAT.

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General Reserve has also gained strength & stood above 20% of TO
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Employee Benefits/ expenses have increased considerably w.r.t. increase in TO

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They have implemented SAP for better accounting / inventory control. It has cost 37L to company.

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Hi

AFAIK they have done a good job in the SAP implementation space from the point of view of the price they have paid.

I had mentioned the advertising budget hypothesis and market share hypothesis in the Borosil thread.

Borosil management is very clear that they will be spending 10% odd on advertising. They are here to take market share and margins is secondary is what I understand.

Rgds
Deepak

post IndAS sales reported is net of advertisement expenses (excl. sales and promotions) and hence you won’t see separate line item for the same.

As per my understanding IndAS says that “Any sales incentive, discounts or rebates in any form, including cash discounts given to customers will be considered as selling price reductions and accounted as reduction from revenue”

Are we trying to club sales incentive, discounts or rebates (cash discounts) with Expenses on Advertising, sales, promotion?

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Advertisement and generic sales promotions can never be deducted from sales value. Cash discounts/volume discounts would be adjusted from sale value. So now companies have to break it up into 2 buckets - one where there is direct connection between expense and sales and another one which is more generic and longer term in nature like brand building.

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Thats correct as per my understanding.

We are still looking for Expenses on Advertising, sales promotion? Is LaOpala missing something where the prime competitor is too aggressive?

Another subdued quarter… have we lost the focus & ready to give walkover to competitors

05b3ba0a-5a6a-4807-b33b-8a37fdb57bef.pdf (1.8 MB)

Good study on Laopala although I don’t like the emphasis on past… we better look forward…

https://simplywall.st/stocks/in/consumer-durables/nse-laopala/la-opala-rg-shares/news/if-you-had-bought-la-opala-rg-stock-five-years-ago-you-could-pocket-a-181-gain-today/

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The historical details are fine but nos confirm that its very old ppt. can someone update & make it more meaningful for current state

It seems like an affect of consumption slowdown. It has impacted most of the industries in India including the highly valued FMCG companies. Considering that, the performance doesn’t seem to be bad as revenue and profit both grew YoY. Also, they have maintained their margins.

Revenue for its competitor - Larah(Borosil) grew 16% yoy but they are generating losses. Don’t know for how long can they sell on heavy discounts but it doesn’t seem like a smart strategy considering that the customer doesn’t buy opalware kitchen set for many years after they have already bought one. I maybe wrong here but gaining market share through aggressive pricing seems doesn’t seem like a smart strategy.

Not sure how LaOpala will play this out but maintaining margins amidst competitive pricing is difficult job. Yet, I believe the total market of Opalware will grow due to many lifestyle changes in India and having even a market share close to 50%(from the current 65%) for the next few years can yield great returns for the shareholders. I believe we will have to wait a few quarters to see how this story unfolds.

Disclosure: Small tracking position and looking to add

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Promoter group (Genesis Exports) bought 350000 shares in open market to increase holding by 0.32%

78E0CA42_BEAD_498F_BBFF_23D26197AACD_113747_compressed.pdf (1.5 MB)

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Hello Investors, I read on Borosil page that Opala wear market size is only 500 cr? https://www.bseindia.com/xml-data/corpfiling/AttachLive/73135d01-2e73-4bb4-97d8-4b82f9212056.pdf isn’t it too less

The overall market for kitchenware in India is 10,000 Cr. Steel is the leader with around 60%. Opalware is only 500 Cr as of now but in the past decade it has grown rapidly due to many advantages( economic, aesthetic, durable, etc) of opalware kitchen sets in comparison to Steel, Corelle and Bone China. It is expected to grow at a much faster rate than others and even snatch some market share form Steel and Bone China due to factors relating to rapid urbanisation, growing per capita, better product quality of Opalware and growth in hospitality industry. So, LaOpala being the leader in Opalware would most likely benefit if the Opalware market grows domestically. Having said that, the growth of the industry might slow down due to slowdown in the wider economy but the story still looks good to me when viewed from a multi year perspective.
Disclosure: Invested. Views are biased

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Some rough guesstimates . For retail market , 130 cr population. On 4 per household, 30 cr household . Lets us say , every 4 years, kitchenware is replaced. So, 7.5 crore households buy every year. Let us say 1000 rupee is kitchenware expense (for every 2 year replacement of plates, glasses, cooker etc etc ). This comes around 7500 crore market for retail customers . Considering 60-70% India lives in villages n having village background , visiting at least once a year , never seen opalware , let’s us exclude it . So, we are left with 35% of 7500 , this comes around 2500-2600 crore urban market . Let us say in urban India 30% of households can afford ,then , comes around 750 crore . For a deeper study, you can have al numbers ready by rural urban, by region (south India may have different preferences I think ), income group bands n can refine it further

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I have read somewhere (don’t recall the report / link) that it was 600 Cr and even borosil has projected 20% annual growth in their report.

Due to online shopping and easy & affordable internet data, village people are now having opportunities to buy premium products. Listen Dabur, Asian Paint, Marico con call, they are claiming that their premium product sales growth is more from rural than urban!!
This change might be very good for Opalware.

https://medium.com/texas-mccombs/three-billion-rural-consumers-can-marketers-profit-from-them-792d141049f4

Disc - invested recently @146 INR