Lean promoter-stake and Innoventive’s low cost of holding reduce comfort.
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OFFER AT A GLANCE |
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Name |
Opal Luxury Time Products Ltd |
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Public Offer |
Fresh issue of 9.6 to 10 lakh shares of Rs 10 each |
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Offer Price |
Between Rs 130 and Rs 135 |
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IPO on Total Equity |
Between 29% and 29.8% |
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Free Float |
Between 74.44% and 74.73% |
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Application Quantity |
1000 & Multiples of 1000 |
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Bid/Offer Opens |
March 25, 2013 |
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Bid/Offer Closes |
March 28, 2013 |
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Listing |
NSE-SME Platform |
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IPO Grading |
CRISIL |
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Grade |
4 out of 5 |
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Lead Managers |
IDBI Capital |
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Registrar |
Karvy Computershare |
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The IPO
The 2007-incorporated Pune-based Opal Luxury Time Products Ltd is making a fresh equity issue of Rs 13 cr with a price band of Rs 130-135 (Rs 10 paid-up). Investors will have to bid for a minimum of 1000 shares and multiples thereof. Opal’s IPO is to be listed on the SME Platform of NSE. Though the IPO amounts to less than 30% of the company’s post-issue equity, post-lock-in period, Opal would have a free-float of more than 74%.
Issue Object
The net proceeds of the IPO are proposed to be utilised for investments in moulds, tools, equipment, indigenisation of designs for expansion of existing manufacturing facility (Rs 10.30 cr) and enhancement of the company’s brand through advertising and other brand building activities (Rs 3.90 cr).
Issue Grading
Opal’s IPO has been assigned a grade of ‘SME 4/5’ by CRISIL. The grade indicates that the fundamentals of the company were superior as compared to other SMEs.
Promoter & Management
The founder of Opal, Subhash Gujar, hitherto unknown to the investing public, has more than 15 years of experience in manufacturing, assembly and marketing of clocks. Prior to founding Opal in 1996, he was reportedly a distributor of Allwyn and Titan watches in Maharashtra. Opal’s business was originally conducted under proprietorship which was converted into a private limited company in 2007.
Chandu Chavan, promoter of Innoventive Group, acquired a majority stake in Opal in March 2007. The BSE-listed Innoventive Venture Ltd (formerly known as Kayton Trade & Finance Ltd) indeed claimed Opal as a 51% subsidiary in its fiscal 2012 annual report. Despite Innoventive holding a significant stake (47% after the pre-IPO placement) in Opal, they claim that Innoventive’s promoters are not involved in day-to-day business operations of the latter. While Opal’s board is chaired by the founder’s son, Sameer Gujar (26), a majority of the directors are from the Innoventive group.
As regards the track record of Innoventive companies, Innoventive Industries, which went public in April 2011, has rewarded the investors with 30% dividend for the fiscal 2012. Nonetheless, the stock is currently traded at 12% discount over the issue price of Rs 117. The ‘holding company’ of Opal, Innoventive Venture, is currently languishing far below par value quoting at Rs 6. This company, despite having profit-making subsidiaries, has reported loss and accumulated a deficit of more than Rs 4 cr against its capital base of Rs 15 cr.
Business Track
Opal is an established player in the domestic wall clock market which is largely dominated by small players. Opal manufactures high-end designer luxury clocks at its plant in Roorkee, Uttarakhand. The company sells two brands: Opal, with a product range of over 109 exclusive wall clock and table clock models; and Caliber, launched in May 2010 in the more affordable price range. The company has pan-India network of nine distributors (catering to over 207 dealers), 35 direct dealers and 91shop-in-shops counters. Opal also markets its products through many big retail groups including Shoppers Stop, Home Town (Pantaloon), Reliance, Westside and Evok (subsidiary of Hindustan Sanitaryware).
Financial Performance
Opal’s net revenue grew to Rs 17 cr in FY12 at a two-year CAGR of 26%, primarily driven by higher volumes and expansion of the distribution network. EBITDA margin improved from 22.4% in FY10 to 27.2% in FY12 because of lower raw material and marketing expenses. Raw material costs as a percentage of sales declined due to lower imports coupled with increase in realization of Opal products. Net profit margin has improved 330 bps from 13.5% in FY10 to 16.8% in FY12 on account of income tax benefits available in Roorkee, where the manufacturing unit is located. The bottom line increased at a two-year CAGR of 41% from Rs 1.45 cr in FY10 to Rs 2.89 cr in FY12.
Prospects
The organized wall clock industry has been projected to clock a CAGR of 12-15% over FY11-16. The industry is expected to benefit from the rise in discretionary spending by Indian middle class on the back of higher disposable income, growth in urban housing, desire for better standard of living and increasing penetration of organized retail. Opal, given its strong position in the industry, is likely to benefit from this growth as it has the first-mover advantage, aesthetic designs and consistent product innovation. While Opal leverages on a decent brand recall, competition from unorganized players is high. Further it imports more than 70% of the raw materials (moulds for critical components and movements); its lead time to procure raw materials for any model is over three months which limits its ability to deliver bulk orders at a short notice. Also the small size of operations weakens Opal’s bargaining power vis-à-vis big retail players.
Valuation
Barely two weeks ago (on March 13, 2013), shares were allotted to SIDBI Venture Capital at a price of Rs 110 by way of Pre-IPO placement. The average cost of the largest shareholder, Innoventive group, works out to less than Rs 28 a share and the promoters’ cost of holding is just Rs 9.54. As compared to the cost of existing shareholders, the IPO price (Rs 130-135) is indeed unattractive. Nevertheless, the company’s impressive profit margins and the historical P/E exude optimism.
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How Opal Luxury compares with peers |
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SCRIP |
M-CAP |
P/E |
P/BV |
P/FV |
P/R |
P/NB |
OPM |
YLD |
PRICE |
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(Rs Cr) |
(x) |
% |
(Rs) |
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Timex |
148 |
(-) |
10.7 |
14.7 |
1.0 |
9.9 |
(-) |
0.0 |
14.70 |
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KDDL |
68 |
16.4 |
1.4 |
7.4 |
0.7 |
1.1 |
16.4 |
4.1 |
74.10 |
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Opal |
45 |
11.0 |
2.7 |
13.5 |
2.6 |
4.7 |
27.1 |
0 |
135.00 |
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44 |
10.6 |
2.6 |
13.0 |
2.5 |
4.6 |
27.1 |
0 |
130.00 |
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Lead Manager Track
Opal’s IPO is lead-managed by IDBI Capital Market whose concern for investors is far from convincing. In seven years (2006-2012), the investment banker brought out 20 public issues of which just three are currently trading at a premium. In fact, as many as 8 are quoting at more than 80% discount!
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INVESTOR RETURNS FROM IDBI-ASSOCIATED IPOs |
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ISSUER |
ISSUE |
FV |
IPO |
CURRENT |
GAIN |
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DATE |
Rs |
PRICE |
% |
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PC Jeweller |
27-Dec-12 |
10 |
135 |
106.65 |
-21.0 |
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CARE |
26-Dec-12 |
10 |
750 |
782.00 |
4.3 |
|
Thejo Engg |
18-Sep-12 |
10 |
402 |
379.95 |
-5.5 |
|
National Buildings |
22-Mar-12 |
10 |
106 |
113.20 |
6.8 |
|
SRS |
23-Aug-11 |
10 |
58 |
39.00 |
-32.8 |
|
Aanjaneya Lifecare |
9-May-11 |
10 |
234 |
154.10 |
-34.1 |
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MOIL |
26-Nov-10 |
10 |
375 |
221.15 |
-41.0 |
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Gujarat Pipavav Port |
23-Aug-10 |
10 |
46 |
50.00 |
8.7 |
|
SJVN |
29-Apr-10 |
10 |
26 |
18.65 |
-28.3 |
|
Arss Infrastructure |
8-Feb-10 |
10 |
450 |
28.30 |
-93.7 |
|
JSW Energy |
7-Dec-09 |
10 |
100 |
51.85 |
-48.2 |
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Astec Lifesciences |
29-Oct-09 |
10 |
82 |
16.40 |
-80.0 |
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Rishabhdev Techno |
4-Jun-09 |
10 |
33 |
2.01 |
-93.9 |
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Coral Hub |
21-Jul-08 |
1 |
10 |
0.71 |
-92.9 |
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Central Bank |
24-Jul-07 |
10 |
102 |
67.25 |
-34.1 |
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Decolight Ceramics |
24-May-07 |
10 |
54 |
8.16 |
-84.9 |
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VTX Industries |
8-Feb-07 |
10 |
100 |
8.85 |
-91.2 |
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Transwarranty Fin |
23-Jan-07 |
10 |
52 |
6.45 |
-87.6 |
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Uttam Sugar Mills |
16-Mar-06 |
10 |
340 |
16.65 |
-95.1 |
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Nitin Spinners |
6-Jan-06 |
10 |
21 |
8.96 |
-57.3 |
Stock prices adjusted to post-IPO splits & bonus
Concerns
- Promoters new to the investing public
- Non-dividend paying company asking for a hefty premium
- Though more than Rs 14 cr is proposed to be spent on expansion of facilities, no external agency has appraised the projects
- Less than two weeks before the IPO, shares have been allotted to an associate company of IDBI offering a discount of Rs 20 over the IPO price
- Cost of holding of the existing major public shareholder is less than Rs 28
- Working capital cycle is high (at 200 days) because of import dependency
- Small size of operations weakens bargaining power vis-à-vis big retail players
- No non-disclosure agreement (NDA) with vendors to protect business know-how exposes to risks of imitation
- Poor governance – delayed income tax payment during FY09-FY12 resulting huge interest burden