CRISIL assigns SME fundamental grade of 4/5 to Opal Luxury

CRISIL Research's report on Opal Luxury Time Products

CRISIL Research has assigned a CRISIL SME IER fundamental grade of 'SME 4/5' to Opal Luxury Time Products (Opal). The grade indicates that the company's fundamentals are 'superior' relative to other SMEs in India. CRISIL Research has assigned a SME valuation grade of 3/5 (based on one-year fair value of Rs 115 per share), indicating that market price is 'aligned' with the fair value. The SME fundamental grade is not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument's future market price or its suitability for a particular investor. The assigned SME fundamental grade reflects Opal's strong position in the domestic premium wall clock market through its flagship OPAL brand and a pan-India distribution network. Opal markets a variety of clocks at various price points which enables it to cater to a broad spectrum of customers and withstand competition from foreign brands such as Seiko and Rhythm. Given Opal's brand positioning and product diversity, CRISIL Research believes that it is well placed to benefit from the 12-15 percent estimated growth in the organised wall clock market over FY11-16. The company is gradually making its presence felt in the economy segment too through the newly introduced Caliber brand. Opal's pan-India distribution network of nine distributors (catering to 207 dealers) and 35 direct dealers allow it a wide reach. In organised retail, it has around 88 shops-in-counters and is associated with big retail groups such as Shoppers Stop and Home Town (Pantaloon). The company aims to expand its distribution network by increasing dealer touch points to around 600 dealers and setting up additional shops-in-counters. Though Opal enjoys a strong position in the premium wall clock segment, CRISIL Research believes that consumer spending on premium wall clocks is highly discretionary and, hence, slowdown in spending may impact the demand for premium wall clocks. In the economy segment, the company is likely to face significant competition from other organised brands as well as from unorganised players. The grade has taken into account the high working capital cycle of around 200 days; it may lead to financial constraint and, thereby, hinder Opal's growth momentum. Further, the company's internal controls and MIS need to be strengthened as it grows its business. Financial outlook
CRISIL Research expects Opal's revenues to grow at a two-year CAGR of 23 percent to Rs 343 mn in FY15. Growth is expected to be driven by demand for premium wall clocks, augmentation of the company's reach and distribution and relatively strong position in the industry compared to other players. EBITDA margin is estimated to decline from 22.8 percent in FY13 to 19.4 percent in FY15 because of higher advertisement and marketing spend. Adjusted PAT is estimated to increase from Rs 32 mn in FY13 to Rs 39 mn in FY15 but EPS is expected to decline from Rs 13.6 to Rs 11.1 due to equity infusion through the initial public offering (IPO). Valuation
CRISIL Research has used the discounted cash flow (DCF) method to value Opal and arrived at a fair value of Rs 115 per share. This fair value implies P/E multiples of 11.5x FY14E and 10.4x FY15E EPS. The stock is currently trading at Rs 126, translating into a valuation grade of 3/5. Disclaimer: This SME Independent Equity Research Report (SME IER Report) has been sponsored by the National Stock Exchange of India Ltd. This SME IER Report is based on data publicly available or from sources considered reliable (together Data). CRISIL Ltd. (CRISIL) does not guarantee the accuracy, adequacy or completeness of the SME IER Report / Data and is not responsible for any errors or omissions or for the results obtained from the use of SME IER Report / Data. The Data / SME IER Report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this SME IER Report. Nothing in this SME IER Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscribers / users assume the entire risk of any use made of this Data / SME IER Report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this SME IER Report / Data. This SME IER Report / Data is for personal information of the authorised recipient in India only. The SME IER Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or published or copied in whole or in part, for any purpose.

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