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TTK Prestige Ltd>
  • CMP : 600.0 Chg : -2.10 (-0.35%)
  • Target : 980.0 (27.27%)
  • Target Period : 12-18 Month

02 Feb 2023

Launching new products to combat competition

About The Stock

TTK Prestige is India’s leading player in kitchen solutions and has been successful in transforming itself from a company manufacturing pressure cookers to having an entire gamut of home and kitchen appliances.

  • It continues to be a market leader in the cooker segment and has material share in other appliance and cookware categories
  • The company, over the years, has maintained its balance sheet strength with strong cash reserves (~₹ 400+ crore) and healthy RoIC of 35%+
Q3FY23 Results:

TTK’s revenue, earnings for Q3FY23 were below our estimates as the company reported a disappointing performance owing to enhanced competition.

  • Revenues declined 9% YoY to ₹ 652 crore. On a three year CAGR basis, revenue growth was at a steady 6%
  • Gross margin improved QoQ by 62 bps to 40.4% (down 204 bps YoY; I-direct estimate: 39.8%). However, on account of higher than anticipated employee and other expenses, EBITDA margin declined to 11.9% (down 560 bps YoY, down 286 bps QoQ)
  • Lower revenues and decline in EBITDA margin led to PAT de-growth of 35% YoY to ₹ 58 crore (I-direct estimate :₹ 91 crore)
What should Investors do?

TTK’s share price has grown by 1.3x in the past three years. We believe the recent stock price correction (~24% from October 2022) offers a good entry point as it is currently trading at reasonable valuations (33x, 28x EPS of FY24E, FY25E, respectively).

  • The company’s ability to generate strong free cash flows and healthy RoIC, compel us to maintain BUY rating on the stock
Target Price and Valuation

We value TTK at ₹ 980 i.e. 35x FY25E EPS.

Key Triggers for future price performance
  • In order to cater to strong domestic and export demand, TTK has added annual capacity of 4 mn pieces non-stick cookware in Gujarat factory
  • TTK is further looking to enhance its distribution reach in tier-II/III cites to capture long term growth opportunities. It has a healthy pipeline of ~47 SKUs to be launched in Q4FY23, which would propel growth, going forward
  • Targeting to achieve ₹ 5000 crore by FY26 through organic and inorganic route (₹ 1000 crore). We build in revenue CAGR of 10% over FY22-25E
Alternate Stock Idea:

Apart from TTK, we also like Bata India.

  • Bata India has a strong b/s, diversified branded product portfolio and pan-India network, which would enable sustained long term profitable growth
  • BUY with a target price of ₹ 2065

Key Financial Summary

Particulars FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E FY25E 3 year CAGR (FY22-25E)
Net Sales 2,073.0 2,186.9 2,722.5 9.3 2,857.0 3,198.2 3,576.9 9.5
EBITDA 263.5 327.3 425.9 15.0 371.4 459.7 538.0 8.1
PAT 184.5 242.9 305.4 15.0 265.2 329.0 388.2 8.3
EPS (|) 13.3 17.5 22.0 - 19.1 23.7 28.0 -
P/E (x) 57.9 44.0 35.0 - 40.3 32.5 27.5 -
EV/Sales (x) 5.1 4.8 3.8 - 3.6 3.2 2.9 -
EV/EBITDA (x) 40.4 32.3 24.2 - 27.9 22.4 19.0 -
RoCE (%) 17.1 18.6 21.6 - 16.6 18.9 20.0 -
RoE (%) 14.1 16.1 17.7 - 13.9 15.5 16.4 -
Source: Company, ICICI Direct Research

Key points and conference call takeaways

  • Revenue declined 9% YoY to | 652 crore (I-direct estimate: | 815 crore). On a three year CAGR basis, revenue growth was at 6%. Among categories, on a three year CAGR basis, cooker grew at the fastest rate by 9% (-10% YoY), followed by cookware, which grew 8% (-14% YoY) and appliances segment by 4% (-7% YoY). During the quarter, all channels were active but the general trade confidence was low and there was severe discounting at the lower priced products by competition and online channels. Revenue growth was negatively impacted owing to the company’s policy not to offer huge price discounts (as offered by competition) and also due to delay in execution of some marketing plans
  • Domestic sales were down 8% YoY at | 637 crore while exports de-grew 37% YoY to | 15 crore
  • The management indicated that inflation pressure was felt the most on entry-level priced categories and lower on mid to premium ranged products. The company introduced 27 new SKUs across categories during Q3FY23 (9MFY23: 68 SKUs)
  • The company has not taken any price hikes during the quarter. Gross margins improved 62 bps QoQ to 40.4% (Q3FY22: 42.4%; I-direct estimate: 42%). However, on account of higher than anticipated other expenses, EBITDA margins declined 560 bps YoY to 11.9% (down 286 bps QoQ) vs I-direct estimate: 15.5%. Absolute EBITDA de-grew 38% YoY to | 78 crore (I-direct estimate: | 126 crore)
  • The management indicated that commodity prices softened. However, the positive impact of the same would be visible from Q4FY23. The company expects to maintain EBITDA margins in the range of 14-16% through improvement in efficiencies

We expect the growth trajectory to improve in Q1FY24 driven by planned launch of new product SKUs. Driven by new product launches, consistent efforts to enhance market penetration, we expect TTK to deliver 10% revenue CAGR in FY22-25E.

Q3FY23 conference call highlights:

  • On the demand front, the management highlighted that inflation had impacted the purchasing power of the lower middle class and the demand was tepid during the quarter. Further, the management indicated that the sales of gas stoves was not growing at the earlier pace as it was now a mature category. The company has launched ‘Svachh’ range of gas stoves at the upper price band to stimulate growth for the gas stove segment
  • Gross margins of the company contracted during Q3FY23 on a YoY basis by 204 bps to 40.4%. The management indicated that it is targeting a gross margin of ~ 42% once the demand and competitive scenario stabilises
  • The company has not taken any price hike in FY23 till date and is not planning to take any price hike in the near future barring unforeseen circumstances
  • On the competition front, the management said predatory discounting continued by online channels and smaller players and the company decided not to offer heavy discounts to maintain the long term brand value of its products. To combat the excessive discounting by peers the company is planning to launch new products at lower price points and could probably use its ‘Judge’ brand for the same
  • The company had recently acquired a stake in Ultra Fresh, which is mainly into manufacturing and selling modular kitchens business. It achieved sales of | 7 crore in Q3FY23 and | 18 crore in 9MFY23. Ultrafresh added 52 studios in 9MFY23 (including 15 in Q3FY23) totalling 134 active studios as of December 31, 2022. The average ticket size for Ultra Fresh is currently between | 150000 and | 200000. Ultra Fresh has a presence in east and north India. The company is planning to scale up its presence in south and western India. The management indicated that the Prestige Smart Kitchen stores and Ultra fresh studios could be utilised for cross selling the products. Ultrafresh operates in a high growth category but the company wants to tread carefully as the segment is highly customer satisfaction centric
  • TTK’s international subsidiary Horwood achieved sales of £4.5 million during Q3FY23 (previous year £4.6 million) and £11.4 million in 9MFY23 (previous year £13.9 million). The management highlighted that in spite of recession and steep inflation due to the ongoing geopolitical crisis in UK and Europe coupled with UK’s own political issues Horwood has been able to maintain its revenues on a YoY basis in Q3FY23. Operating EBITDA for Q3FY23 was at £0.28 million (previous year £0.37 million) and for 9MFY23 at £(0.02) million (previous year £1.5 million). The drop in EBITDA was caused by an increase in key commodity prices, global supply chain issues and reduced operating leverage due to lower sales
  • TTK expects to maintain the share of online channel in the range of 14-18%
  • Prestige Xclusive chain strength was at 672 stores in 371 towns contributing significantly to total sales
  • The company has slated for launch around 47 new SKUs during Q4FY23. Also, TTK is planning to launch premium hobs, chimneys, etc. TTK intends to pursue an aggressive retail strategy and is expected to open large company owned stores in certain cities

Disclaimer

ANALYST CERTIFICATION

I/We, Bharat Chhoda, MBA, Cheragh Sidhwa, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s... 

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