TTK Prestige - In Full Steam

A trusted name in cookware, TTK Prestige is on a roll, expanding its product range to consolidate and expand its position as a market leader. With all the factors playing in its favour, the company seems set to grow and continue to provide healthy returns ahead, says Vidrum Mehta.

Key Points

• With more than 250 products and around 356 exclusive retail outlets, TTK is among the leading players in kitchen appliances.
• For FY12, its net sales increased by 45 per cent to Rs 1103 crore, while the net profit was up 35 per cent to Rs 113 crore. According to the guidance provided by the management, it is expected to see a CAGR of 25 per cent for the five-year period beginning April 2011. In the first year itself, it has posted a growth of 45 per cent.
• Constant innovation, a strong brand recall among customers, ambitious capex plans and fair valuations are some of the other factors that will help the company to cater to the ever-growing demand for kitchenware.

TTK Prestige has been making it to the headlines very often in the recent past thanks to the wild swings in its share price. In CY2012, TTK’s stock price first appreciated by a humungous 43 per cent, hitting a 52-week high of Rs 3655, only to come down rapidly from there. Over the past one month alone, it has come off its high, declining by as much as 17 per cent. Despite the fall, the stock currently trades at Rs 3021, which translates into a PE multiple of around 30x. So, what should investors do with this stock in the current circumstances? Should one buy or add to what one has at the current levels? Or should one wait until the price corrects further, or just avoid the counter?

This is not the first time that we are touching upon TTK Prestige. We had earlier recommended the stock in July 2011, when it was trading at Rs 2740. Investors who purchased the stock at that time would certainly recall that it continues to trade above the price at which we had recommended it. Here is a second look at a company, which we believe is poised to deliver good returns to investors given the way things are shaping up for it.

Background

With more than 250 products, TTK is among the leading players in kitchen appliances. The company has around 356 exclusive retail outlets spread across 21 states and 179 towns that operate under the name and style of ‘Prestige Smart Kitchen’. Its business is broadly divided into three segments, including pressure cookers, non-stick cookware and kitchen appliances. Of the total revenue, 37 per cent comes from the pressure cooker segment, around 20 per cent from the non-stick cookware segment, 40 per cent from the kitchen appliances segment and the rest comes from others.

Where It Stands

The houseware industry in India is spread between the organised as well as unorganised players. While 60 per cent of the market is with the organised players, the balance is serviced by the unorganised players. With strong brand recall and a growing demand, the organised players are poised to grow well going ahead. TTK enjoys a leadership position among the present players in this market, with a 40 per cent market share in the pressure cooker and the non-stick cookware
category. Of its peers, Hawkins is a major competitor, with the secondbest market share of around 36 per cent. TTK’s share in the kitchen appliances market is steadily evolving, and it currently stands at around five to six per cent.

Benefitting From Innovation

Traditionally, TTK was a pressure cooker manufacturer. However, with a continuous thrust on research and development, it has innovated well to venture into the kitchen appliances segment. A very good example of how innovation has helped a company grow over a period of time can be seen from the way that TTK has progressed in the kitchen appliances category. It forayed into this category way back in 2001, and today, the segment contributes to nearly 40 per cent of its revenues. Speaking of product innovation and new launches, the Induction Cook-Top, which was launched by the company in 2009-10, sold 90000 units then. In 2011-12, the same product has sold almost 10x more (930000 units) than what it did at that time. This not only proves the company’s ability to brainstorm and come up with new products, but also suggests the high level of acceptability that it enjoys among consumers.

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Organic Growth

Financial Performance

On the financial front, the company has performed extremely well. For FY12, its net sales increased by 45 per cent to Rs 1103 crore, while the net profit was up 35 per cent to Rs 113 crore. According to the guidance provided by the management, it is expected to see a CAGR of 25 per cent for the five-year period beginning April 2011. In the first year itself, it has posted a growth of 45 per cent, and hence, we are optimistic that the company would achieve its target going ahead. For FY13, even on a conservative basis, we expect the company’s topline to grow at least by 27 per cent to Rs 1400 crore, while the net profit would be in the range of  Rs 135-150 crore.

Consistency In Margins

A notable fact about TTK is the consistency of its margins. The company has maintained its net profit margin at more than 10 per cent over the past three years. Its EBIDTA margin keeps fluctuating, primarily due to changes in raw material prices. Steel and aluminum are the key raw materials for the company, and any significant price volatility in these base metals surely impacts it. Also, the company imports 38 per cent of its total raw material requirement, while the remaining is sourced from the domestic markets. Therefore, currency fluctuation also affects it to some extent. So, how does the company tackle cost pressures arising out of these factors?

Brand Value, Room For Higher Prices

As already stated, TTK enjoys a strong brand recall with a high level of acceptability among its consumers. This helps it to pass on any product price rise further on to its customers. For instance, in April 2012, the com-pany increased the prices of its pressure cookers and non-stick cookware by around eight per cent. Earlier, in January 2012, it had hiked the price of its products in the kitchen appliances segment by around four per cent. According to the management, hiking the product prices has not affected the demand for its products till now, and the same trend would probably continue going ahead too. The fact that it has kept up its sales volumes exemplifies this well.

Spending To Build, Building To Grow

TTK has chalked out some very ambitious and forward-looking capex plans for itself. Going ahead, the company intends to reduce its dependence on imports. It has earmarked Rs 110 crore in capex for FY13, most of which will be spent on its Gujarat plant that is expected to be completed by November 2012. This would multiply the production capacity for non-stick cookware by five to six times. The company recently commissioned two new factories at Roorkee and Coimbatore, which have actually doubled its production capacity for pressure cookers. The consumption of these products is continually rising, and the company is all set to meet the increased demand over the next five to six years, when these new factories will operate at full capacity.

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Diversifying Revenue Streams

Realty

The company has shifted its factory away from Bengaluru, which released around 280000 square feet of surplus land at its disposal. It has decided to develop this land rather than sell it outright. In fact, the process of land development has already started, and the management expects that it would be completed and start generating revenue for the company from the end of FY14. The project is divided into residential and commercial properties in the ratio of 1:2. The management has decided to sell all the residential flats, which would fetch it approximately Rs 120 crore, while the commercial plot would be given out on lease, generating a cash flow of around Rs 24 crore a year.

Associating Abroad

TTK has also entered into joint ventures with some foreign players, which will further its growth. The company has entered into an agreement with World Kitchen, a US-based company that has international brands like Corelle, Corningware, Pyrex, Vision and Snapware. The initial agreement is for the distribution of World Kitchen’s products in India. The sale from these would begin accruing from the June 2012 quarter. However, the full-fledged impact would probably be felt only from the second quarter of FY13. The company has also collaborated with the Vestergaard Frandson Group of Switzerland, which will help it to enter the domestic water filter segment. Going ahead, the revenue from these joint ventures would add to its topline and the bottomline.

Fair Valuations

At the current market price of Rs 3021, TTK Prestige is available at a price-to-earnings multiple of around 24x its FY13 expected earnings, which should be considered as a fair valuation for a company of its kind. In sum, all these factors clearly point towards a future that can only spell a good returns for those who enter the stock at its current price. We recommend buying the stock at its current price and holding it for at least a one year period to garner.