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TTK Prestige Ltd
Moving full steam ahead!
We recently met the management of TTK Prestige (TTKPT). The company,
besides being one of the largest manufacturers of pressure cookers in India, has
diversified into the faster growing market of kitchen appliances. TTKPT sees its
growth coming from a shift in consumer preference from the unorganised to the
organised segment. The management has guided for a 25–30% CAGR in sales
and earnings over the next 2–3 years, with margins likely to be sustained at
current levels. At the current valuations (based on the management guidance),
the stock is trading at a P/E of 23.2x/18.6x its FY11/FY12 earnings.
Pressure cooker remains the cash cow: TTKPT is the leader in India’s pressure
cooker market (60% of which is organised, 40% unorganised), which is growing
at 10-15% per annum. The company, however, is growing ahead-of-the-market
at 20% per annum, primarily driven by a shift in consumer preference from the
unorganised to the organised segment. TTKPT generates a healthy 20% operating
margin from the segment which it expects to sustain over the medium term.
Growth driven by kitchen appliances: While India’s kitchen appliances market
has seen a strong 30–35% growth over the past two years, TTKPT has
outperformed with a 50% growth in the segment. The company follows a
strategy to push sales from this segment as it is currently underpenetrated with
operating margins at 10–12%. TTKPT plans to add some table wear, dinner set
and cutlery items to its current kitchen appliances portfolio, going ahead.
Capex of Rs 1.5bn planned over next 18 months: TTKPT is currently running at
near full capacity for its pressure cooker segment and has planned a capex of
Rs 1.5bn over the next 18 months. The company plans to fund this expansion
through internal accruals and may take a short-term bridge loan of
Rs 200mn–300mn.
Strong growth outlook, stock has re-rated over the past one year: TTKPT has
clocked revenues/PAT of Rs 5bn/Rs 486mn in FY10 and of Rs 3.5bn/Rs 378mn in
H1FY11. For FY11, the management’s revenue guidance stands at Rs 6.5bn–7bn
and PAT guidance at Rs 750mn–800mn. The management also expects a strong
growth of 25–30% in its FY12 revenues and PAT, with margins likely to be
maintained at current levels. Based on management guidance, the stock is
trading at 23.2x and 18.6x its FY11 and FY12 earnings and looks fairly valued at
current levels after the significant re-rating over the past one year. We do not
have a rating on the stock.
Management meeting takeaways
Leading player in the Indian pressure cooker market
TTKPT remains the leader in the Rs 11bn–12bn Indian pressure cooker market (which is
60% organised, 40% unorganised). TTKPT and Hawkins virtually command the
organised segment with a combined share of more than 70%. While the growth in the
pressure cooker market is in the range of 10–15% per annum, TTKPT and Hawkins have
been outperforming the market with a strong 20% growth, mainly on account of a shift
in consumer preferences from the unorganised to the organised segment. The
incremental growth in the organised segment is largely on account of these changing
preferences; a decade back, the unorganised market contributed equally to the industry
revenues for pressure cookers. TTKPT also remains the market leader in terms of price
increases taken in the cooker segment, with the market then following the same.
Coverage presence across 80–85% of the total retail chain selling pressure cookers
As a dominant player in the Indian pressure cooker market, TTKPT has a presence across
80-85% of the retail outlets selling pressure cookers pan-India. Although the company
was reaching the same percentage of retailers a decade back, growth is now being led
by increase in retail outlets and higher same-store sales through product diversification.
Over the past decade, TTKPT has transformed from single-product player to a
multi-product company specialising in kitchen solutions.
Traditional sales still account for ~50% of the total company sales. TTKPT has 65% of its
sales coming from south India, down from 70% a decade back. Growth for the company
is higher in north India as it steps up its reach and introduces more products in this
market. The company targets to cater to towns with a population of more than 50,000
people. Since most rural consumers travel to semi-urban areas to make their purchases,
the growth in these regions is higher than in urban areas. The company has a 10% share
in India’s northern markets.
Capex plan of Rs 1.5bn to increase pressure cooker capacities
While the entire manufacturing of cookers is done in-house at the Coimbatore plant,
other products such as non-stick cookware and electrical appliances are manufactured
in-house as well as sourced from China. Most of the electrical appliances are fully
sourced either from India or China as the margins in these businesses are lower at
10–12% and the cost of manufacturing remains high. The company manufactures 65%
of its total products in-house, whereas 35% of its products are contracted.
TTKPT has planned a capex of Rs 1.5bn over the next 18 months to increase its capacity
in the cooker segment. The company is likely to meet all its capex requirements through
internal accruals. With cash balance at ~ Rs 400mn as on March ’10, TTKPT will be
required to take only a short-term bridge loan of Rs 200mn-300mn to fund the balance
requirement. The capex is unlikely to increase any debt/ lead to any dilution for raising
funds—a key positive, in our view.
Appliances market to be the growth driver
The Indian appliances market is growing fast at 30–35% per annum, driven by product
innovation and increased penetration. The appliances segment remains the fastest
growing segment for TTKPT, with the company seeing a growth of >40% in the segment.
The Indian appliances market is fragmented with many organised and unorganised
players dominating some niche category. Significant players in the segment are
Maharaja, Bajaj Electrical, Kanchan Appliances, and Preeti. TTKPT is largely present in
all categories of the kitchen appliances segment, except for table wear and cutlery, into
which it is likely to foray over the medium term. The margins in this segment are in the
range of 10–12% and most of the products are sourced either from China (50% value,
70% volume) or India as manufacturing costs remain very high. The company, however,
does not intend to enter any of the white goods categories which are dominated by
MNCs.
Bengaluru land to unlock value
TTKPT has shifted its factory from Bengaluru to Coimbatore, which has freed-up
800,000sq ft of land that TTKPT is now developing. The company’s share of land would
be 340,000sqft, which would result in a one-time income of Rs 1bn on residential
property sale and a recurring income of Rs 70mn per year as rental income.
‘Prestige Smart Kitchen’ to increase store count to 500 by FY12
TTKPT operates ‘Prestige Smart Kitchen’ outlets through the franchisee route, with the
current store count at 270 stores. TTKPT plans to increase this number to 300 by
March ’11 and to 500 by March 12.
Strong growth outlook, stock has re-rated over the past one year: TTKPT has clocked
revenues/PAT of Rs 5bn/Rs 486mn in FY10 and of Rs 3.5bn/Rs 378mn in H1FY11. For
FY11, the management’s revenue guidance stands at Rs 6.5bn–7bn and PAT guidance at
Rs 750mn–800mn. The management also expects a strong growth of 25–30% in its
FY12 revenues and PAT, with margins likely to be maintained at current levels. Based
on management guidance, the stock is trading at 23.2x and 18.6x its FY11 and FY12
earnings and looks fairly valued at current levels after the significant re-rating over the
past one year. We do not have a rating on the stock.
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