A Pricy Kitchen King
TTK Prestige (TTKP) has transformed itself from a single product company
to a “total kitchen appliances company” in the last five years. It is the market
leader in pressure cookers and also commands numero uno position in
induction cook‐tops with a market share of 20%.
Distributor Survey Reveals Deceleration of Sales Growth: Our distributor
survey across India has revealed that the volume growth in Pressure Cookers
& Non‐Stick Cookware has decelerated to single digits and volume growth in
KEA – including Induction Cook‐tops – has decreased to mid‐teens.
Competitive Advantage in Pressure Cookers may not be extended to KEA:
We believe TTKP may not be able to enjoy similar competitive advantage in
KEA segment as it enjoys in Pressure Cookers where it is the leader with 40%
market share. TTKP enjoys market share of 20% in Induction Cook‐tops and
high‐single digits in rest of the KEA products. TTKP outsources most of its
KEAs. Moreover, the organized pressure cooker market is closer to duopoly
whereas KEA segment markets represent oligopolies. TTKP generates an
EBITDA margin of ~19% on in‐house manufacturing and ~12% on
outsourced products. We believe the company’s margin will reduce as KEA
outgrows rest of the segments.
Returns Ratios to Decline Going Forward: TTKP has generated near 50%
ROE in the last three years due to higher asset turnovers and increased EBIT
Margin. We believe the ROE will decelerate to near 30% in FY16E due to
decreased EBIT Margin and lower asset turnovers as the company has been
investing in capital expenditure. We believe that TTKP’s capacity utilization
will peak by FY14E. In order to drive sales further the Company has to hike
in‐house capacity or rely on outsourcing after FY14E. Both the options will
adversely impact TTKP’s cash flows and return ratios from FY15E onwards.
Outlook & Valuation
Revenue and net income of TTKP grew by 31% and 57% CAGR, respectively
in FY07‐12 period. We believe that TTKP’s top‐ and bottom‐lines to maintain
25% CAGR in FY12‐14E period. At CMP of Rs. 3,787, the stock trades at 31.1x
and 24.4x of FY13E and FY14E EPS, respectively. We believe the stock is
expensive at current levels amid slower growth and expected lower return
ratios. We initiate coverage on TTKP with “SELL” recommendation and a
target price of Rs. 3,173 per share, having 16% downside potential
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