Buy TTK Prestige, Target : | 5250 :: ICICI Securities, PDF link

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Product launches, demand revival to aid revenue growth
• TTK Prestige’s (TTKP) Q2FY15 revenues increased 10.5% YoY to
| 382 crore vs. our estimate of | 397.3 crore
• Higher other expenses owing to increased overheads of two new
factories led to a 76 bps dip in operating margin to 12.1% (I-direct
estimate: 14.8%). Consequently, EBITDA growth remained
constrained at 4% YoY while EBITDA stood at | 46.2 crore (I-direct
estimate: | 58.6 crore)
• PAT declined 7.7% to | 28 crore vs. our expectation of | 36.5 crore
Improvement in southern markets to boost revenue growth
FY14 had been a sluggish year for the company as revenues declined
4.8% while PAT de-grew 16.0%. The TTKP management indicated that
consumer sentiment was gradually improving and all product categories,
except for rice cookers, registered positive growth for Q2FY15 while
growth in the southern markets was better than non-south markets. The
management has guided for revenue growth of 15-20% in FY15 on the
back of an expected improvement in the situation in southern India (both
power situation in Tamil Nadu as well as political unrest in Andhra
Pradesh) and improvement in the overall economic environment. Also,
the management expects that with increasing penetration in non-south
markets, growth would bounce back. At the macro level, we expect
easing inflation and faster reforms (by the new government) to aid in
improving consumer sentiments.
New products to enhance product offering
The company is planning to add several new products that would add to
revenue growth, going ahead. We expect an improved performance from
Q4FY15 as the company’s new products gain traction. With revenue
growth expected to revive, we expect the EBITDA margin to also improve
and remain in the range of 13-14% in FY16E and FY17E.
Asset light retail expansion strategy to benefit over long term
Currently, TTKP has a retail network of 546 stores. The company plans to
scale up the same to 1,000 stores by FY18E. Considering this addition will
be on a franchisee model there will no stress on TTKP’s financials. On the
contrary, we remain hopeful of a revival in revenues owing to this retail
expansion. In order to push sales, the company adopts the strategy of
bundling related products together. This also aids revenue growth.
Demand revival to improve financial performance; Maintain BUY
A key positive of Q2FY15 was that majority product categories registered
positive growth. We pin our hopes on a revival from H2FY15 onwards,
which will help the company to achieve the stated target. We believe
TTKP is well poised to capitalise on the revival in the economy
considering its retail expansion plans and continued product launches.
Organic growth (if it comes through) may be an added positive. If not, the
incremental cashflows could be utilised towards increasing dividend
payments. We maintain BUY on TTK Prestige with a revised target price
of | 5250 (based on 28x FY17E EPS).

LINK
http://content.icicidirect.com/mailimages/IDirect_TTKPrestige_Q2FY15.pdf