Sluggish revenue growth mars performance • TTK Prestige :: ICICI Securities

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Sluggish revenue growth mars performance
• TTK Prestige’s (TTKP) Q3FY15 revenues increased only 3.9% YoY to
| 383.7 crore vs. our estimate of | 416.6 crore
• Lower revenue growth has resulted in negative operating leverage
while the operating margin declined 60 bps to 11.9% (I-direct
estimate: 12.8%). Consequently, EBITDA declined 1% YoY to | 45.5
crore (I-direct estimate: | 53.1 crore)
• PAT declined 4.8% to | 28.1 crore vs. our expectation of | 33 crore
Weak consumer sentiment, growth of e-tailing impacting revenue growth
FY14 had been a sluggish year for the company as revenues declined
4.8% while PAT de-grew 16.0%. TTKP’s H1FY15 performance was better
with revenues growing 10%. However, the anticipated pick-up in revenue
growth due to festive season did not happen in Q3FY15 owing to weak
consumer sentiment and impact of e-tailing. The management indicated
that brick and mortar stockists reduced their inventory levels from about
six weeks to about two weeks due to threat from online sales. Southern
markets contributed ~58% of revenues but the growth was impacted by
regional brands becoming more active in the appliance segment. At the
macro level, we expect easing inflation and faster reforms (by the new
government) to aid in improving consumer sentiments.
Enhanced product offering may aid in boosting revenues
TTK Prestige has continued to add new products and during Q3FY15
added products like air fryer, slow juicer, ThermoPro flask & bottle and
Prestige’s extensive range of stainless steel cookware with the alpha
induction base. Also, TTKP is looking to further strengthen its product
portfolio by adding new products in Q1FY16. The addition of several new
products would aid in improving revenue growth, going ahead.
Asset light retail expansion strategy to continue
Currently, TTKP has a retail network ~550 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. To push sales, the company adopts the strategy of bundling
related products together. This also aids revenue growth.
Revival of revenue growth critical for better performance; maintain BUY
Though TTKP’s Q3FY15 performance was disappointing, the
management has indicated at a pick-up in offtake from late December
onwards. The company expects the utilisation of its Vadodara plant to
improve as it plans to make more cookware products in-house and
replace the imports. We pin our hopes on a revival from H1FY16
onwards. The company’s recent product launches and new products
planned to be launched in early FY16 should enable TTKP to achieve an
improved revenue growth. We believe the company should benefit from
the revival in the economy considering its strong brand recall, retail
expansion plans and new product launches. We have reduced our
earning estimates for FY16E and FY17E by ~ 15% to factor in lower
revenue growth. We have also reduced the valuation multiple from 28x to
26x FY17E earnings with a revised target price of | 4140.

LINK
http://content.icicidirect.com/mailimages/IDirect_TTKPrestige_Q3FY15.pdf