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No safety valve here
Robust growth beats expectation
TTK prestige reported a stellar performance in Q2 FY11. The top line of
INR1999mn grew by an astounding 43.4% YoY, 38% QoQ, beating
our estimates by 27%. The company posted life time high quarter
revenues led by the expansion in product range, introducing wide
variety of electrical appliances and kitchenware products.
The EBITDA of INR327mn grew by 52% YoY led by an improving
margin bracket which gained 90bps YoY, 60bps QoQ. Although raw
material costs have escalated by over 350bps as a % of sales,
improving operating leverage has enabled the company to spike
margins.
Diversification holds the key
TTK has transformed itself from a mere pressure cooker company to an
entire kitchenware player, with consistent new product launches over
a period. TTK Prestige has outpaced the general industry growth by
about 10%. Subsequently, we have upgraded our EPS estimates for
FY11E and FY12E to INR68.7 and INR86.1 respectively. The company is
expanding the capacity in the pressure cooker and cookware segment
to pay heed to the rising demand. The capex of INR900mn over the
next 18 months will be funded internally.
Overvalued vis-à-vis peers
At the current market price, TTK Prestige trades 20.2x and 16.1x its
FY11E and FY12E earnings respectively. While the company’s asset
light model allows it to command ~35% ROE, it currently trades at a
significant premium to its 3 year average, one year forward earnings
multiple of about 12x. Peers like Whirpool and Bajaj Electricals also
command similar ROEs trading at 13-15 times one year forward
consensus earnings. We assign a target multiple of 16x on FY12E
earnings on account of its above industry growth estimates, zero debt
position, consistently high ROEs and FCF position. Subsequently, we
derive a price target of INR1,377 per share.
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