Investment Focus: Some steam left in TTK Prestige :: Business Line

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Amid the slowdown, the company’s sales have grown at a compounded annual rate of 35 per cent over the last five years. Net profits have risen at the rate of 50 per cent. Return on capital employed stands at 58 per cent, top in class. We are talking about TTK Prestige — the largest pressure cooker maker in the country’s organised market. The falling trend in inflation may bolster sales of small-ticket appliances such as cookers and cookware. The improving reach of the brand in markets outside the South, growing export revenue and the planned entry into the water-filter market this year also bode well for revenue growth. The company’s stock trades at Rs 3,114, down from an all-time high of Rs 3,996 last year on broader market correction.

The stock discounts its estimated FY14 earnings 22 times, which is at the lower end of the stock’s price-earning band. Earlier this month, the company’s promoters sold a part of their holding to a private equity investor at Rs 3,550 a share. A fresh issue of shares will be made to the same investor by next month, raising Rs 160 crore to fund acquisitions.

In FY13 even as India Inc struggled, TTK Prestige recorded 23 per cent growth in sales and a 17 per cent rise in net profits. Revenue from sale of cookers increased 24 per cent and that from appliances rose 28 per cent. The company sold 5 million pressure cookers and one million induction cook tops. Net profit growth was buttressed also by an average 5 per cent increase in product prices. The company held on to operating profit margins for FY13 at 15.5 per cent, not much changed from the previous year, after improving it from 10 per cent levels four years ago.

From here, the launch of new products plus the efforts to widen distribution through more company-owned retail outlets in non-South markets are to help boot sales.

The leadership position in the kitchen appliances space lets the company pass on increases in cost to the market. However, cost pressures seem to be abating with the bearish outlook for aluminium- a key input for the company, with slowdown signs in China. In the London Metal Exchange, aluminium prices have fallen three per cent in the last one year to $1845/tonne. The decline so far is offset by the rupee’s weakness. But the company has pricing power to pass on the marginal net cost increases.

Moreover, the company’s dependence on traded cookware products has been coming down with revenues from imported products at 25 per cent in FY13, dropping from 33 per cent in the past year. Over the next few years, import reliance is likely to come down further as production at the company’s new unit in Gujarat also stabilises. The Gujarat unit, which has a capacity to manufacture six million units of cookware, will increase its cookware production capacity by 50 per cent. The unit is likely to commence production by August.