ttkprest_20140919

September 19, 2014

ICICI Securities Ltd | Retail Equity Research

Company Update

Hopes pinned on revival in demand After growing revenues and PAT at a CAGR of 30% and 50% (FY07-

13), TTK Prestige (TTKP) witnessed a weak FY14 owing to varied factors. While revenues dipped 4.8%, PAT declined 16.0% YoY due to pressure on margins

As concerns start to ease both at the micro as well as macro level, we change our stance on TTKP and upgrade it to BUY as we believe that consumption oriented companies with sound fundamentals and steady growth will continue to demand premium multiples

Hopes of revival led by multiple factors FY14 has been a sluggish year for the company. We expect better times to unfold, going forward. Firstly, concerns relating to south India are easing and, secondly, there is a change in consumer sentiments. While both factors will take time to unfold, we remain hopeful of early signs being visible by H2FY15. The management is confident of achieving the guided 25% revenue growth. We expect revenues to increase at a CAGR of 18.6% (FY14-17E) on the back of a revival in demand, new product launches and planned retail expansion. New products to boost revival The company launched water purifiers during Q1FY15 and is also planning to add ~40 new products that would add to the revenue growth, going ahead. We expect an improved performance in H2FY15 as the companys new products are expected to be launched by H1FY15. With revenue growth expected to revive, we expect the EBITDA margin to also improve and remain in the range of 13-15%, going forward. Retail expansion + improving macroeconomic environment = Recovery Currently, TTKP has a retail network of 546 stores and plans to scale up the same to 1,000 stores by FY18E. Considering that this addition will be on a franchisee model there will no stress on TTKPs 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 in revenue growth. The key factors that we believe would aid the revival are a good monsoon, an overall improvement in consumer sentiment, an improved situation in the southern markets and success of new launches. Marginal revision in FY15E, FY16E; introduce FY17E EPS of | 189.1 We have marginally revised the operating margin estimates for FY15 and FY16 owing to a pick-up in demand. We, hereby, introduce our FY17 estimates building in 16.9% YoY revenue growth to | 2,158 crore. We expect the operating margin to improve to 14.6% by FY17E (12.5% in FY14), translating to a PAT of | 220.4 crore and EPS of | 189.1. Improving outlook calls for upgrade; recommend BUY After a sluggish FY14, the companys performance showed some green shoots in Q1FY15. We believe TTKP is well poised to capitalise on the revival in the economy considering its retail expansion plans and continued product launches. The improvement in consumer sentiment and the likely revival on the back of improved economic parameters will further aid growth. An inorganic growth, if any, may be an added positive. We expect companies with consistent growth and healthy fundamentals to continue to command a premium. We, thereby, upgrade TTK Prestige to BUY with a revised target price of | 5,300 (based on 28.0x FY17E EPS of | 189.1).

TTK Prestige (TTKPRE) | 4447 Rating matrix Rating : BuyTarget : | 5300

Target Period : 12 monthsPotential Upside : 19%

Whats changed? Target Changed from | 3170 to | 5300

EPS FY15E Changed from | 117.5 to | 123.0EPS FY16E Changed from | 150.9 to | 157.5

EPS FY17E Introduced at | 189.1Rating Changed from Hold to Buy

Key financials | Crore FY14 FY15E FY16E FY17E

Net Sales 1,294 1,579 1,846 2,158

EBITDA 160 218 264 313 Net Profit 112 143 184 220

EPS (|) 95.9 123.0 157.5 189.1 Valuation summary

FY14 FY15E FY16E FY17E

P/E 46.4 36.2 28.2 23.5

Target P/E 55.3 43.1 33.6 28.0

EV to EBITDA 32.3 23.5 19.2 15.9

Price to book 8.9 7.6 6.5 5.5

RONW (%) 19.1 21.1 23.0 23.4

ROCE (%) 23.8 28.1 29.5 30.0 Stock data Particular Amount

Market Capitalisation (| Crore) 5,176.4 Debt (FY14) (| Crore) 115.1

Cash (FY14) (| Crore) 32.6 EV (| Crore) 5,258.9

52 week H/L 4832 / 2693 Equity Capital (| Crore) 11.7

Face Value 10 Price performance

1M 3M 6M 12M

TTK Prestige 14.1 21.4 65.5 23.5

Butterfly Gandhimathi 4.9 -6.8 -0.5 -6.1

Hawkins Cookers 7.3 25.5 85.3 103.0 Analyst

Bharat Chhoda [email protected]

Dhvani Modi [email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Change in estimates FY17E

(| Crore) Old New % Change Old New % Change Introduced CommentsRevenue 1,568.3 1,570.6 0.1 1,800.7 1,837.6 2.0 2,148.3 We introduce FY17 estimates, building in 17% YoY growth in revenues

EBITDA 210.3 218.5 3.9 256.4 263.6 2.8 313.0EBITDA Margin (%) 13.4 13.9 50 bps 14.2 14.3 11 bps 14.6 FY15E, FY16E: We have marginally revised the operating margin estimates

considering the pick-up in demand and easing of concerns in the southernzone

PAT 136.9 143.3 4.7 175.9 183.6 4.4 220.4EPS (|) 117.5 123.0 4.7 150.9 157.5 4.4 189.1

FY15E FY16E

Source: Company, ICICIdirect.com Research Assumptions

Introduced CommentsFY13 FY14 FY15E FY16E FY17E FY15E FY16E

Segment Volumes (lakh pcs)

Pressure Cooker55.4 54.3 62.4 70.2 79.0 61.0 68.0 We have marginally raised volume estimates considering the pick-up

in demand

Cookware49.5 44.6 53.5 63.1 73.2 53.1 61.1 As the sale of bundled products increases, the sale of cookware is

likely to pick up

Induction Cooktops12.0 7.8 8.4 9.4 10.4 15.6 17.3 Considering the weak offtake, we have lowered our volume estimates

Avg Realisation (| per pc)

Pressure Cooker921.8 909.3 932.0 941.4 960.2 940.3 949.7 We have lowered the realisation estimates owing to the delay in price

hikes Cookware 494.5 506.9 537.3 564.2 586.8 519.5 545.4

Induction Cooktops1,897.4 1,840.5 1,932.5 2,048.5 2,171.4 2,032.1 2,154.1 Owing to lower demand, we do not expect prices to increase in the

induction cooktop segment

Current Earlier

Source: Company, ICICIdirect.com Research


Company Analysis Improving consumer sentiment to aid revenue CAGR of 18.6% (FY14-17E)

TTKPs revenues have grown strongly over FY09-13. During FY09-11, revenues grew at a CAGR of 38% while during FY11-13 revenue CAGR stood at 33%. This kind of growth is commendable considering the higher base. However, FY14 was a difficult year for the company owing to dampened consumer sentiments. Also, issues of power in Tamil Nadu, changed government regulations relating to the cap on cylinders and political issues in southern India further added to the woes. To counter the decline in southern markets, the company has increased its penetration in the non-south markets. TTKPs products have been well received in the non-southern markets. This is also likely to aid growth, going forward. Apart from the non-south markets, the improving consumer sentiment and easing tensions with regards to southern India (a) improved power situation in Tamil Nadu and (b) easing of political unrest in Andhra Pradesh, will further aid growth. The consumer sentiment, in general, is also on an uptrend and the impact of the same is likely to be visible, going forward. Furthermore, new product launches and the planned retail expansion lend further hopes of revival. We expect revenues to grow at 18.6% CAGR during FY14-17E to | 2,157.7 crore.

Exhibit 1: Revenue trend

281 326401

508

764

1,103

1,358 1,294

1,579

1,846

2,158

-

400

800

1,200

1,600

2,000

2,400

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

E

FY16

E

FY17

E

| cr

ore


Exhibit 2: Product mix trend

56 49 43 38 38 39 37 36 36

1618

2121 18 18 18 20 20

18 21 26 32 34 31 31 30 30

10 12 11 9 10 13 14 14 15

-

25

50

75

100

FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

%

Cookers Cookware Appliances Others



EBITDA margin to recover from lows of FY14 TTKPs EBITDA margin rose from 9.9% in FY09 to 16.5% in FY11 and EBITDA rose at a CAGR of 79% during the period. However, the EBITDA margin declined from its peak of 16.5% in FY11 to 15.1% in FY13, which led to the EBITDA increasing only at 27% CAGR over FY11-13 in spite of revenue increasing at a CAGR of 33% over the period. FY14 has been a disappointing year for TTKP both in terms of revenue as well as EBITDA margin. While revenues de-grew 5% in FY14, the EBITDA declined 21% owing to a 270 bps decline in EBITDA margin to 12.5%. We expect revenue growth to pick up from FY15 onwards. This would lead to positive operating leverage, enabling an improvement in EBITDA margin. We expect the EBITDA margin to improve to 13.9% in FY15E, 14.3% in FY16E and 14.6% in FY17E, which would enable EBITDA to grow at a CAGR of 25% over the period. Exhibit 3: EBITDA and EBITDA margin trend

9.410.1 9.9

15.3

16.515.6

15.1

12.5

13.9 14.314.6

6

9

12

15

18FY

07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

E

FY16

E

FY17

E

%


PAT margin, return ratios to improve from FY15 after weak FY14 PAT margin and return ratios saw a decline in FY14 owing to lower EBITDA generation. However, we expect the PAT margin and return ratios to improve over FY14-17E owing to a better operational performance compared to FY14. Driven by an improvement in PAT margin, we expect PAT to grow at a CAGR of 25.4% over FY14-17E to | 220.4 crore.

Exhibit 4: PAT and PAT margin trend

84 113 13

3

112

220

184

143

52222112

4.2

6.3 5.6

11.0 10.3 9.98.7

10.0 10.39.1

10.4

-

50

100

150

200

250

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

E

FY16

E

FY17

E

| cr

ore

-

5

10

15

%


Exhibit 5: Return ratios trend

26.4

42.2 43.7 39.733.7

19.1 21.1 23.023.4

34.0

58.1 62.5

45.338.1

23.828.1 29.5 30.030.0

21.425.0

18.7

0

13

26

39

52

65

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

E

FY16

E

FY17

E

%

Return on Equity Return on Capital Employed



Valuation The key to the strong financial performance of TTKP has been its ability to successfully transform from a company manufacturing pressure cookers to one of the countrys largest branded kitchen appliances company. It has built a strong brand patronage and offers customers a bouquet of products in the kitchen appliances and cooking segment.

Over the last six years, FY14 has been the first year when the company had registered a decline in earnings. The year 2014 has been a difficult one for consumption related companies owing to the dampened consumer sentiment, which has impacted revenue growth negatively. In TTKPs case, it has also been hampered by the power situation in Tamil Nadu, which has impacted the sales of its electric appliance and induction cook-tops, which had grown at a rapid pace in FY13. The management is strategically trying to broad base its products and markets to reduce the impact of the sluggishness in southern markets.

With improving consumer sentiments and easing of concerns relating to southern India, we expect the companys revenue and earnings growth to recover, going forward. Revenues and PAT are likely to grow at a CAGR of 18.6% and 25.4%, respectively, during FY14-17E. The non-south markets and new product launches would further bolster growth.

After a sluggish FY14, the companys performance showed some green shoots in Q1FY15. We believe TTKP is well poised to capitalise on the revival in the economy considering its retail expansion plans and continued product launches. The improvement in consumer sentiment and the likely revival on the back of improved economic parameters are expected to further aid growth. Organic growth, if any, may be an added positive. We expect companies with consistent growth and healthy fundamentals to continue to command a premium. We, thereby, upgrade TTK Prestige to BUY with a revised target price of | 5,300 (based on 28.0x FY17E EPS of | 189.1).

Exhibit 6: Price earning ratio trend

8.0x

12.0x

16.0x

20.0x

24.0x

-

1,000

2,000

3,000

4,000

Apr-1

0

Oct-1

0

Apr-1

1

Oct-1

1

Apr-1

2

Oct-1

2

Apr-1

3

Oct-1

3

Apr-1

4

|

Avg. Price 8.0x 12.0x 16.0x 20.0x 24.0x


Exhibit 7: Valuations

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE (| cr) (%) (|) (%) (x) (x) (%) (%)

FY14 1,286.5 (4.7) 95.9 (18.2) 46.4 32.3 19.1 23.8FY15E 1,570.6 22.1 123.0 28.2 36.2 23.5 21.1 28.1FY16E 1,837.6 17.0 157.5 28.1 28.2 19.2 23.0 29.5FY17E 2,148.3 16.9 189.1 20.0 23.5 15.9 23.4 30.0



Company snapshot

Target Price: 5300

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

5,000.00

5,500.00

Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15

Source: Bloomberg, Company, ICICIdirect.com Research

Key events Date EventJun-10 Launched new range of pressure cookers, induction base cookware, microwave pressure cookers, inner lid pressure cookers (Prestige Apple)Jan-11 Signed an MoU with Government of Gujarat for establishing a state-of-the-art facility for manufacture of pressure cookers and kitchenwareMar-11 Reported a 50% topline growth to | 760 crore & 60% YoY bottomline growth to | 88 croreJun-11 Successfully concluded a long term settlement covering all its workmen at the Hosur unitFeb-12 Entered into an agreement with US based World Kitchen to market and distribute its brands - Corelle, Corningware, Vision, Pyrex and SnapwareApr-12 Signed a business collaboration arrangement with Vestergaard Frandsen, Switzerland to enter the water purifying spaceMay-12 Entered into a JV with Schott, a German company to launch a range of products in the glass based induction cooktopsJan-13 Received Japan patent for the company's microwave pressure cookerJun-13 Sold 5.6% stake to Cartica Capital for | 230 croreJul-13 Launched a new mixer grinder (Teon mixer grinder) with stackable jars, which save store space and a lid lock to facilitate hands-free usageOct-13 Signed Abhishek Bachchan and Aishwarya Rai Bachchan as brand ambassadorsMar-14 Revenues dipped for the second consecutive quarter; falling 3.8% YoY in Q4FY14. This lead to a PAT de-grwoth of 6.5% YoY

Jun-14 After two sluggish quarters, revenues picked up in Q1FY15. TTKP reported a 9.8% YoY growth in revenues, while PAT remained flat owing to margin pressure


Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m)n Change (m)1 T T Krishnamachari & Company 31-Mar-14 60.03 7.0 0.02 Cartica Capital, Ltd. 30-Jun-14 7.30 0.9 0.03 Thornburg Investment Management, Inc. 30-Jun-14 3.92 0.5 0.14 Jagannathan (T T) 12-Sep-14 2.96 0.3 0.05 Venkatesh (T T) 30-Jun-14 2.52 0.3 0.06 Mukund (T T) 12-Sep-14 2.44 0.3 0.07 J.P. Morgan Asset Management (Hong Kong) Ltd. 30-Jun-14 2.41 0.3 0.08 Lakshman (T T) 3-Jun-13 2.28 0.3 0.39 Tiruvallur (Thatai Lakshman) 30-Jun-14 2.28 0.3 0.010 Nalanda India Equity Fund Ltd. 30-Jun-14 1.75 0.2 0.0

(in %) Jun-13 Sep-13 Dec-13 Mar-14 Jun-14Promoter 71.9 70.0 70.0 70.4 70.4FII 16.0 20.8 22.1 20.9 21.0DII 4.4 2.8 1.4 2.1 2.4Others 7.8 6.4 6.4 6.7 6.2

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value SharesThornburg Investment Management, Inc. 4.97m 0.08m Columbia Management Investment Advisers, LLC -5.09m -0.10m Axis Asset Management Company Limited 3.14m 0.05m SBI Funds Management Pvt. Ltd. -4.31m -0.08m Deutsche Asset Management (India) Private Ltd. 0.89m 0.01m DSP BlackRock Investment Managers Pvt. Ltd. -4.23m -0.07m Jagannathan (T T) 0.80m 0.01m Veritas Asset Management (UK) Ltd. -3.59m -0.06m Mellon Capital Management Corporation 0.08m 0.00m Goldman Sachs Asset Management International -2.26m -0.04m

Investor name Investor name

Source: Reuters, ICICIdirect.com Research


.

Financial summary Profit and loss statement | Crore (Year-end March) FY14 FY15E FY16E FY17ETotal operating Income 1,293.8 1,579.1 1,846.5 2,157.7Growth (%) -4.8 22.0 16.9 16.9Raw Material Expenses 732.3 875.3 1,028.0 1,189.5Employee Expenses 91.0 110.7 121.3 141.8Manufacturing Expenses 47.0 56.5 66.2 77.3Selling & Distribution Expenses 174.2 208.1 238.9 285.7Admin & Other Expenses 89.1 109.9 128.6 150.4Total Operating Expenditure 1,133.6 1,360.6 1,582.9 1,844.7EBITDA 160.2 218.5 263.6 313.0Growth (%) -21.4 36.4 20.6 18.7Depreciation 14.8 25.9 26.9 29.0Interest 8.5 3.1 3.0 2.7Other Income 7.9 11.1 23.1 27.0PBT 151.8 200.5 256.8 308.2Growth (%) -18.1 32.1 28.1 20.0Total Tax 40.0 57.1 73.2 87.8PAT 111.8 143.3 183.6 220.4Growth (%) -16.0 28.2 28.1 20.0EPS (|) 95.9 123.0 157.5 189.1


Cash flow statement | Crore (Year-end March) FY14 FY15E FY16E FY17EProfit before Tax 151.8 200.5 256.8 308.2Add: Depreciation 14.8 25.9 26.9 29.0(Inc)/dec in Current Assets -37.2 -87.5 -85.6 -99.6Inc/(dec) in CL and Provisions 0.4 30.4 30.0 25.6Taxes Paid -47.1 -57.1 -73.2 -87.8Others 2.3 3.1 3.0 2.7CF from operating activities 85.0 115.3 157.9 178.0(Inc)/dec in Investments -9.0 0.0 0.0 0.0(Inc)/dec in Fixed Assets -70.5 -11.9 -17.0 -17.4Others 6.2 0.0 0.0 0.0CF from investing activities -73.3 -11.9 -17.0 -17.4Issue/(Buy back) of Equity 0.3 0.0 0.0 0.0Inc/(dec) in loan funds -88.1 -20.6 -0.3 -0.6Dividend paid & dividend tax -23.2 -50.3 -64.4 -77.4Others 96.3 -2.5 -0.5 0.1CF from financing activities -14.7 -73.4 -65.3 -77.9Net Cash flow -3.0 30.0 75.6 82.7Opening Cash 32.6 29.6 59.6 135.2Closing Cash 29.6 59.6 135.2 217.9


Balance sheet | Crore (Year-end March) FY14 FY15E FY16E FY17ELiabilitiesEquity Capital 11.7 11.7 11.7 11.7 Reserve and Surplus 573.7 666.7 785.8 928.9 Total Shareholders funds 585.3 678.3 797.5 940.5 Total Debt 26.9 6.3 6.0 5.4 Deferred Tax Liability 20.5 23.1 25.7 28.8 Other LT Liabilities 5.0 5.0 5.0 5.0 Total Liabilities 637.7 712.8 834.2 979.7

AssetsGross Block 412.5 434.1 456.9 477.9 Less: Acc Depreciation 72.9 96.8 123.6 152.3 Net Block 339.6 337.2 333.3 325.5 Capital WIP 24.3 14.6 8.8 5.3 Total Fixed Assets 363.9 351.8 342.1 330.8 Investments 9.0 9.0 9.0 9.0 Inventory 266.8 322.7 377.6 441.4 Debtors 149.1 180.7 211.4 247.2 Loans and Advances 49.4 66.8 82.7 96.7 Other Current Assets 3.9 3.9 3.9 3.9 Cash 29.6 59.6 135.2 217.9 Total Current Assets 498.8 633.7 810.8 1,007.1 Current Liabilities 198.6 214.4 234.0 254.8 Provisions 35.4 67.5 93.7 112.5 Total Current Liabilities 234.1 281.8 327.7 367.3 Net Current Assets 264.8 351.9 483.1 639.9 Others Assets - - - - Application of Funds 637.7 712.8 834.2 979.7


Key ratios (Year-end March) FY14 FY15E FY16E FY17EPer share data (|)EPS 95.9 123.0 157.5 189.1Cash EPS 108.6 145.2 180.6 214.0BV 502.2 582.0 684.3 807.0DPS 20.0 36.9 47.3 56.7Cash Per Share 25.4 51.1 116.0 187.0Operating RatiosEBITDA Margin (%) 12.5 13.9 14.3 14.6PBT Margin (%) 11.8 12.8 14.0 14.3PAT Margin (%) 8.7 9.1 10.0 10.3Inventory days 75.7 75.0 75.0 75.0Debtor days 42.3 42.0 42.0 42.0Creditor days 32.3 30.0 30.0 30.0Return Ratios (%)RoE 19.1 21.1 23.0 23.4RoCE 23.8 28.1 29.5 30.0RoIC 19.5 23.3 27.8 30.7Valuation Ratios (x)P/E 46.4 36.2 28.2 23.5EV / EBITDA 32.3 23.5 19.2 15.9EV / Net Sales 4.0 3.3 2.7 2.3Market Cap / Sales 4.0 3.3 2.8 2.4Price to Book Value 8.9 7.6 6.5 5.5Solvency RatiosDebt/EBITDA 0.2 0.0 0.0 0.0Debt / Equity 0.0 0.0 0.0 0.0Current Ratio 2.1 2.2 2.5 2.7Quick Ratio 1.0 1.1 1.3 1.5



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 400 093

[email protected]

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ttkprest_20140919

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