TTK Prestige - Initiating coverage - CSEC Research

'Play on the consumption story with plenty of steam left'

TTK Prestige (TTKPT) has grown at ~29% CAGR between FY04-12, primarily because of product and geographic diversification. From a single product company (Outer lid pressure cooker), TTKPT turned into a one stop kitchen appliances company and from a totally south focused company into a Pan-India player. At present the non-south market contributes ~35% of TTKPT's revenue.

Will this historical growth sustain in the near future? We have analyzed the growth levers and the demand drivers; we feel that TTKPT is a play on the consumption story with plenty of steam left. We believe TTKPT will continue to grow above the industry average primarily driven by new product addition, gaining market share and will continue to dominate in the respective segments. We expect TTKPT's top line and bottom line to grow at a CAGR of ~21.1% and ~22.2% between FY13E-16E respectively.

Revenue to grow ~30% CAGR over FY12-14

We expect TTKPT revenue to grow at 30.3% CAGR over FY12-14 driven by strong growth across the segments with the introduction of new products. We expect Kitchen electric appliances to grow ~40%, cookware to grow at ~30%, gas stoves to grow at ~25% and pressure cookers to grow at ~24% CAGR between FY12-FY14.

Pricing power lead to stable Operating margin

It's worth mentioning that despite volatile currency movement and rising raw material prices, TTKPT's operating margin expanded from 8.8% in FY06 to 15.5% in FY12; the margin expansion was largely led by economies of scale, operating leverage and brand power to pass on cost increase to the consumers. We expect TTKPT's operating margin to remain stable in the range of 15-16% during FY13 & FY14.

Valuation

We have valued TTKPT using SOTP based valuation, where its kitchenware business was valued using 3 stage DCF model and Real estate based on NPV to arrive a target price of INR 3,674 per share. We Initiate coverage on TTKPT with "OUTPERFORMER" rating and we recommend a BUY on declines. Risks to our recommendation include slowdown in the economy leading to a slowdown in discretionary spending; difficulty in passing on cost increases due to adverse currency movement and raw material price increase due to competitive pressures.

Source : Equity Bulls

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