TTK Prestige - Power woes 'induct' slower growth - IDBI Capital

TTK Prestige (TTKPT) reported revenue growth of ~11% YoY, significantly below estimate. OPM at ~14.8%, was lower than estimate. APAT de-grew by ~10% YoY, and was significantly below estimate. The lower growth in revenues is due to de-growth in cookware segment and lower appliance sales (mainly induction cooktop) The sales of induction cooktop declined due to lower power availability in Tamil Nadu (contributes ~45% of induction cooktop sales) and steep increase in electricity tariff across the country. The lower induction cooktop sales also resulted in lower off take of induction cookware which further affected growth. Management has maintained its revenue guidance of 25% YoY growth in FY13, as it has seen improvement of consumer sentiment during October, 2012. Recommend REDUCE with a revised price target of Rs3,019 (20x FY14).

Revenue growth ~11% YoY, led mainly by pressure cooker sales

TTKPT posted revenue growth of ~11% YoY, significantly lower than estimate. Pressure cooker sales grew by ~20% YoY, appliances ~7% YoY, whereas cookware de-grew by ~13% YoY. The appliances sales were impacted due to lower induction cooktop sales in Tamil Nadu (which accounts for ~45% of induction cooktop sales for the company) as there was lack of availability of power. Also steep increase in power tariff across the country resulted in lower appliances sales. Due to lower off take of induction cooktops, induction cookware sales too declined in the quarter thus resulting in de-growth YoY.

OPM at ~14.8%; lower than estimate

TTKPT reported an OPM of ~14.8%, a decline of ~160bps YoY. The YoY decline in OPM is due to increase in raw material cost by ~100bps (as the proportion of pressure cooker and cookware in total sales where margins are higher declined to ~55% in Q2FY13 from ~57% in Q2FY12) and higher operating and employee expenses (up~60 bps YoY due to lower sales). We factor OPM of ~14.9% for FY13.

APAT de-growth of 10% YoY, significantly lower than estimate

APAT de-grew by ~10% YoY due to significant decline in OPM, higher financial cost and increased depreciation. Interest cost (up 185% YoY) increased due to debt taken for expansion of capacities. Depreciation (up 67% YoY) increased due to capital expenditure incurred in previous year.

FY13 guidance maintained at ~25% growth

TTKPT management has maintained its guidance of ~25% growth in FY13. In 1HFY13 revenue grew by ~19% and for the management to achieve its guidance, revenue has to grow at ~30% in 2HFY12.The management believes that the demand environment has improved in October and with a six cylinder cap on subsidized cylinders it should see a significant pick-up in demand for appliances such as Induction cooktops which will enable it to achieve its guidance. For OPM in FY13 the management has guided for ~15%-15.5%.

Working capital gets stretched, management hopeful of recovery

Working capital during 1HFY13 got significantly enhanced due to significantly build-up of inventory as sales in Q2FY13 were significantly below what was anticipated by the management. Also, due to liquidity crunch with dealers there was a delay in payment. Management has stated with improved demand conditions seen in October they are hopeful of this enhanced working capital reversing to its normal levels.

Cutting FY13/14E PAT estimates by 12%/8%

We are reducing FY13/14 revenue estimates by ~6% and OPM estimate for FY13 by ~40 bps to 14.9%. PAT estimates have thus been cut by ~12%/8% for FY13/14E. We have not factored any decline in working capital.

Outlook and valuation

TTKPT results are significantly below estimates. We continue to believe TTKPT has a strong product portfolio and will witness earnings CAGR of 23% in FY12-14. However, due to lack of power availability and increased power tariff there will be near term growth pressures. We cut our rating to REDUCE on the stock due to rich valuations and near term growth concerns with a revised target price of Rs3,019 (20xFY14).

Source : Equity Bulls

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