TTK Prestige - Robust Sales, Lower EBITDA Growth - Karvy

TTK Prestige (TTK) has delivered strong sales growth of 31% YoY due to the benefit of festive season and higher focus on the non-south market. Cooker, Cookware and Appliances reported 37%, 3% and 40% YoY growth respectively. Lower sales of higher margin Cookware and higher promotional discounts have impacted the operational profitability. EBITDA grew at slower pace of 18% YoY and resulted into 158bps YoY and 60bps QoQ contraction in EBITDA margin. However lower tax rate (24% Q3FY13, 30% Q3FY12 and 33% Q2FY13) has improved net earnings growth. PAT grew by 28% YoY to Rs441mn (Karvy expectation Rs431mn).

Robust Sales Growth: TTK has delivered strong 31% YoY and 30% QoQ net sales growth in which Cooker and Appliance reported 37% and 40% YoY growth. Cookware growth continues to be sluggish on account of power issue in the Southern market. We believe TTK would be able to maintain its sales growth momentum going forward due to regular launches, superior sales growth prospects from non-South markets and higher focus on market share (volume growth). We expect 24% sales CAGR during FY12-15E.

Concern over Medium Term EBITDA Margin: TTK has been reporting lower EBITDA margin in the last two quarters owing to lower sales of its high margin Cookware and aggressive marketing spending to mitigate rise in competition. We believe EBITDA margin would remain under pressure in the medium term as TTK is guiding continuity in the aggressive marketing spending and sales pressure on Cookware would remain as power cut in the Southern market is not expected to resolve in the medium term.

Outlook & Valuation

TTK's aggressive new product launches along with higher focus in the nonsouth market would help TTK to maintain strong sales growth momentum. We expect 24% sales CAGR during FY12-15E. However, we expect EBITDA margin would remain under pressure in the medium term owing to lower sales of high margin Cookware, rising competition in the Cooker and continuation of higher marketing spending. We value TTK on 24x P/E (~1x PEG) on 12-month forward earnings thereby arriving at a fair value of Rs3,263. With a 7% down side to our target price, we maintain our SELL rating on the stock.

Source : Equity Bulls

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