TTK Prestige - Lacking growth drivers; valuation at premium - ElaraCapital

Steady earnings growth backed by margin fillip

Topline grows 22%; bottom line up 42% on 160bps EBITDA margin expansion. Management mentioned, Tamil Nadu business continues to languish led by the grim power situation. However TTK's targeted 70% non-south growth has offset the negative growth in southern markets. EBITDA margin improved 160bps yoy (170bps above our expectation). Though raw material prices were down yoy, it increased 80bps offset by 160 bps reduction in discretionary SG&A expenses.

Capex mode largely behind

TTK has largely completed capex doubling pressure cooker capacity and increase cookware capacity by five fold. The delayed cookware capacity in Gujarat is expected to be commenced by Q2FY14E. Out of INR3bn capex, merely INR500mn is left and will be incurred in FY14E. The company should be able to fund it internally and repay the INR1.2bn loan raised for the capex over the next two fiscal.

Lacking growth drivers

Management has withdrawn its previous 25% growth guidance owing to Tamil Nadu power issues. We believe, it lacks growth drivers and will be largely dependent on new product launches hinted by management. We have cut our revenue growth estimates to 20% from 25% previously for FY14/15E. Management has guided 50bps EBITDA margin drop consecutively for next three fiscal, subsequently we expect EPS growth of 16%/22% for FY14E/15E respectively.

Cut target price to INR3,340 downgrade to sell

We have rolled over valuation to FY15E, assigning 20x on FY15E EPS of INR167, reducing the target price by 18%, downside 9% to INR3,340, downgrading to sell. We believe, the cut in revenue estimates for FY14E and FY15E should contract the P/E multiple and trace the stock downwards.

Source : Equity Bulls

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