TTK Prestige - Tamil Nadu revives in Jul-Aug - Ambit

TTK Prestige's sales growth in Tamil Nadu, according to our recent channel checks, revived to 15-20% YoY due to a strong and early monsoon and reduction in power cuts during July-August. Non-south sales growth momentum remains strong at 35-40% YoY along with a substantial reduction in credit outstanding with dealers to ~20-25 days from ~40 days a year ago. With the long-term value drivers intact, we expect revenue growth of 21% YoY in FY14 and 23% revenue CAGR in FY13-18. Hawkins' recent update in the AGM around the new intended product launches is a risk worth watching out for in 2HFY14. We reiterate our BUY stance with a target price of Rs. 4,067.

Sales growth of 15-20% YoY in Tamil Nadu during Jul-Aug: Our channel checks in Tamil Nadu suggest that retail footfalls and demand have substantially improved in Jul-Aug, due to: (a) a strong and early monsoon; (b) reduction in daily power cuts to less than 2 hours in Chennai (from 4-5 hours previously) and to 5-6 hours outside Chennai (from 14-15 hours previously); and (c) a weak base effect from 2QFY13. We expect revenue growth from south India (57-58% of TTK's overall revenues) to increase to at least 10% YoY in 2QFY14 from a decline of 13% YoY in 1QFY14.

Non-south sales momentum remains strong at 35-40% YoY: Despite the high base of FY13, non-south sales growth has remained strong thanks to: (a) lack of any new product launches by Hawkins so far; and (b) addition of distributors and strengthening of the ground-level sales team across states such as Haryana, Uttar Pradesh and Punjab. The average number of days of credit outstanding with dealers in north India has also reduced substantially to 20-25 days currently from 38-40 days a year ago.

Hawkins' intended new product launches – potential risk for TTK from 3QFY14 onwards: During his AGM statement on 30 July, Hawkins' chairman talked about the company's intentions to launch several new products in FY14 after a 'thorough preparation'. Although no such new launch has taken place so far, dealers expect these products (including induction cooktops) to be launched in 3QFY14 during the festive season. It is too early to speculate about the nature and impact of such initiatives by Hawkins, but any meaningful success for Hawkins' new product launches can be a risk to TTK Prestige's growth momentum in non-south geographies.

Valuation: TTK Prestige's long-term value drivers remain intact. This includes expansion across products, geographies and distribution channels amidst a well-thought strategy for capital allocation, promoter's succession planning and strengthening of the middle management team to cater to the scalability of the business model. We expect revenue CAGR of 23% and PAT CAGR of 24% in FY13-18. Our DCF model generates a valuation of Rs. 4,067/share, 24% upside. We reiterate our BUY stance.

Source : Equity Bulls

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