TTK Prestige - Slowdown to persist, rich valuations; Sell - Anand Rathi

Key takeaways from conference call

Outlook bleak. TTK Prestige's 2QFY14 revenues from Tamil Nadu, Andhra and Kerala were lower yoy. The southern market, which constituted ~68% of sales a year ago, comprised only 58% in 2QFY14. In the present context the company will find it difficult to see sales of over 10% in FY14. Management is expecting other markets (excl. the south) to counterbalance poor growth in Tamil Nadu. The company expressed concerns that the margin would fall 50bps each year in the next 3-4 years. In 2HFY14, it expects healthy growth.

Lacklustre revenue performance to continue. The 2QFY14 revenue came at Rs. 3.45bn, up just 3% yoy and 3.7% below our estimated Rs. 3.59bn. Growth came only from sales of more appliances (up 9.5% yoy); cookware sales slid 8.2% yoy and sales of high-margin cookers grew just 3.8% yoy. The share of the non-south market rose significantly, to 42% of revenue, from 30% in 1QFY13. (The southern market was hit by power outages and issues in Andhra Pradesh.) Exports were down from Rs. 198.7m in 2QFY13 to Rs. 182.5m.

Lowest 2Q operating margin in four years. The EBIDTA margin was 12.8%, down 196bps yoy because of lower fixed-cost absorption and higher raw-material costs. To gain market share, however, the company will continue its aggressive adspend and, ahead, this could cut into margins.

Profit flat at Rs. 303m. PAT was Rs. 303m, similar to 2QFY13 and 6.2% below our estimate. The tax rate was 25.9%, down 674bps, due to more sales from the Roorkee plant.

Our take. At the ruling price, the stock trades at P/E of 29.2x FY14e and 24x FY15e EPS. This, we believe, is richly valued given the macro-economic headwinds and restrained short-term upsides. On the continuing slowdown in southern markets and the challenging macro-economic scenario, we recommend a Sell, with a revised FY15 target of Rs. 3,060. Risks. Easing input costs and more power available in the south.

Source : Equity Bulls

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