Maintain ADD on TTK Prestige - Gradual recovery expected - HDFC Securities

Ms. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

TTK Prestige's 1QFY21 was weak as the company posted revenue/EBITDA decline of 52/86% YoY. The COVID-led lockdown impacted modern trade, CSD and rural revenue. However, e-commerce saw strong growth and gained salience (25% vs 12% pre-COVID). The company saw a healthy sequential recovery in June and July. TTK is a pure consumer play, and we expect most B-C categories to recover quicker in FY21. Work from home and increase in home cooking should support faster revenue recovery for TTK. EBITDA margin saw a sharp dip (>900bps YoY) due to an adverse revenue mix (gross margin down by 194bps YoY), and negative oplev (Rs 200mn idle cost). We cut FY21 EPS by 6% (miss in 1Q) while maintaining estimates for FY22/FY23. We value TTK Prestige at 35x P/E on Jun-22E EPS, maintain the target price of Rs 6,000. Maintain ADD.

Miss in revenue: Consolidated revenue declined by 52% YoY (+4% in 1QFY20 and -14% in 4QFY20), mainly as the company lost out on sales during half the quarter. We were expecting a 38% dip in revenues. Only 60% of channels were functional, which indicates that the company saw strong growth in markets that opened up. Cookers/Cookware/Appliances/Others declined 59/45/50/41% YoY. Uncertainty around Brexit coupled with COVID kept Horwood muted.

Margins under pressure: GM dipped by 194bps YoY to 40.5% (-62bps in 1QFY20 and +146bps in 4QFY20) due to an adverse product mix. Employee/Other expenses declined by 10/54% YoY. However, the company continued investing in A&P (~4% of revenue). EBITDAM dipped sharply by 918bps YoY to 3.8% (-27bps in 1QFY20 and -526bps in 4QFY20). EBITDA declined by 86% YoY to Rs 79mn. APAT declined by 89% YoY to Rs 41mn (HSIE Rs 232mn). We expect margin recovery to be quicker and favourable base will result in a healthy EBITDA growth for the remaining 9M of FY21.

Call takeaways: (1) Capacity utilisation was 80% in July; (2) Production in cookware is at 105% of normal production level; (3) Channel inventory stood at a healthy level; (4) A&P was ~4% of revenue vs 6-7% in 1QFY20; (5) 19% of products are sourced from outside vendors (including imports).

Shares of TTK PRESTIGE LTD. was last trading in BSE at Rs.5483 as compared to the previous close of Rs. 5491.65. The total number of shares traded during the day was 354 in over 194 trades.

The stock hit an intraday high of Rs. 5579.9 and intraday low of 5304.9. The net turnover during the day was Rs. 1920602.

Source : Equity Bulls

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