TTK Prestige - Execution has room for improvement - ICICI Securities

We continue to like TTK Prestige (TTK) considering its strong product portfolio, brand equity, high market share and relatively high unorganised mix in the kitchen appliances segment. These features make a 15% growth outlook structurally plausible for TTK along with 15% EBITDA margin. However, execution continues to be underwhelming compared to peers. While the bug was in supply issues this quarter, it had been the drop in MFI (microfinance institution) partnership sales, high competition intensity in modern retail formats and relatively lower rural demand in previous quarters. Maintain ADD with a revised target price of Rs6,574 based on 35x Sep'22EPS of Rs190 (average of FY22E and FY23E).

- Lower than peer growth driven by supply chain bottleneck - should inventory management improve? Management indicated that there was manpower unavailability due to Covid for vendor partners, which resulted in lower supply compared to demand. As such, the company actually could not completely cater to the demand surge seen in Q2FY21. As the supply constraints ease out in H2FY21, the growth outlook brightens. While Covid has led to significant volatility in demand, the overall inventory management has scope to improve, especially with the digital initiatives. This is also relevant considering that WFH and pent-up demand was expected to help in Q2FY21. Sales growth has been better for peers.

- Q2/H1FY21 result review. Q2 / H1FY21 revenue growth came in at 3% / (-)21% YoY as Jul'20 started on a weaker note. Sales grew 20% YoY in Aug'20 and Sep'20 and have continued on similar path in Oct'20 (+15% YoY) and early Nov'20. Cooker revenue declined 9% YoY in Q2FY21, while cookware and appliances grew 8% and 7% respectively. In H1FY21, cooker, cookware and appliances declined 31%, 14% and 18% respectively. Gross margins declined 258bps in Q2FY21 on account of change in sales mix and higher E-COM sales. Q2 / H1FY21 EBITDA margin stood at 14.6% / 12%. Q2FY21 PAT declined 23% YoY largely on account of higher tax rate. Q2 / H1FY21 PAT stood at Rs622mn / Rs663mn.

- Balance sheet remains healthy with better working capital ratios in H1FY21. TTK was able to generate positive cash flow from working capital in H1FY21 vs an outflow in H1FY21. This was largely driven by lower inventories and increase in payable days.

- Factor-in 15% topline growth in H2FY21E (on low base plus positive outlook of management) and 39%/10% growth in FY22E/FY23E. Company has also taken 4-6% price hikes in certain appliances in November. We expect cooker / cookware / kitchen appliances / gas stoves to clock revenue CAGRs of 6.6% / 6.0%/ 13.2% / 3.1% respectively resulting in overall sales CAGR of 8% between FY19-FY23. We expect flattish EBITDA margin of 13.4% between FY20-FY23.

Shares of TTK PRESTIGE LTD. was last trading in BSE at Rs.5828.05 as compared to the previous close of Rs. 5804.15. The total number of shares traded during the day was 49 in over 36 trades.

The stock hit an intraday high of Rs. 5988 and intraday low of 5816.05. The net turnover during the day was Rs. 286473.

Source : Equity Bulls

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