TTK Prestige - Strong show; fixed gross margin is a bold strategy - 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 kitchen appliances segment. These features make 15% growth outlook structurally plausible for TTK along with 15% EBITDA margin. Q3FY21 witnessed steller revenue / PAT growth of 24% / 42% YoY, along with healthy EBITDA margin of 17.4%. However, strong Q3 performance may not be enough to warrant a rerating, especially with the past trend of underwhelming execution compared to peers. Maintain Add with a revised target price of Rs7,820 (earlier Rs6574) based on 35x FY23EPS (Sep'22 earlier) of Rs223.

- Can steep hike be counterproductive or the new product line can help sustain growth? TTK has underlined price hikes of ~9% in the wake of commodity price hikes in Q4FY21 with some segments witnessing hikes as high as 20% (mixer grinders). We have seen price driven sales disruption in the past (especially in modern retail formats) and there has been an increase in competition which can pose market share challenge. TTK highlights a rigid gross margin business strategy implying 100% pass through of any commodity price hikes. Some notable new product ranges include Svacch series of pressure cooker (deep lid, anti-bulge base), 5 layer nonstick cookware and gas stoves/mixer grinders with extended warranties. In total, the company has launched 25 new SKUs including a new category of casserole. Though good in short term, continuous addition to SKUs tend to drag working capital and asset turnover which tends to suppress RoEs.

- Steller Q3FY21 performance. Q3 / 9MFY21 revenue growth came in at 24% / (-) 5% YoY. Cooker /cookware / appliances grew 29%/34%/19%, respectively. In 9MFY21, cooker, cookware and appliances grew 26%, 2% and (-) 4%, respectively. Gross margins improved 200bps QoQ in Q3FY21. Q2 / 9MFY21 EBITDA margin stood at 17.4% / 14.4%. Q3 / 9MFY21 PAT grew 42% / (-) 14% to Rs866mn / Rs1.52bn.

-Distribution has returned to full normalcy: Management indicated that all channels become operational during Q3FY21. Supply chain issues were felt in some SKUs. Direct rural channels became active in Q3FY21. E‐commerce remained an active channel while other channels caught up with the relaxation in the lockdown restrictions. Despite covid impact, Horwood (UK subsidiary) continued its growth momentum by registering growth of 8% in Q3FY21. Horwood's significant online presence drove the growth for the company and also aided in margin improvement.

- Factor-in topline growth of 11% CAGR between FY20-23. We expect cooker / cookware / kitchen appliances / gas stoves to clock revenue CAGRs of 14% / 15.5%/ 7% / 16%, respectively, resulting in overall sales CAGR of 11% between FY20-FY23. We expect EBITDA margin to improve from 12.7% in FY20 to 15.1% in FY23 between FY20-FY23.

Shares of TTK PRESTIGE LTD. was last trading in BSE at Rs.7390.85 as compared to the previous close of Rs. 7254.2. The total number of shares traded during the day was 5309 in over 1743 trades.

The stock hit an intraday high of Rs. 7485 and intraday low of 7060.2. The net turnover during the day was Rs. 39035375.

Source : Equity Bulls

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