Maintain ADD on TTK Prestige - Steady revenue; miss in margin - HDFC Securities

Mr. Naveen Trivedi, CFA, Institutional Research Analyst, HDFC Securities and Mr. Saras Singh, Institutional Research Analyst, HDFC Securities

TTK Prestige's Q1FY22 revenue growth was largely in line at 71% YoY (HSIE 79%), while it saw a miss in EBITDA margin (11% vs. 15.7%). Despite the impact of the second wave, the company's revenue dip was only 18% (similar to channel checks) over Q1FY20 as compared to the 52% YoY dip in Q1FY21. Recovery in June was inspiring, and online remained strong (>30% mix vs. 25% normally). Exports were strong at 68% YoY. Gross margin was healthy at 44.6% (beat) despite steep commodity inflation. We were already building a QoQ dip in EBITDA margin but, owing to higher-than-expected other expenses, EBITDA margin at 11% saw a miss (4% in Q1FY21, 13% in Q1FY20, 18.5% in Q4FY21). The company has taken a price hike (5-6%) in July, and we expect normal demand. We believe EBITDA margin will revert to its strong level during FY22. TTK's market leadership (in five of its six product offerings) and a broad range of products give visibility on quicker recovery in the business with stable demand. We maintain our estimates and value it at 40x P/E on Jun-23E EPS to derive a TP of INR 9,165. Maintain ADD.

Small miss on revenue due to crises: Revenue grew by 72% YoY (-52% in Q1FY21 and +45% in Q4FY21), driven by strong performance in exports and online channel. During the quarter, the company saw demand disruptions throughout India including rural and urban regions. South India was the most impacted. Cookers/cookware/appliances grew +80/95/62% YoY (-59/-45/-50% in Q1FY21 and +49/67/34% in Q4FY21). The e-commerce channel continued to do well in Q1FY22 with its revenue share increasing to 32%. It continued to widen its distribution with EBOs added despite the lockdown.

Miss in margin: Gross margin expanded by 402bps YoY (-194bps in Q1FY21, 206bps in Q4FY21) to 44.6%. Gross profit came in line at INR 1.6bn. Employee/other expenses grew by 28/81% YoY. The company started its A&P spends from June, and it expects them, as a percentage of sales, to go back to normal level of 6% from Q2FY22. EBITDA margin expanded by 715bps YoY (- 918bps in Q1FY21 and +931bps in Q4FY21) to 10.9%. EBITDA grew by 393% YoY (HSIE 641%).

Con call takeaways: (1) TTK has taken sufficient price hikes to counter the high input cost pressure (took 5-6% price hike in July). (2) Ecommerce share of revenue at 32% will revert to normal level of ~25%. (3) Expect ~17% revenue from own stores. (4) GM expansion will come back to normal levels as Q1FY22 saw higher share of new products. (5) The south saw greater disruption and is expected to see pent-up demand as economic situation normalises. (6) It will be shifting the complete cooker range to the Svacch platform. (7) Factories in Tamil Nadu were shut for a month; however, there were no supply issues.

Shares of TTK PRESTIGE LTD. was last trading in BSE at Rs. 8782.5 as compared to the previous close of Rs. 9186.15. The total number of shares traded during the day was 998 in over 583 trades.

The stock hit an intraday high of Rs. 9252.85 and intraday low of 8658.05. The net turnover during the day was Rs. 8962196.

Source : Equity Bulls

Keywords