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Research
Sell TTK Prestige - Elara Capital
Posted On : 2010-07-16 09:23:58( TIMEZONE : IST )
- Rating : Sell
- Target Price : INR933
- Downside : 7%
- CMP : INR1,003 (as on 14 July 2010)
Revenues in line; Margins show brighter side
TTK's healthy top line growth momentum continues, enabling the company to record revenues of INR1453mn, a growth of 47.8% YoY and 18% QoQ. This is marginally above our expectation of INR1422mn. The company has witnessed a product-wide volume growth of 40%, and as projected in our initiation report, its electrical appliance and gas stove businesses have been the major growth drivers.
TTK has contained spikes in raw material costs by moving the average realization price up by 5-6%, shifting most of the burden to customers. EBITDA margins have gone up significantly to 15.8% vis-à-vis our expectation of 12.6% thanks to a lower than expected operating cost. We had anticipated a linear spread of the operating cost, leading to an estimated INR396mn. However, the company has managed to contain it at INR367.4mn. Consequently, the EBITDA has grown 83% YoY and 28% QoQ to INR229mn.
Upgrading earnings estimates
We have updated our earnings in view of the expectation on improving margins. While we anticipate raw material cost escalations of 100bps over the next three quarters to keep margin below the current quarter, operating levers are all set to help the company get over a 15% EBITDA margin for FY11E. We have subsequently revised our EPS to INR59 and INR69 for FY11E and FY12E respectively.
Factor FY12E earnings: upgrade price target, revise rating
We are rolling over our valuation to FY12E earnings and assign a target multiple of 13x based on the continuous growth momentum. Consequently our target price is being increased to INR933. However, the stock price has run up significantly in the past quarter, and at CMP of INR 1,003, it is trading at P/E of 17.1x and 14.4x FY11E and FY12E earnings. We believe that the current valuation looks stretched, therefore recommend profit booking. We revise our rating to Sell.
