TTK Prestige: Building up steam

TTK Prestige, the market leader in kitchenware, appears to be a value buy. New product launches, growth in non-south markets and improved margins are positives.

From our buy recommendation in January at ₹3,705, the stock rallied over 20 per cent to ₹4,489 in June, but due to disappointing June quarter results, the stock declined. However, it now seems a good buying opportunity for investors with a medium-term perspective.

In the September quarter, the company has shown revival in both revenue and profit growth. Outlook for the second half of the year is also promising, given the company’s line up of new launches for the festival season and its growing presence in North and West India. At ₹4,122 currently, the stock trades at 28 times its likely earnings for 2016-17 — in the mid-range of its one-year forward PE band of 20-40 times over the last three years.

With the interest rate cycle moving down and consumer price inflation falling, discretionary spending, at least in the urban markets, should go up.

In the September quarter, TTK Prestige reported 10 per cent sales growth helped by robust growth in domestic market sales. The first half of the year thus ended with a 7 per cent revenue growth. Revenue from non-South markets grew by 16 per cent over the same quarter last year. This is thanks to gain in market share in the new regions and the product offerings that were received well.

In the last six months alone, the company has launched about 75 new SKUs (new variants of existing products or new products), including a new model of pressure cooker in North India and new models of cookware in the South. Over the next one to two quarters, as these new products see demand pick up further, sales should get a boost.

The appliance category is also seeing good momentum with a pick up in demand for induction cook-tops. In the September quarter, revenue from sale of appliances increased 16 per cent over last year; in the September 2014 quarter, the segment reported only 3 per cent growth.

The efforts to improve reach through more franchise outlets will also help boost sales. The company now has about 559 outlets (of Prestige Smart Kitchen) spread across 300-plus towns.

TTK Prestige’s sales through the e-commerce channel is also growing fast. The company has been offering its products through e-commerce aggregators since April and has been seeing strong traction in order flows. Currently, this channel accounts for about 2 per cent of the overall revenue for the company, but can make a significant contribution in the next few years.

TTK Prestige’s operating margin improved sharply in the September quarter — to 12.5 per cent from 10.9 per cent in the June quarter. A 4 per cent increase in the prices of non-appliances along with a favourable product mix and improved capacity utilisation helped.

Margins may improve further in the second half of the year as volumes go up and translate into better operating leverage for the company. The company’s Gujarat manufacturing facility, which began operations in 2014, is currently working at a utilisation level of about 50 per cent.

In the September quarter, net profit grew 22 per cent. For the first half of 2015-16, profit growth was reported at 3 per cent due to a weak June quarter. In 2014-15, the company saw a drop in profits (by 17 per cent) due to contraction in margins.

Lacklustre volume growth, lower capacity utilisation and higher administrative expenses weighed on profit.

But the company managed to repay the small mount of outstanding loans and became completely debt free.