Equity Research: TTK Prestige Limited

Summary

TTK Prestige Limited (TTK) a company which includes Prestige, Judge, and Prestige Xclusive as its brands largely operates in the Kitchen Appliances section and have a wide range of products including pressure cookers, cookware, gas stoves and domestic kitchen electrical appliances.

ABOUT:

• TTK Prestige Limited's major market of kitchen appliances includes numerous product categories such as pressure cookers, cookware, gas burners, and domestic kitchen electrical equipment. The firm owns several brands, including Prestige, Judge, and Prestige Xclusive. Previously focused on South Indian markets, it has recently expanded into the Western, Northern, and Eastern regions by using its brand and expanded distribution network. The company has four manufacturing plants in Hosur, Coimbatore, Karjan, and Roorkee.
• In FY22, around 150 new SKUs were introduced (stock-keeping units). It has a large dealer network and a range of distribution methods via which it offers its products. It advertises its products through authorized direct dealers, large format stores, institutions (huge corporate buildings that place bulk purchases for presents), multi-level marketing chains, e-commerce channels, and franchise retail outlets—Prestige Xclusive. As of March 31, 2022, there were 665 Prestige Xclusive sites. The Svachh platform now accounts for around 85% of their pressure cooker sales.
• TTK British Holdings Limited (TTKBHL), the company's overseas affiliate, was established in the UK and acquired Horwood Homeware Holdings Limited in April 2016.  Also, TTK Prestige acquired a 40.9% stake in Ultrafresh Modular Solutions on February 15, 2022.

SHAREHOLDING PATTERN:

MANAGEMENT:

• The management has been actively pursuing a "Make in India" program for the appliances portfolio over the past four years to support domestic vendors and reduce dependency on Chinese imports. As part of this strategy, it decided to discontinue all imports from China completely starting in October 2020 and to establish local vendors for the majority of those SKUs.
• It created a wide goal of making the company's products accessible to all households and surprising homemakers with innovation. Based on this strategy, it has developed strategies to broaden its clientele and product offerings across India, encompassing both rural and urban markets.
• In addition to growing manufacturing and sourcing capacities through automation and the development of new facilities, management is constantly investing in innovation.

INDUSTRY:

• The Pradhan Mantri Ujjwala Yojana (PMUY) scheme, which aims to electrify rural regions and provide LPG connections to rural homes, has benefitted the business. As a result, consumer products like pressure cookers and other kitchen appliances are now more widely used in rural areas. Additionally, customers' preferences for branded goods and the organized sector are changing. Rural areas now have a 95% LPG penetration rate, up from 56% in FY14, suggesting a significant market share opportunity.
• With more and more people relocating to metropolitan regions, their lives and standards of living are changing, which has a significant impact on the demand for various items. The revival in the real estate market and the increase in demand for gifts given at weddings and other special occasions, which was previously muted by gathering bans, may help to strengthen demand for domestic appliances in the kitchen and kitchenware categories.
• One of the main factors driving the expansion of the Indian kitchen appliance market is the rise in demand for branded goods from rural areas, which is attributable to the rural population's greater awareness of higher quality and durability.

FINANCIALS:

• Various factors of Sales growth of TTK were due to strong sales of pressure cookers (30.8%),  cookware (29.3%) gas stoves (26.8%) & another kitchen/home appliances segment (26.6%) In FY22, the net sales saw an increase of 24.1% YoY to ₹2,723 cr. TTK maintained its leadership in pressure cookers, cookware, value-added gas stoves, induction cooktop, kettles, etc., and is steadily improving its market share in the mixer grinder segment.

• With an increase in price of the cooker & cookware segment by 6% to 7% and towards kitchen appliances it was 8% to 10% on a weighted average basis. The EBITDA of TTK increased by 30.1% YoY to ₹426 cr in FY 2022.

• On the raw material front, aluminum is dominantly used in terms of tonnage, however the usage of stainless steel is growing faster than aluminum, currently. The mix of aluminum and stainless steel is 70:30.

• The PAT growth was on the back of rise in operating profits  In FY22, the PAT growth was 25.8% YoY to ₹305 cr. Effective tax rate stood at 25.61% in FY22. The PAT margin of the company improved to 11.2% in FY22 on the back of rise in EBITDA margin. In Q1 FY23, the PAT margin was 8.6%.

• EBITDA margin: - Pursuant to continuous increase in costs of all inputs which included commodity, power & fuel and shipping cost the EBITDA margin stood at 15.6% in FY22. However, it was able to maintain healthy margin through improved efficiencies in operations and appropriate price increases without any impact on market share. Also, the company undertook a price hike of 3%-5% in a few categories, which includes induction cooktops.

• Their outsourcing v/s manufacturing mix currently stands at 50:50, which is expected to be 55:45, as they anticipate their appliances segment to rise faster thereby leading to an increase in outsourcing mix.

FUTURE PROSPECTS:

1.In the coming five years the company focuses to achieve Rs. 5000 Crore sales where : Inorganic- 1,000 cr, Organic- 4000 cr, Exports- 500 crore, Domestic 3000-3500 Crore

2.Further, Ultrafresh has manufacturing options that would be utilized for making chimneys for Prestige and selling Prestige appliances along with Ultrafresh modular kitchen. Ultrafresh has a manufacturing unit for chimneys, which provides the company an outsourcing facility apart from other vendors, chimney is a high-margin product in and TTK Prestige did not expand aggressively through the years, therefore TTK  intend to leverage Ultrafresh modular kitchen via showcasing their products thereby enhancing their distribution further. TTK expects Ultrafresh to deliver revenue of ₹200-₹250 cr in four to five years’ time with a margin of 14%.

4. TTK Capex spending towards FY23 would be ₹120 cr, which would be utilized towards the retail expansion of TTK-owned franchises, capacity expansion (pressure cookers & cookware) & automation to maximize utilization of machines, quality improvement, cost reduction, digital initiatives, etc.

5. In the next 3-5 years, the growth in the appliances segment is anticipated to be over 15%. Further, TTK believes that their sub-categories, i.e., induction cooktop, mixers, grinders, and gas stoves, would witness steady growth.

6.TTK plan to have more than 25 warehouses across India and then dedicated online warehouse for four-five locations in India thereby enabling them to service the consumer within 24 hours

VALUATION:

Today TTK has been focusing on new launches across its product categories & expanding its exclusive outlets & distribution reach substantially which is conjectured to be the growth driver in times ahead pursuant to which TTK is currently trading at a TTM PE multiple of 42.26x. TTK has been regularly paying dividends to its shareholders. On 1st Feb 2022, the board approved payment of an interim dividend of ₹2.5/share. A final dividend of ₹3.5/share was approved in July 2022.  We expect company to reach 950 price levels in near future. We assign "BUY" recommendation.

Sources:

Stocx & Company website