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Margins to improve as input prices eased…

TTK Prestige Ltd (TTK), the flagship company of the TTK group, mainly focuses on the kitchen appliances segment. The company has five manufacturing plants and strong distribution networks.

• We maintain our Accumulate rating with a revised target price of Rs. 1,025, factoring in receding input price inflation.

• Revenue growth was flat for Q2FY23 due to a high base (+35%YoY in Q2FY22) and de-growth in exports (-28%YoY) due to inflationary pressure. For H1FY23, growth remained healthy at 17%YoY.

• Opearting margin declined by 270bps YoY to 14%. Margin pressure is expected in the short-term due to high-cost inventory, but is likely to improve from Q4FY23 onwards, given the sharp decline in input prices.

• TTK aims to increase revenue to Rs.50bn by FY27 through organic & inorganic routes. TTK has doubled its capacity for cookware segment and has significantly expanded its distribution networks.

• For the recently acquired Ultrafresh Modular Solutions (Modular Kitchen business), TTK expects ~ Rs200cr in the next 3-4 years.

• Expect Revenue/PAT to grow at 11%/7% CAGR over FY22-FY24E. We value TTK at 41x FY24E EPS, considering declining inflation.

Healthy revenue growth in the first half.

For Q2FY23, consolidated revenue declined by 2%YoY (+17%YoY in H1FY23) due to a high base (+35%YoY in Q2FY22) and de-growth in export business (-28%YoY to Rs.17cr). The UK subsidiary (contributes ~4% to total revenue) reported revenue degrowth of 31% YoY due to current steep inflationary pressure. TTK has introduced 16 new SKUs during the quarter (25 QoQ) and has slated for the launch of ~32 new SKUs for Q3FY23. TTK targets Rs.50bn revenue by FY27 (from Rs. 27bn in FY22) through organic (Rs. 40bn including exports of Rs. 5bn) and inorganic (Rs. 10bn) routes. TTK has almost doubled its capacity in the cooker segment, along with significant expansion in distribution network in high growth areas. The company targets to add ~100 stores a year in the next 3 years (currently 665 stores in 376 towns). All these initiatives will support market share gains. We believe the easing inflationary pressure will support demand going forward and expect revenue CAGR of ~11% over FY22-FY24E.

Recent correction in input prices will benefit margins in 2HFY23.

EBITDA margin declined by 270bps YoY to 14% due to input price inflation. TTK had taken price hike of in the range of ~5%-6% for cookers & cookware, 8%-10% in appliances segments in FY22 to compensate for sharp surge in input costs and there were no price hikes in FY23. Input prices have fallen sharply in recent quarters which is expected to benefit from 4QFY23 onwards.

Exports revenue declined due to inflationary pressure on demand

Export revenue declined by 28%YoY to 17cr (Rs.98cr/Rs.71cr in FY22/ FY21) due to current global inflationary pressure on demand. TTK targets to double its exports, and the contribution has improved to ~3.9% in FY22 Vs. 3.5%/2.2% in FY21/FY20. Barring short-term headwinds, the export outlook remains positive.

Valuation & Outlook:

Barring short-term pressure on demand and margins due to high inflation, the longterm outlook is positive given rising middle-income households, improvement in the real estate sector, and easing input prices, along with TTK’s strong brand recall. The stock currently trades at ~37x 1Yr Fwd P/E. We value TTK at 41x FY24E EPS to arrive at a revised target of Rs. 1,025, and maintain Accumulate rating.

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