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Broad-based recovery, improving earnings visibility

TTK delivered a stellar performance as revenue/EBITDA grew by 24/42% YoY (HSIE 18/19%). Festive demand, improving consumer sentiments, pent-up benefits and ease out in supply chain issue supported the growth (even sustained in Jan-21 with 20% growth).

E-comm remained the fastest growing channel, although all channels saw recovery, specifically MFIs. New launches performed well for the company and categories like dishwashers and chimneys will continue to drive premiumisation. Price hike (~9%) supported GM despite high RM pressure. Oplev and cost control led to the company clocking 10-year high EBITDA margin (17%).

The performance in 3QFY21 is encouraging for TTK, which was weaker than peers in 1HFY21. We expect the company to sustain a healthy earnings trajectory supported by (1) improving consumer sentiments; (2) normalised trade inventory; (3) new launches aiding addressable market; (4) revival in MFIs and (5) favorable base. We increase our EPS estimates for FY22/FY23 by 6/5%. With improving visibility on earnings and having a pure B-C story, we increase target multiple to 38x (35x earlier) on Mar-23E EPS. Our target price is Rs 7,850. Maintain ADD.

* Broad-based revenue growth: Revenue grew by 24% YoY (-1% in 3QFY20 and +3% in 2QFY21), HSIE 18% YoY. Cookers/Cookware/Appliances/Others clocked 29/34/19/26% YoY growth. Recovery was robust across segments, channels and market with volume growth of ~18%. E-comm clocked 50-60% growth while other channels also posted strong recovery. Rural growth remained ahead of urban throughout 9MFY21. TTK introduced 25 new SKUs during the quarter. Exports grew by 50% YoY.

* 10 year high EBITDA margin: Gross margin contracted by 29bps YoY to 41.5% (-111bps in 3QFY20 and -258bps in 2QFY21) vs our expectation of 141bps YoY expansion. Employee/Other expenses grew by 6/16% YoY as operations normalized. EBITDA margin expanded by 219bps YoY to 10 Year high margin of 17.4% (-25bps in 3QFY20 and -50bps in 2QFY21), beating expectations of 8bps YoY expansion. EBITDA grew by 42% YoY (HSIE 19%). PBT grew by 46% YoY while PAT was up 42% YoY.

* Call takeaways: (1) TTK took an average price hike of 9% in 3QFY21 across two tranches; (2) channel inventory is at normal levels (<1 month); (3) Ecomm revenue mix stood at 16%; (4) EBITDA margin expansion was despite no drastic cuts; (5) MFI sales recovered well and revenue mix was ~5%.

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