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Demonstration of pricing power and innovation prowess in difficult environment; maintain ADD

Our view

1Q saw lower than expected revenue growth on back of extended lockdown in the southern region, a key market for the company. Gross margins saw expansion of 402bps on the back of low base, change in product mix towards premium products, success of high-margin new launches and demonstration of pricing power as the company took multiple rounds of price increases to the tune of 8-11% to pass on material inflation. Company continues to spend on brand building in both traditional and digital channels and has launched series of new innovative products and platforms in the past 18 months which contribute a major chunk of revenues.

We believe the company can achieve double digit revenue and PAT CAGR in next 2-3 years given its strong brand presence, well-entrenched distribution network, strong product portfolio across categories and increased exports opportunity. We expect FY21-24E Revenue/EBITDA/PAT CAGR of 16%/15%/16% and arrive at a PT of Rs10,493 based on 40x FY24 EPS as we roll forward our valuations to FY24E and maintain our ADD rating. If we see continued traction in new launches and sustained momentum in alternate channels and export markets, we would get more conviction in increasing the target multiple.

Result Highlights

* Revenue – TTK prestige missed our revenue growth estimates on the back of extended lockdown in southern region, a key market for the company. Revenue growth was supported by e-comm channel which grew exponentially.

* Margins – Gross margins expanded 402bps yoy, as the company has been able to pass on increased input prices and has seen a change in product mix towards premium products. Company is witnessing increased share of revenue from newly launched premium products.

* Distribution – Company has continuously been enhancing its distribution network across channels. TTKPT has added 7,000 outlets in FY21 despite Covid-related challenges. Ecommerce share has increased to 32% in Q1FY22 vs 24% in Q1FY21.

* Working capital and operating cashflow – Working capital has increased in Q1 given higher inventory as company has not slowed down on manufacturing despite lower demand to avoid shortages later and has also stocked-up raw materials.

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