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E-commerce & rural to drive growth

We hosted the senior management of TTK Prestige for a discussion with investors on business climate. Takeaways: (1) The company registered strong demand from rural areas in FY21, on account of higher trade investments in rural markets. The demand from rural markets is likely to remain strong even in FY22, (2) In-spite of inflationary pressures in commodity prices, price hikes and cost saving initiatives are likely to support EBITDA margins in FY22, (3) Prestige plans to ensure its presence in all the channels with right product mix. Strong brand and right products will allow the company to maintain strong share even in E-commerce channel, (4) Cookware is big opportunity in the exports market, and (5) TTK Prestige plans to tap the price-sensitive kitchen appliances market with its valuefor-money brand JUDGE. We remain structurally positive on TTK Prestige and model PAT CAGR of 16.5% over FY21-23E. Maintain ADD with DCF-based target price of Rs9,200 (implied P/E 40x FY23E, Earlier TP-Rs9,000).

Higher likely sales in rural markets:

While the covid cases are higher in rural areas in covid wave-2, there is also increase in budgetary spends by Government. Consumer off-take is likely to remain higher in FY22. Increase in distribution expansion and investments in trade will also result in higher rural revenues

Profitability likely to be maintained:

The company has passed on most increase in commodity prices to end consumers. Also it is working on improving internal efficiencies. The company believes it has comfortable position as far as selling prices and input prices are concerned.

Healthy share of E-commerce:

During FY21, due to lockdown restrictions, ecommerce remained an active channel for the company’s revenues. It contributed ~20% to revenues in FY21. The revenue contribution of E-commerce channel is steadily rising.

To ensure strong presence across channels:

TTK Prestige wants to be present in every sales channel. It believes if its products are able to offer better value to end consumers, the company can do well in any sales channel. It wants customers to ask for Prestige brand. If the consumer recall remains high, sales channel may not matter.

Investments in cleaning solutions:

The company is investing heavily in channel expansion for cleaning solutions. It registered a strong growth of 47% in FY21 in this segment, and post-covid, it expects the demand in cleaning solutions to stay healthy.

Focus on exports:

The company has maintained its guidance of Rs50bn revenues from exports in next 3-4 years. Cookware is the big opportunity in exports market. It contributed Rs297mn of revenues in exports in FY21, up from Rs170mn in FY20. The company registered overall exports of Rs713mn in FY21, up from Rs418mn in FY20.

Update on Horwood Homewares (HHL):

TTK Prestige became the holding company of HHL, in 2016, just before Brexit. Post Brexit, the company lost the growth path for 2-3 years. When the situation was improving, covid-19 lockdowns affected its revenues. In FY21, revenues grew 3.3%. The company is doing investments in products and channels to drive growth now.

JUDGE brand to tap value-for-money market:

The company plans to focus on price-sensitive kitchen appliances market with its value-for-money brand JUDGE. It believes the market size of all the segments it operates in is Rs160bn. ~25% of the market is in value-for-money segment. With Judge brand, the company will be able to compete in this segment. There will not be significant capex and ad-spend investment in this brand. However, there will be some investment in working capital.

Focus on sourcing in India:

The company has stopped importing from China since Q3FY21, and has developed similar products with Indian manufacturers. During FY21, this caused non-availability of some inputs and the company lost Rs400mn revenues.

Difference in multiple raw materials:

The company sells multiple types of cookers as aluminum, steel, mixed alloy and hard anodized. Steady shift towards steel is likely to result in improved profitability. However, most cookware sold is aluminum based.

Maintain ADD:

We model TTK Prestige to report PAT CAGR of 16.5% over FY21- FY23E and RoE to be >16% over FY22-23. We remain positive on the company’s business model due to market leadership in key business segments and competitive advantages. We maintain our ADD rating on the stock with a DCFbased target price of Rs9,200 (implied P/E 40x FY23E; Earlier TP-Rs9,000).

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