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Revenue growth to pick up in H2FY23…

About the stock: TTK Prestige is India’s leading player in kitchen solutions and has been successful in transforming itself from a company manufacturing pressure cookers to having an entire gamut of home and kitchen appliances.

* It continues to be market leader in the cooker segment and has material share in other appliance and cookware categories

* The company, over the years, has maintained its balance sheet strength with strong cash reserves (~| 400+ crore) and healthy RoIC of 35%+

Q2FY23 Results: TTK’s revenue, earnings for Q2FY23 were below our estimates as the company reported a flattish revenue performance (on high base of Q2FY22).

* On a high base, revenues remained flattish at | 808 crore. On a three year CAGR basis, revenue growth was at a steady 12%

* On account of judicious price hikes undertaken, gross margin was maintained at 39.7 (down 11 bps YoY; I-direct estimate: 42%). However, on account of higher than anticipated employee and other expenses, EBITDA margin moderated to 14.8% (down 200 bps YoY, up 100 bps QoQ)

* Flattish revenues and decline in EBITDA margin led to PAT de-growth of 13% YoY to | 86 crore (three year CAGR: 2%; I-direct estimate :| 97 crore)

What should investors do? TTK’s share price has grown by 1.6x in the past five years. We believe the recent stock price correction (~15% YTD) offers a good entry point as it is currently trading at reasonable valuations (38x, 32x EPS of FY23, FY24E, respectively).

* The company’s ability to generate strong free cash flows and healthy ROIC, compel us to maintain BUY rating on the stock

Target Price and Valuation: We value TTK at | 1120 i.e. 40x FY24E EPS

Key triggers for future price performance:

* In order to cater to strong domestic and export demand, TTK has added annual capacity of 4 mn pieces non-stick cookware in Gujarat factory

* TTK is further looking to enhance its distribution reach in tier-II/III cites to capture long term growth opportunities. It has a healthy pipeline of ~32 SKUs to be launched in Q3FY23, which would propel growth, going forward

* Targeting achieving | 5000 crore by FY26 through organic and inorganic route (| 1000 crore). We build in revenue and earnings CAGR of 12% and 13%, respectively, in FY22-24E

Alternate Stock Idea: Apart from TTK, we also like Bata India.

* Bata India has a strong b/s, diversified branded product portfolio and panIndia network, which would enable sustained long term profitable growth

* BUY with target price of | 2225

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