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Weak quarter; Expect recovery in H2FY23

TTK Prestige reported revenue decline of 1.9% YoY in Q2FY23, as growth in all business segments declined YoY, ex-cooker. Takeaways: (1) Due to high base of Q2FY22 and consumer deferement of entry level products impacted revenues and (2) company’s EBITDA margin dipped 265bps YoY, but there was a sequential recovery in EBITDA margin due to operating leverage. Steady launch of innovative products and distribution expansion will likely drive volume growth for the company. We note the complete impact of commodity cost correction will reflect from H2FY23, as TTK carries high cost inventory. We model TTK to report revenue and earnings CAGRs of 13.3% and 9% over FY22-FY24E with (1) strong volume growth, (2) distribution expansion and (3) market share gains from unorganised sector. We revise our earnings estimates to factor in Q2FY23 results. Maintain BUY with DCF-based target price of Rs1,078 (implied P/E 41x FY24E EPS).

* Q2FY23 performance: TTK reported revenue, EBITDA and PAT decline of 1.9%, 17.4% and 18.4%, respectively, YoY. Segment-wise growth rates YoY: Cookers 5%, cookware -5.6% and appliances -1.3%. Gross margin declined 45bps YoY; however, higher staff cost and other expenses resulted in EBITDA margin decline of 265bps YoY. Domestic sales were flat YoY but exports grew 27.7% YoY on favourable base.

* Steady launch of new products to drive growth: TTK launched 16 new SKUs in Q2FY23 to drive premiumisation. The company further plans to launch 32 new SKUs in Q3FY23. As entry-level segments remain impacted due to deferment of discretionary expenditure by the lower end of the pyramid, we model premiumisation of portfolio to continue to drive revenue growth.

* Expect recovery in H2FY23: With favorable base of H2FY23, negligible pricing actions in FY23 and revival in economy, we model recovery in H2FY23. We also believe correction in RM prices will allow TTK to increase ad-spend and trade spends.

* Distribution expansion continues: Prestige Xclusive chain increased to 665 stores in 376 towns in Q2FY23. The company is also steadily investing in increasing reach for UltraFresh (its modular kitchen brand). We note the company opened its first store for ‘Judge’ in Q2FY23.

* Maintain BUY: We model TTK Prestige to report PAT CAGR of 9% over FY22- FY24E and RoE of 17.1% over FY22-24. We remain positive on the company’s business model due to its market leadership in key business segments and competitive advantages. We maintain BUY on the stock with DCF-based target price of Rs1,078 (implied P/E 41x FY24E).

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