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Near-term margin headwinds; medium-term growth outlook remains strong

According to our interaction with management of TTK Prestige: (1) Entry level products are facing demand slowdown; however, premium products continue to do well. (2) The company remains focused on growing its EBO network and reach of Ultrafresh outlets. (3) The share of online sales has declined to less than 20% as customers return to offline channels. (4) While input material prices have corrected, we note the complete impact will reflect Q3FY23 onwards, as TTK carries high cost inventory. (5) Adverse economic environment continues to dent the recovery in Horwood Homewares. (6) The company has now de-risked itself from geographical dependence on south India, as north India now contributes 50% of its revenue. We model TTK to report revenue and earnings CAGR of 14% and 10.7% over FY22-FY24E with (i) strong volume growth, (ii) stable margins of ~15% and (iii) market share gains from the unorganised sector. Maintain BUY with revised DCF-based target price of Rs1,150 (43x FY24E EPS; earlier TP: Rs1,078).

Demand trends indicate mixed performance: High inflation has impacted the consumption of entry level products in the kitchen appliances segment. However, premium products’ market continues to depict strong demand pull (which is margin accretive at the company level). Early Diwali may also result in higher sales in Sep’22.

* Expect margin recovery Q3FY23 onwards: While TTK has not taken any price hike since Mar’22, correction in commodity prices from their all-time highs is likely to benefit the company’s margin trajectory. As the company holds high-priced raw materials (likely to be liquidated by the end of Q2FY23), we believe the net benefit in the profitability may flow from Q3FY23

Offline channel doing well: E-commerce has been a relevant channel for all consumer companies since covid-induced lockdowns. However, unlike food and staples, the share of e-commerce has sharply declined for durables and electricals post covid. According to management, Online sales are less than 20% of total sales for TTK now (down from 27% level during the pandemic)

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