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Robust demand trends to spur revenue growth….

TTK Prestige reported moderate topline growth of 2.9% YoY to | 590.2 crore. The headline number does not reflect the underlying demand scenario. The recovery in demand for kitchen and home appliances has been robust and the company was unable to cope up with demand owing to slow ramp up of its own capacities coupled with supply chain constraints at the vendor’s end. Hence, it lost sales of ~ | 70 crore in July. The supply side issues are largely behind. Since August, the company has been on a strong growth path with August and September revenues growing over 20% YoY. Gross margins for the quarter contracted 260 bps YoY to 39.5% owing to higher share of online sales. However, a reduction in overheads (employee and other expenses down 6% and 5%, respectively), led EBITDA margins to decline 50 bps YoY to 14.6% (I-direct estimate: 14.0%). Absolute EBITDA remained constant YoY at | 86.0 crore. On the back of a steady operational performance, PBT remained flattish YoY at | 83.0 crore. However, owing to lower tax rate in the base quarter (25.17% vs. 3.97% in Q2FY20), PAT declined 22.6% YoY to | 62.2 crore. Demand for the festive season appears to be encouraging with TTK reporting strong growth of 15% YoY in October (on a high base).

E-commerce, exports revenues witnessing strong traction…

Stock availably of some key SKUs and supply disruptions of certain components (as vendors had immigrant labour issues) were the major challenges that restricted growth in Q2FY21. Among categories, appliances (51% of sales) and cookware (17% of sales) segments performed better with revenue growth of 7% and 8%, respectively. Also, other categories (4% of sales, which includes cleaning segment) grew robustly by 40% YoY. Sales for pressure cookers (28% of sales) were under pressure as the segment reported revenue de-growth of 9% YoY. The management highlighted that the outlook for cooker and cookware segment looks strong with 20%+ growth clocked in October. Revenues from e-commerce channel grew at the fastest rate with overall share increasing to 25% (from earlier ~12%). Exports (~3% of sales) are witnessing robust traction with revenues doubling in Q2FY21. To meet the demand requirements, TTKP is enhancing its capacity and has outlaid capex worth | 50 crore in FY21E.

Valuation & Outlook With supply side issues mostly resolved and encouraging festive trends, we expect revenue trajectory to improve materially in H2FY21E. The company is augmenting its manufacturing capacities with additional lines to cater to the healthy domestic and exports demand (outlaid capex worth | 50 crore in FY21E). We introduce FY23 estimates and build in revenue and earnings CAGR of 9% and 14%, respectively, in FY20-23E, with higher RoIC of ~30% in FY23E. TTKP continues to be virtually debt free and has substantial free cash worth | ~470 crore. We reiterate our BUY rating on the stock with a target price of | 6900 (35x FY23E EPS, previous TP: | 6300).

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