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Solid all‐round performance with positives priced in; downgrade to REDUCE

Our view

TTKPT delivered a solid all‐round performance with highest ever quarterly revenue and margin expansion despite significant commodity inflation. TTKPT has been able to pass on the increased input prices on back of innovative products and strong brand loyalty. Moreover, demand continues to remain robust as festive season is looking exciting. We believe company can still deliver growth on high base of 1HFY22 and maintain margins at ~15.5% in difficult environment which is commendable.

However sharp spike in stock price (18% increase) post the announcement of Q2 results leaves limited room for upside and hence we downgrade stock to REDUCE from Add. However, if the company can deliver double‐digit growth with stable margins even on the high base in 2HFY22, that would indicate a structural uptick in growth rate which can warrant a higher multiple than the current 40x in‐line with leading consumer durable and electrical companies. 

Result Highlights

* Revenue – TTK prestige beat our revenue growth estimates on the back of strong performance of key categories like cooker, cookware and Appliances. The growth has been secular across the channels and regions.

* Margins – Gross margins expanded 33bps yoy, as the company has been able to pass on increased input prices and innovative product offerings. EBITDA margin expanded 222bps to 16.8% which is on back of cost rationalization and operating leverage.

* Price increase and market share – Company has increased prices of products to the tune of 5‐8% in Q2. The company has further gained market share in key categories as industry has not grown as fast as the company.

* Working capital and operating cashflow – Working capital has increased in Q2 as company has stocked up higher RM and company payable days has seen reduction as company has booked commodities at lower prices.

Valuation

We expect FY21‐24E growth trajectory of 17% revenue CAGR. With margins also expected to remain strong at 16%, we estimate FY21‐24E EBITDA and PAT CAGR of 19% each respectively. We downgrade the stock as most positives seem to be priced in after the sharp spike in stock price post Q2 results. We continue to value the company at 40x FY24 EPS and arrive at PT of Rs11,541. We would wait for better entry point at lower levels to accumulate the stock and would track the 2H performance before ascribing a higher valuation multiple.

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