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Focusing long-term growth amidst challenges

TTK Prestige Ltd (TTK), the flagship company of TTK group, mainly operates in the Kitchen Appliances segment. The company has 5 manufacturing plants and a strong distribution network, including 630 Prestige Xclusives.

* We maintain Accumulate rating with a revised Target of Rs.9,800, considering healthy recovery in the quarter.

* Q1FY22 revenue grew by 77%YoY (-33%QoQ) supported by a low base (-51% in Q1FY21) and price hike.

* Sharp surge in commodity prices impacts cost of production, but the company has taken necessary price hikes in recent quarters.

* Gross margin remains high at 44.3% (45.7% QoQ, 40.8%YoY) aided by price hike and better product mix. However, EBITDA margin was lower at 11% (18%QoQ, 2.6%YoY) owing to wage hike and lower volumes.

* TTK has almost doubled its capacity for cookware segment and has significantly expanded distribution in FY21 in high growth areas.

* Long-term-demand outlook is positive given ongoing vaccination and strong thrust of GoI to revive the economy. We value TTK at 42xFY23E.

Significant distribution expansion will support future growth.

Q1FY22 consolidated revenue grew by 77%YoY aided by lower base (-51% in Q1FY21) but de-grew by 33% sequentially as most part of the quarter was hit by lockdowns. ECom sales growth continued to be strong, and the revenue mix increased to 32% from 24%YoY (14% in FY20). Business resumed to reasonable levels from early June 2021. TTK has introduced 21 new SKUs during the quarter and has slated the launch of ~120 SKUs in FY22 (127 in FY21). The company has almost doubled its capacity in Cooker segment. FY22 capex plan is ~Rs.70cr. In FY21, the company has significantly expanded its distribution network in high growth areas, added more than 2000 outlets. All these initiatives will support market share gains and future growth. We expect revenue CAGR of ~16% over FY21E-FY23E.

Gross margin remains high led by price hike & better product mix

Despite sharp surge in raw material prices, Gross margin improved by 350bps YoY to 44.3% (45.7%QoQ) mainly aided by price hike in recent quarters across various categories and better channel & product mix. TTK has strong pricing power which helps the company to pass on surge in costs to the consumer. However, EBITDA margin was lower at 11% (18%QoQ, 2.6%YoY) owing to lower volumes and wage hike. Management expects gross margins to remain at higher levels during FY22.

Export focus continues…

Exports continued strong performance with 68%YoY growth to ~Rs.20.4cr (+70%YoY in FY21 to Rs.71cr). The company targets doubling its exports in the coming years. Exports contribution has improved to 3.5% in FY21 from 2.2% in FY20. ~90% of exports are cookware and the company has almost doubled its capacity.

Valuation & Outlook:

Though Covid-19 second wave impacts the near-term demand, we believe the longterm outlook is intact given GoI’s strong thrust to revive the economy and ongoing vaccination. TTK has strong balance sheet and brand recall. The stock currently trades at ~40x 1Yr Fwd P/E. We value at 42x FY23E P/E to arrive at a revised Target of Rs.9,800, and maintain Accumulate rating.

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