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Price hike aids to reduce margin pressure

TTK Prestige Ltd (TTK), the flagship company of TTK group, mainly focuses in the Kitchen Appliances segment. The company has 5 manufacturing plants and strong distribution networks, including 665 Prestige Xclusives.

* We downgrade our rating to Accumulate factoring on the current high inflation and margin pressure with a revised Target price of Rs. 885 (from Rs. 975).

* Despite high base, Q4FY22 revenue grew by 17%YoY (43%YoY in Q4FY21) aided by price hike and healthy growth across channels.

* Commodity price inflation impacts cost of production, but the company has taken price hikes in recent quarters to reduce margin pressure.

* Gross margin declined by 540bps to 40.3% (42.4% QoQ) but due to other cost savings, EBITDA margin declined only 240bps to 15.6% YoY.

* TTK targets Rs.50bn revenue by FY25 (from current 27bn) and has almost doubled its capacity for cookware segment and has significantly expanded its distribution in high growth areas.

* TTK acquired 40.8% stake (Rs.20cr) in Ultrafresh Modular Solutions (Modular Kitchen business), expects market size of ~2,500cr.

* Rising inflation can impact demand & margins in the short-term. So, we reduce our valuation to 32x (5Yr avg=38) on FY24E EPS.

Healthy revenue growth despite high base.

Despite high base, Q4FY22 consolidated revenue grew by 17%YoY (43%YoY in Q4FY21) aided by price hike and healthy demand across channels. TTK has introduced 28 new SKUs during the quarter and has slated for the launch of ~33 new SKUs for Q1FY23 (127 in FY21). TTK targets Rs.50bn revenue by FY25 (from Rs. 27bn in FY22) and has almost doubled its capacity in Cooker segment along with significant expansion in distribution network in high growth areas (added >2000 outlets in FY21 and looking to enhance further in Tier-II/III cities). All these initiatives will support market share gains. The recent improvement in real estate sector and rise in demand on account of marriages and other occasions which was subdued due to restrictions supported the demand. We expect revenue CAGR of ~12% over FY22-FY24E.

Margin declines due to cost inflation, price hike reduces pressure

Due to sharp surge in raw material prices Gross margin declined by 540bps YoY to 40.3% (42.4% QoQ). However, with reduction in staff & other expenses EBITDA margin decline only by 240bps YoY to 15.6%. In FY22, TTK took price hike of ~5%-6% for cooker & cookware, 8%-10% in appliances segments and has taken price hike in the ongoing quarter (in April) also. The input prices have been on uptrend since Q3FY21 but has peaked out in recent months. TTK has strong pricing power which helps the company to pass on surge in costs to the consumer.

Export focus continues…

Exports continued good performance at +33%%YoY to 29cr (Rs.98cr in FY22 Vs. Rs.71cr in FY21). TTK targets to double its exports, and the contribution has now improved to ~3.9% in FY22 Vs. 3.5%/2.2% in FY21/FY20. TTK has almost doubled its capacity in cookware segment as ~90% of exports are in cookware.

Valuation & Outlook:

Short-term demand and margin outlook has dimmed due to current sharp increase in inflation. However, long-term demand will be supported by GoI’s strong thrust to revive the economy, and TTK’s strong brand recall. The stock currently trades at ~31x 1Yr Fwd P/E. We value at 32x FY24E EPS (5Yr Avg=38) to arrive at a revised Target of Rs. 885 (Rs.975 earlier), downgrade to Accumulate rating.

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