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Margins to recover as input prices eased…

TTK Prestige Ltd (TTK), the flagship company of the TTK group, mainly focuses on the kitchen appliances segment. The company operates five manufacturing plants and has strong distribution networks.

• We revise our target price to Rs. 857 (from Rs.1,025), factoring lower volumes and margins, but upgrade to BUY rating due to lower valuation.

• Revenue declined by 9%YoY in Q3FY23 due to tepid demand amidst inflation and a shift in festival season. For 9MFY23, growth was 7%YoY.

• Operating margin declined by 550bps YoY to 11.4%. Margin pressure is expected to reduce in the coming quarters as input prices declined.

• Ultrafresh, the recently acquired modular kitchen business has recorded a sale of Rs.17.6cr in 9MFY23. TTK has added 52 new stores (total 134 stores now) and expects ~ Rs200cr in the next 3-4 years.

• TTK aims to increase revenue to Rs.50bn by FY27 through organic & inorganic routes. TTK has doubled its capacity for the cookware segment and has significantly expanded its distribution networks.

• Expect Revenue/PAT to grow at 10%/17% CAGR over FY23E-FY24E. We value TTK at 33x FY25E EPS (5Yr avg=37).

Revenue declined due to tepid demand post festival and inflation

For Q3FY23, consolidated revenue declined by 9%YoY (+7%YoY in 9MFY23) due to tepid demand amidst inflationary pressure and shift in festival season. Export business declined by 37% YoY to Rs.15.5cr due to inflationary pressure in global markets. The UK subsidiary (contributes ~6% to total revenue) reported revenue de-growth of 8% YoY (-31% in Q2FY23) due to steep inflationary pressure and geo-political issues. TTK has introduced 27 new SKUs during the quarter (16 QoQ) and has slated for the launch of ~47 new SKUs for Q4FY23. TTK targets Rs.50bn revenue by FY27 (from Rs. 27bn in FY22), through organic (Rs. 40bn including exports of Rs. 5bn) and inorganic (Rs. 10bn) routes. TTK has almost doubled its capacity in the cooker segment, along with significant expansion in its distribution network in high growth areas. The company targets to add ~100 stores a year in the next 3 years (currently 672 stores in 371 towns). All these initiatives will support market share gains. We believe the easing of inflationary pressure will support demand going forward, and we expect revenue CAGR of ~10% over FY23E-FY24E.

Decline in input prices will benefit margins going forward.

EBITDA margin declined by 550bps YoY to 11.4% due to input price inflation. TTK had taken price hikes in the range of ~5%-6% for cookers & cookware, 8%-10% in appliances segments in FY22 to compensate for sharp surge in input costs and there were no price hikes in FY23. Input prices have fallen sharply in recent quarters, which is expected to benefit from 4QFY23 onwards.

Exports revenue declined due to inflationary pressure on demand

Export revenue declined by 37%YoY to 15.5cr (Rs.98cr/Rs.71cr in FY22/FY21 respectively) due to current global inflationary pressure on demand. The export contribution declined to 2.5% in 9MFY23 Vs ~3.9%/3.5% in FY22/FY21 which is expected to recover as the global inflation eases.

Valuation & Outlook:

Barring short-term pressure on demand and margins due to high inflation, the longterm outlook is positive given rising middle-income households, improvement in the real estate sector, and easing input prices, along with TTK’s strong brand recall. The stock currently trades at ~28x 1Yr Fwd P/E. We value TTK at 33x FY25E EPS to arrive at a revised target of Rs. 857, upgrade to BUY rating due to the correction in valuation.

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