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Demand to improve

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 maintain our BUY rating, with a revised target price of Rs. 950 factoring in the expected demand improvement in 2HFY24.

* Revenue declined by 7%YoY in Q1FY24 (-12%YoY in exports & -8%YoY in domestic) due to lower discretionary spending amidst inflation.

* Gross margin improved by a 100bps aided by reduction in input prices, however, operating margin declined by 230bps YoY to 10.3% due to lower operating leverage.

* The recently acquired modular kitchen business (Ultrafresh) has recorded a sale of Rs. 23cr in FY24 (Rs. 14cr YoY) and has a total of 149 studios now. It expects ~ Rs200cr revenue 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 8%/16% CAGR over FY23E-FY24E. We value TTK at 38x FY25E EPS. 

Revenue declined due to tepid demand amidst inflation.

For Q1FY24, consolidated revenue declined by 7%YoY due to tepid demand amidst inflationary pressure. Domestic business declined by 8%YoY while export business declined by ~12% YoY to ~Rs.20cr due to inflationary pressure in global markets. However, the UK subsidiary (contributes ~6% to total revenue) reported revenue growth of 28% YoY due to a low base (-34% in Q1FY23 due to steep inflationary pressure and geo-political issues). TTK has introduced 55 new SKUs during the quarter and has slated for the launch of ~37 new SKUs for Q2FY24. TTK targets Rs.50bn revenue by FY27 through organic (Rs. 40bn including exports of Rs. 5bn) and inorganic (Rs. 10bn) routes. TTK has a strong focus on significant expansion in its distribution network in high growth areas and targets to add ~100 stores a year in the next 3 years (currently 671 stores in 368 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 ~8% over FY23E-FY24E.

Decline in input prices will benefit margins going forward.

Gross margin improved by 100bps YoY due to a reduction in input prices, while EBITDA margin declined by 230bps YoY to 10.3% due to lower volumes. TTK has not taken any price hikes during the quarter as the input prices have stabilised. TTK expects the demand to improve in H2FY24, which will aid margin improvement.

Exports revenue declined due to inflationary pressure on demand.

Export revenue declined by 12%YoY to ~Rs. 20cr (Rs. 70cr/Rs.98cr in FY23/FY22 respectively) due to current global inflationary pressure on demand. The export contribution improved to 3.6% Vs ~2.7%/3.9% in FY23/FY22 which is expected to improve further as the global inflation eases.  

Valuation & Outlook:

Barring short-term strains on demand and margins due to inflationary pressure, the long-term outlook remains 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 ~36x 1Yr Fwd P/E. We value TTK at 38x FY25E EPS (5Yr avg=36x) to arrive at a revised target of Rs. 950, maintain BUY rating

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