If we look at the journey of TTK Prestige (Prestige) over the past two years, it can be seen that the scrip has come from being an average ‘buy’ recommendation to being a strong ‘buy’, and a must-have in one’s portfolio. Such is the change in perception of this
scrip in the last two years.
And why not, when the broader market has gone nowhere. Had you invested in this scrip, it could have created that alpha for your portfolio. Just to put this in perspective, on a year-to-date basis, while the Sensex is down by about 10 per cent, this scrip is already up by 67 per cent. In fact, even if we go a year back to 2010 and calculate the returns, while the Sensex is up by a mere 6 per cent, this scrip is up by a massive 532 per cent.
While one has to accept the fact that the company’s performance has indeed improved quite sharply over the last two fiscals, at CMP of Rs 2719 and a trailing twelve month PE of 37x, does this company still make sense from an investment point of view? Does this scrip still have enough steam to give further upside to investors? To get to the end of this, we have taken up the analysis of TTK Prestige.
Company BackgroundTTK Prestige is one of the leading kitchen appliances companies in India. From being just a pressure cooker manufacturer, today Prestige is positioned as a total kitchen solutions provider, with a range of products — from non-stick cookware, kitchen electric appliances, gas stoves, hobs, kitchen chimneys to modular kitchens, etc. Pressure cookers are still a major contributor to the revenues, with 41 per cent of sales coming from this segment. 20 per cent of the revenue comes from non-stick cook-ware, 25 per cent from kitchen electric appliances, 10 per cent from gas stoves and the balance from other products. That apart, Prestige also has interest in real estate to the extent of its 6.5 acre surplus land at Doorvani Nagar, Bangalore, which is being developed into a residential-cum-commercial space with Rajmata Realtors, Salarpuria. The basic ground work to begin construction is already in place.
Differentiating FactorsThough Prestige might look like a usual company doing its business, it has silently created its differentiator, with its aggressive management taking strong initiatives, being a product innovator and building a strong brand. It is this strong brand recall that has helped it not only in achieving but also in sustaining a 35 per cent market share in the organised pressure cooker and cookware segment, which also has an equally strong competitor in Hawkins. No wonder then that the company has been able to grow consistently at a five-year CAGR of 27 per cent in topline and 64 per cent in bottomline. In view of the management initiatives, this growth looks sustain-able going forward.
Becoming Future Ready
It should be noted that the company has chalked out a massive Rs 200 crore capex plan from FY11 through FY13, where it will double its pressure cooker capacities, while quadrupling the non-stick cookware capacities. This would include capacity expansions at Roorkee and Coimbatore, while fresh capacities are also expected[PAGE BREAK]
to come up in Vadodara (Gujarat) and Nashik (Maharashtra), according to the management’s media interviews. The interview also states that these capacities would be ready for production only by January–February, 2012. Thus, once commissioned, these incremental capacities could push Prestige’s revenues to a different trajectory altogether in FY13. Prestige has already spent Rs 32 crore in FY11, with the balance being expected to be spent in FY12 and FY13. The company’s pres-sure cooker and non-stick cookware capacities stand at 48 lakh and 20 lakh respectively, as on March 31, 2011.
In fact, we believe the brisker revenue growth comes not only from the incremental capacities, but also due to three core factors. First, is Prestige’s smart way of pushing sales by continuously launching new product variants, such as microwave pressure cookers, inner lid cookers, induction cookers and cookware. These will not only give it volume, but also premium pricing. Second, is where the company’s consolidation in existing markets, an increase its presence in the northern and eastern markets through a strong dealer network, and its pan-India presence, with 45000 outlets. It should be noted that Prestige is a strong player in south India. Thirdly, while the pressure cooker segment continues to grow, the high-growth segment, such as the kitchen electric appliances, will add further zing to the revenues. The kitchen electric appliances segment is a Rs 5900-crore market, growing at 15 per cent. With this segment witnessing a rising rural penetration and a higher replacement demand, it would grow at a rapid pace going forward. Prestige derives 25 per cent of its revenues from this segment. This clearly suggests that the management is aggressively pursuing growth, and this augurs well for Prestige.
Another notable fact is that, with rising disposable incomes and nuclear family set-ups catching up fast, a shift towards building a trendy modular kitchen is increasingly seen. Today, cookers, cookware and other kitchen appliances are seen more from an aesthetic focus rather than merely having utility value. With customers focusing on aesthetic value, there is a high probability of them going for up-trading and opting for premium products to go with their upgraded kitchens. This should create a good demand for premium products. With Prestige having presence across these products and the fact that it positions itself as a ‘kitchen appliances company’, the company is a direct beneficiary of any incremental demand that arises out of this. Along with this, Prestige is also equally focus-sing on rural India, especially the tier II and tier III cities, where the penetration is still low, at around 220 cookers per 1000 households. This is clearly an opportunity for the company, and could give it the volume necessary to drive its growth.
If that was not enough, Prestige has also gone a step ahead to drive its growth through its exclusive retail outlets called ‘Prestige Smart Kitchen’, which sells its entire product range under one roof. As of March 2011, there are 279 such retail outlets in 19 states. In one of media interviews, the management has mentioned its plans to ramp up this number to 500 by FY12. Though it sounds like an ambitious move, a steady addition of outlets would go a long way in building brand visibility and revenues for Prestige.
The only concern one may see is commodity prices hurting the company’s margins (aluminum and steel are major inputs). But we feel otherwise, as the company has been passing on the cost to the end customers, with maximum hikes being limited to twice a year (April & October). Prestige has already hiked its prices in April this year. Thus, our sense says the margins should be maintained.
Financials
As for the financial performance, for FY11, Prestige’s sales increased by 50 per cent to Rs 763.57 crore, while profits grew at 61 per cent to Rs 83.75 crore. The company’s announcement mentioned the turnover of the first two months of FY12 rising 69 per cent to Rs 158.80 crore. The management expects 25 per cent growth in FY12, and at these estimates, revenues could be around Rs 950-1000 crore, while profits could be around Rs 105-108 crore. At the FY12 estimates, Prestige is available at PE of 28x, which is fair for this briskly-growing company. Besides, one mustn’t forget the real estate revenues, which would start to pour in post completion of its real estate project (30 months from construction). This not only includes lump sum income through the sale of residential flats, but also a recurring rental income from the commercial space.
Thus, it makes sense to grab this counter with a one-year target of Rs 3400.