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TTK Prestige: Slow phase continues - Views on News from Equitymaster
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TTK Prestige: Slow phase continues
Feb 5, 2015

TTK Prestige announced its results for the quarter ended December 2014 recently. During the quarter, the company reported a 4% YoY increase in revenues while profits declined by 5% YoY. Here is our analysis of the results.

Performance summary
  • Revenues up by 4% YoY during the quarter.
  • Operating profits declined by a percent with margins contracting to 11.9% from 12.5% earlier. Lower other income, coupled with a higher tax outgo led to a 5% decline in profits for the quarter.
  • During 9mFY15, revenues up by 8% YoY, while profits down by 4% YoY.

Financial snapshot
(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Revenues 3,694 3,837 3.9% 10,213 11,021 7.9%
Expenditure 3,233 3,382 4.6% 8,894 9,694 9.0%
Operating profit (EBDITA) 461 455 -1.3% 1,319 1,327 0.6%
Operating profit margin (%) 12.5% 11.9%   12.9% 12.0%  
Other income 25 17 -31.2% 69 41 -40.9%
Interest 20 18 -9.2% 72 34 -52.6%
Depreciation 46 48 3.2% 110 141 28.7%
Exceptional items (11) -     (11) -    
Profit before tax 409 407 -0.6% 1,194 1,192 -0.2%
Tax 115 126 10.4% 339 367 8.3%
Profit after tax/(loss) 295 281 -4.8% 856 826 -3.5%
Net profit margin (%) 8.0% 7.3%   8.4% 7.5%  
No. of shares (m)       11.6 11.6  
Basic earnings per share (Rs)         86.5  
P/E ratio (x) *         38.2  

What has driven performance in 3QFY15?
  • TTK Prestige's revenues were up by 4% YoY during the quarter. Growth was largely led by a 5% YoY growth in revenues of the cooker segment (up 5% YoY) and cookware (10% YoY). Both these segments contributed to about 54% of revenues during the quarter. Sales of appliances on the other hand declined marginally by about 3% YoY and formed about 41% of the revenues during the quarter.

    (Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
    RM costs 2,073 2,179 5% 5,831 6,183 6%
    % of sales 56.1% 56.8%   57.1% 56.1%  
    Employee benefit expenses 245 271 10% 695 799 15%
    % of sales 6.6% 7.1%   6.8% 7.2%  
    Other expenses 915 933 2% 2,368 2,712 15%
    % of sales 24.8% 24.3%   23.2% 24.6%  
    Total expenses 3,233 3,382 5% 8,894 9,694 9%
    Data Source: Company

  • TTK's operating profits were down by about 1% during the quarter. It was mainly the employee expenses that rose at a faster pace; as put by the management, the growth in sales was not good enough to cover the fixed costs, thus the reduction in margins. The higher expenses are seemingly largely due to commissioning of two new units - one each in Maharashtra and Gujarat - which are currently operating at low utilisation levels. Net profits remained flat during the quarter.
What to expect?
At the current price of Rs 3,300, the stock of TTK Prestige trades at a multiple of about 38 times its trailing twelve month earnings.

An interesting point that was discussed in the management conference call was that of the e-commerce boom impacting sales volumes of the company's traditional business - given that its brick and mortar dealers are finding it difficult to compete with online discounted prices. This has seemingly impacted the company's sales volumes across categories. However, given that this may be a temporary phenomenon, we do not believe it will impact the company in a big way over the long run. As per the management, TTK continues to be the preferred brand in this space amongst the e-commerce websites in any case; as the lack of touch and feel aspect makes customers stick with reputed brands.

Growth in recent times for the company has been at the lows of many years, so has been the case with the margins. Despite the poor performance, the stock continues to trade at expensive valuations we believe - given the high expectations of a bounce back in volumes and revenues.

However, we cannot help but expect the same to be too strong. Despite taking a very strong growth and a margin expansion in our assumptions; the target price we are deriving provides minimal upsides on a compounded basis. As per us, the risk reward ratio continues to be skewed towards the former. This is despite the stock of TTK Prestige declining by a third from its 52-week high figure of Rs 4,832.

As such maintain our view of buying the stock at lower prices.

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