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TTK Prestige: A year of many challenges - Views on News from Equitymaster

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TTK Prestige: A year of many challenges
Jun 5, 2014

TTK Prestige announced its results for the quarter and year ended March 2014. During FY14, the company reported a 5% YoY decline in revenues and a 16% YoY decline in profits. Here is our analysis of the results.

Performance summary
  • Net sales decline by 4% YoY during the quarter ended March 2014 (4QFY14).
  • Operating profits decline by 34% YoY on an absolute basis as margins contract to 10.4% from 15.2% in corresponding quarter last year.
  • A poor operating performance led to a 6.5% YoY decline in profits during the quarter. The profit decline would have been sharper had it not been for the Rs 81 m extraordinary income.
  • During FY13, net sales and profits decline by 8% YoY and 15% YoY respectively.
  • Company's board recommends dividend of Rs 20 per share (dividend yield of 0.6%).

Financial snapshot
(Rs m) 4QFY14 4QFY14 Change FY13 FY14 Change
Revenues 2,833 2,725 -3.8% 13,585 12,938 -4.8%
Expenditure 2,403 2,442 1.6% 11,548 11,336 -1.8%
Operating profit (EBDITA) 430 283 -34.1% 2,037 1,602 -21.4%
Operating profit margin (%) 15.2% 10.4%   15.0% 12.4%  
Other income 9 10 11.2% 47 79 66.6%
Interest 27 13 -49.8% 143 85 -40.1%
Depreciation 26 38 47.1% 90 148 64.3%
Exceptional items - 81   - 70  
Profit before tax 387 323 -16.5% 1,852 1,518 -18.1%
Tax 107 61 -42.8% 521 400 -23.3%
Profit after tax/(loss) 280 262 -6.5% 1,331 1,118 -16.0%
Net profit margin (%) 9.9% 9.6%   9.8% 8.6%  
No. of shares (m)       11.3 11.6  
Basic earnings per share (Rs)         90.1  
P/E ratio (x) *         36.9  
* trailing 12 months earnings

What has driven performance in FY14?
  • TTK's revenues declined by 4% YoY during the quarter gone by. As per the company, cooker revenues rose by 6% YoY (forming 37% of total sales), while revenues of all other product segments declined on a YoY basis. The segment that declined the most was the kitchen appliances segment, which fell by 10% YoY (forming 41% of revenues in 4QFY14 as compared to 44% in 4QFY13).

    (Rs m) 4QFY14 4QFY14 Change FY13 FY14 Change
    RM costs 1,646 1,492 -9% 7,766 7,324 -6%
    % of sales 58.1% 54.8%   57.2% 56.6%  
    Employee benefit expenses 193 215 11% 836 910 9%
    % of sales 6.8% 7.9%   6.2% 7.0%  
    Other expenses 564 735 30% 2,946 3,103 5%
    % of sales 19.9% 27.0%   21.7% 24.0%  
    Total expenses 2,403 2,442 2% 11,548 11,336 -2%
    Data Source: Company

  • TTK's operating profits declined to 10.4% from 15.2% reported in the previous period. The impact was largely due to lower revenues, which made it difficult for the company to cover overhead costs. As can be seen from the table above, other expenses as well as employee expenses increased at a sharp pace both in absolute terms as well as a percentage of sales. At the net level, the company's profits declined by 7% YoY. The decline in profits would have been sharper had it not been for the Rs 81 m income due to sale of land.

  • In FY14, TTK's revenues and profits declined by 5% YoY and 16% YoY respectively. At the operating level, the story was the same as witnessed in the quarter ended March 2014 -margins being impacted due to overall decline in revenues.
What to expect?
At the current price of Rs 3,325, the stock of TTK Prestige trades at a multiple of 37 times its trailing twelve month earnings.

FY14 was a tough year for TTK Prestige as it reported a decline in revenues after many years (revenues grew at a compounded pace of 28% during the ten year period ended FY13). The company's management has attributed this to a few reasons, which include the high base in FY13 due to the strong sales witnessed on the back of introduction of induction cookers, coupled with the change in government policy of increasing the subsidised cylinder cap in the year gone by. Not to mention the high inflation levels impacting the disposable income of Indians. To add to this, the main markets of the company (southern states) faced issues such as power and monsoons deficits, which impacted the company's performance.

We do not buy all of the arguments above given that the excuse of high base impacting revenues would have been applicable in all of the years in the past decade as the growth rates remained very strong. What could be a worrying factor is that the competition in some of the segments the company is present in has intensified substantially, and could have been a key reason for impacting performance of the company's specific segments.

Nevertheless, in an attempt to gain back its growth momentum, the company is looking to increase its marketing efforts in the future. Further, the company recently entered the water filter category by launching a water purifier. As per the company, this segment is expected to touch a market size of Rs 65 bn by 2017. However, considering that there are some big players in this segment, getting a decent share of this pie will not be a cake walk we reckon.

While the prospects of the business remain strong, we believe that the company's stock is trading quite expensive and as such maintain our view of buying the stock at lower prices.

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