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TTK Prestige: A dull end to a tepid year - Views on News from Equitymaster
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TTK Prestige: A dull end to a tepid year
Jun 12, 2015

TTK Prestige announced its results for the quarter ended March 2015 recently. During the quarter, the company reported a 5% YoY increase in revenues while profits declined by 62.8% YoY. Here is our analysis of the results.

Performance summary
  • Revenues up by 5% YoY during the quarter. Growth led by higher sales of cookware and kitchen appliances.
  • Operating expenses rise by 10% YoY during the quarter largely due to the impact of higher input costs. Profits down by 63% YoY on account of impact of lower extraordinary income, coupled with a dull operating performance.
  • During FY15, revenues were up by 7% YoY while profits were down by 17% YoY. Profit before tax is down by 12% YoY; however when adjusted for exceptional items, PBT is lower by about 10% YoY.
  • Board announces dividend of Rs 22 per share (yield of 0.6%).

Standalone financial snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Revenues 2,725 2,862 5.0% 12,938 13,883 7.3%
Expenditure 2,442 2,678 9.7% 11,336 12,391 9.3%
Operating profit (EBDITA) 283 184 -35.2% 1,602 1,492 -6.9%
Operating profit margin (%) 10.4% 6.4%   12.4% 10.7%  
Other income 10 10 4.0% 79 51 -35.3%
Interest 13 11 -21.1% 85 45 -47.7%
Depreciation 38 49 28.8% 148 190 28.7%
Exceptional items 81 6 -92.7% 70 24 -64.9%
Profit before tax 323 141 -56.5% 1,518 1,333 -12.2%
Tax 61 43 -29.3% 400 410 2.6%
Profit after tax/(loss) 262 98 -62.8% 1,118 923 -17.4%
Net profit margin (%) 9.6% 3.4%   8.6% 6.6%  
No. of shares (m)       11.6 11.6  
Basic earnings per share (Rs)          77.2  
P/E ratio (x) *         47.5  
* trailing 12 months earnings

What has driven performance in 4QFY15?
  • TTK Prestige's revenues were up by 5% YoY during the quarter. The company witnessed growth in all of its product segments with the cookware segment (growth of 6% YoY; contributing to about 19% of sales) and the appliances segment (growing by 5.3% YoY; contributing to about 41% of sales) leading the growth. Combined, these segments contributed to about 59% of revenues during the quarter. Sales of cookers grew at a slower pace of 2% YoY and contributed to about 35% of revenues during the quarter.

  • TTK performed poorly at the operating level during the quarter. A key adjustment to make was that of the CSR expenses (as they were back ended during the year; would be well spread out from next year). The adjustment for the same would be Rs 31.3 m. This would up the operating margins by about a percentage point. Net profits during the quarter were further impacted by the lower extraordinary income earned during the quarter. By adjusting for the same and the CSR expenses, the PBT was lower by a third as compared to the reported decline of 57% YoY.

  • During the year, revenues were higher by 7% YoY while profits were down by 17% YoY. On adjusting for extraordinary income (sale of land in same quarter last year) and the CSR expenses (first time included in P&L), PBT would have been lower by about 8% YoY. Higher overheads coupled with a change in product mix have led to the operating margins being impacted for the company.
What to expect?
At the current price of Rs 3,669, the stock of TTK Prestige trades at a multiple of about 48 times its trailing twelve month earnings.

As the trend has been in the past few months, the e-commerce boom as disrupted the traditional channel which impacted the company significantly as the dealers were largely in the destocking phase as they couldn't match the price points offered online. However, as per the management, the key efforts have been towards stabilizing the prices so that such a conflict doesn't arise again; as such, the confidence of the traditional channel is slowly being restored. The company has been in dialogues with the e-commerce majors to supply to them directly as well. Nevertheless, its direct sales through this medium are still miniscule. However, the potential is immense and being a well recognized brand will help the company stand out through this medium.

Apart from this, TTK Prestige has been focusing on innovation and launch of new products to keep the momentum going. While the slowdown in consumer demand has impacted the entire consumer segment in totality, TTK is hoping of riding the wave as and when the scenario turns. With its new capacities in place and running at low utilization levels, the company's management believes that it is all set to meet the demand surge as and when it happens. As per the company, it has been able to gain market share on account of keeping ahead of competition in terms of new product launches. Going forward the company's management seemed hopeful of maintain EBIDTA margin of about 11%.

We believe 'Prestige' is a strong brand name in the space it is present in. While the segment is getting competitive, strong brands will be able to hold their own. However, we believe that the current level of the stock prices in huge optimism and expectations, which is why we maintain our view of buy at lower prices view on the stock from a long term perspective.

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