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TTK Prestige: Expecting good times ahead - Views on News from Equitymaster
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TTK Prestige: Expecting good times ahead
Jul 21, 2014

TTK Prestige announced its results for the quarter ended June 2014 recently. During the quarter, the company reported a 10% YoY increase in revenues and flat profits. Here is our analysis of the results.

Performance summary
  • Revenues up by 10% YoY during the quarter ended June 2014.
  • Operating profits remain flat as costs rise at a faster pace. Operating margins contract by 1.3% YoY to 12.2% largely due to higher employee and other expenses.
  • Net profits remain flat for the quarter.

Financial snapshot
(Rs m) 1QFY14 1QFY15 Change
Revenues 3,063 3,364 9.8%
Expenditure 2,650 2,953 11.4%
Operating profit (EBDITA) 414 411 -0.6%
Operating profit margin (%) 13.5% 12.2%  
Other income 17 12 -29.5%
Interest 31 6 -80.8%
Depreciation 24 57 138.3%
Exceptional items - -  
Profit before tax 376 360 -4.3%
Tax 118 102 -13.8%
Profit after tax/(loss) 258 258 0.1%
Net profit margin (%) 8.4% 7.7%  
No. of shares (m) 11.6 11.6  
Basic earnings per share (Rs)   96.0  
P/E ratio (x) *   40.9  
* trailing 12 months earnings

What has driven performance in 1QFY15?
  • TTK Prestige's revenues were up by 10% YoY during the quarter. While sales of cookers were up by 13% YoY, those of kitchen appliances remained flattish, rising by 1% YoY. Both these segments contributed to about 40% of revenues during the quarter. Cookware sales were up by 17% YoY and formed about 16% of revenues.

    (Rs m) 1QFY14 1QFY15 Change
    RM costs 1,726 1,854 7%
    % of sales 56.3% 55.1%  
    Employee benefit expenses 221 254 15%
    % of sales 7.2% 7.5%  
    Other expenses 703 845 20%
    % of sales 22.9% 25.1%  
    Total expenses 2,650 2,953 11%
    Data Source: Company

  • TTK's operating profits were flat, down by about 1% during the quarter. While input costs reduced as a percentage of sales, other expenses and employee expenses increased as a percentage of sales. As per the company, higher other expenses were largely due to commissioning of two new units - one each in Maharashtra and Gujarat - which are currently operating at very low utilisation levels. Net profits remained flat during the quarter.
What to expect?
At the current price of Rs 3,928, the stock of TTK Prestige trades at a multiple of about 41 times its trailing twelve month earnings.

On the back of a low base, coupled with improving sentiments as well as a pickup in the economy, the company is expecting the demand to pick up going forward. Introduction of variants in the existing product line is expected to help in this regard as well. The growth target set by the company for the current year is 20 to 25%. As such, given relatively slow growth in the quarter gone by, the expectations are that of high growth in the rest of the year. The positive outlook is largely due to recovery in the southern markets. The improvement in the power availability situation is expected to play a significant role in demand for various electrical appliances in this region as well. The company also expects a pickup in the non-southern markets, where the revenue growth was flat during the current quarter.

With two new capacities in place - one dedicated for exports entirely - the company has enough capacity built up to meet requirements for next few years. As such, the cash flow situation is likely to improve going forward. As per the company, it has been looking to acquire a brand in Europe for the past four years, but has found nothing that fits the bill. In case it is not able to do so in the future, it would be looking at paying out a significant amount in the form of dividends. However, with it having set up a dedicated unit for exports, such an announcement should not be surprising, we believe.

On an overall basis, we would like to wait for a quarter or two before making any major changes to our estimates. We continue to believe that the stock of TTK Prestige seems quite expensive at current levels and as such maintain our view of buying the stock at lower prices.

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