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TTK Prestige: Weak offtake reduces earnings - Views on News from Equitymaster

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TTK Prestige: Weak offtake reduces earnings
Oct 12, 2012

TTK Prestige Limited has announced its second quarter financial results of 2012-2013 (2QFY13). The company has reported 10.6% YoY increase in sales and 10% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • TTK Prestige Ltd (TTK) posted a 10.6% growth in topline in 2QFY13 led by growth in cookers and appliances. For 1HFY13, revenues were up by 18.9%.
  • The company's operating margin contracted by 1.7% in 2QFY13 due to higher raw material costs, employee costs and other expenses. During 1HFY13, operating margin was down by 1% due to escalation in raw material costs.
  • Lower operating income coupled with a steep rise in depreciation and interest outgo eroded earnings by 10.2% during 2QFY13. For 1HFY13, earnings were up by 3.2%.

Financial performance snapshot
Rs(m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Revenues 3,035 3,356 10.6% 5366.2 6380.8 18.9%
Expenditure 2,534 2,859 12.8% 4493.2 5,405.9 20.3%
Operating profit (EBDITA) 501 497 -0.9% 873 975 11.7%
EBDITA margin (%) 16.5% 14.8%   16.3% 15.3%  
Other income 7 10 49.3% 14 16.9 23.4%
Interest 12.6 35.9 184.9% 17.5 62 254.3%
Depreciation 13 22 66.7% 24 41.9 77.5%
Profit before tax 482 449 -6.9% 846 888 5.0%
Extraordinary inc/(exp) - -   0 0  
Tax 145 147 0.8% 255.1 278.3 9.1%
Profit after tax/(loss) 337 303 -10.2% 591 610 3.2%
Net profit margin (%) 11.1% 9.0%   11.0% 9.6%  
No. of shares (m)         113.2  
Diluted earnings per share (Rs)*         101.82  
Price to earnings ratio (x)*         33.0  
*trailing twelve month earnings

What has driven performance in 2QFY13?
  • TTK clocked a relatively subdued 10.6% rise in sales on account of a combination of factors such as high inflation, economic slowdown and delayed monsoons impacting consumer sentiment and severe power cuts in the south Indian markets pulling back growth in induction tops. Additionally, the festive sales loading in the year-ago quarter took place in September as compared to October this year. Exports that account for around 6% of overall sales grew 3.6 folds to Rs 198.6 m for the quarter.

    Cost break-up
    Cost break-up 2QFY12 2QFY13 Change in basis points
    Raw material 55.5% 56.5% 100.10
    Employee 6.1% 6.3% 20.17
    Other expenditure 21.9% 22.5% 50.99

  • During the quarter, TTK witnessed a 1.7% fall in operating profitability on account of higher raw material costs and other expenses. Raw material as a proportion of sales was up by 100 basis points (1%) to 56.5%. Even the ratio of other expenses to sales increased by 51 basis points during the quarter. Employee costs grew by 14% further constricting the EBIDTA margin.

  • At the net level, profits fell by 10% as a jump of over 50% in each of the interest and depreciation expenses further ate up in to the reduced operating income for the quarter. A 49% rise in other income was not enough to plug the downfall in earnings.

What to expect?
TTK Prestige's earnings have been impacted by the adverse consumer sentiment arising from weak macro-economic climate coupled with severe power cuts in its key Tamil Nadu market that pulled down sales of induction cook tops. Recently, the government has fixed a ceiling of six subsidized gas cylinders which make induction cook tops more cost effective compared to non-subsidized gas cylinders. Therefore, this recent move is expected to be a demand driver for the company's induction appliances. Induction technology based appliances that include cook tops, cooker and cookware contribute 40% to TTK's overall sales. However, increase in the ceiling cap on subsidized LPG, power cuts in the southern markets and weak consumer spending are headwinds that can cloud the 25% revenue guidance given by the company. In 1HFY12, revenues have grown by a relatively subdued 19% YOY.

At the current price of Rs 3313, the stock is trading at a multiple of 19 times its estimated FY15 earnings. WE had given a SELL recommendation on this stock which has corrected by 11% since then. At current valuations, the stock is fairly priced and we maintain a negative view on the stock.

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