A company which is growing from strength to strength each passing year. Its vision is: A Prestige in every Indian kitchen.
Good Tidings in the offing
The brand requires no introduction and TTK Prestige has been around for some 56 long summers now. The directors' r eport is a delight to read, and the management is gearing up for what looks like a great innings ahead. Well, for starters, gross revenues including scrap sales, but excluding other income was up 44.8% at Rs 11.2 bn over that of the preceding year. Other income was a tad lower at Rs 31 m against Rs 42 m previously. But the pre-tax profit growth relative to that of revenue growth was relatively marginally slower - by 35.6% at Rs 1.6 bn. With the tax man unable to nibble away at a higher slice of the taxable book profits, the post tax profit at Rs 1.13 bn was also up by a similar percentage figure.
The directors' report is choc a block of good tidings in the offing. It has concluded agreements with World Kitchen of USA to enter the high end tableware/cookware and storeware segments. The products include such brands as Corelle, Corningware, Pyrex, Vision and Snapware. It will commence with one of distribution and then gravitate on to a manufacturing agreement via a joint venture. (The JV however would imply no direct uptick for TTK Prestige, as not only will it involve an outlay of permanent capital upfront by the company in the JV, and any loans advanced by it, but the company will benefit only to the extent of dividends received by it as and when). However, the sale of these outsourced products will commence in the current year running.
Big addition to gross block
It has also entered into an agreement with Vesterqaard Frandson Group of Switzerland to enter the fast growing domestic water filter segment. It will be manufactured by TTK in India and sold in the domestic market. (Gosh, do we still lack the technology to make water filters on our own? At what stage of development are we in please?) More importantly, though, the company has entered into an agreement with Bialetti of Italy, and as a consequence it has bought their pressure cooker and cookware manufacturing plants from Romania and
Italy, for installation in India. The plants are expected to be commissioned in the current year. As a return favour of sorts, the Italian company is also outsourcing stainless steel pressure cookers from TTK. ( Is one to understand from this arrangement that TTK got these plant facilities for a song and hence this new manufacturing outpost, or that the pressure cookers to be manufactured from these new facilities will be superior to the ones already in the market given the Italian branding, or that they will merely complement what is already in the market?)
But one can safely presume that all these developments are all for the public good given the past performance statistics of the company. A snapshot of the brief financials of the last ten years shows that the company has consistently increased revenues and profits each year over the base year 2002-03. Revenues have grown from Rs 1.1 bn to Rs 11.1 bn, while the post tax profit which saw a loss of Rs 115 m in the base year, has risen consistently each year subsequently to clock a high of Rs 1.1 bn in the latest year.
Its bread basket
The way it earns its bread currently is from the sales of pressure cookers, non stick cookware, gas stoves, and kitchen electrical appliances. It makes all the above items and it also outsources all the above items barring pressure cookers. Pressure cookers are apparently represents the very soul of this company or some such, and it is therefore only manufactured and retailed. It also outsources an item called 'others' for resale. The biggest retail item is pressure cookers which is entirely an in-house item. Next in line are, kitchen electrical appliances, which is almost entirely outsourced. Third in the pickings is non stick cookware which again is substantially outsourced, and so on. The real estate division has still got to open its account - but this revenue generation in any case has a fixed time span. This in sum total is what the company is all about.
However, the important point to note here is that that there is an increasing emphasis on outsourcing to generate revenues. This however has also to be seen in conjunction with the sudden flurry of activity on the gross block addition front. It currently boasts of two facilities at Hosur in Tamil Nadu, and a new facility each at Coimbatore, and in Roorkee, Uttarakhand. The plant at Bangalore has been disbanded and is being developed as commercial and residential real estate. The company has spent Rs 1.2 bn during the year on gross block addition, while the capital work in progress at year end was valued at Rs 794 m. Besides, the capital advances at year end amounted to another Rs 75 m. That is a lot on money spent on its productive facilities given that the opening gross block on April 2011 was Rs 864 m. This sudden capital expenditure left the company a little breathless so to speak. It was forced to take on a load of debt from a situation of almost zero debt. Borrowings rose by Rs 575 m to Rs 596 m, while the company also flogged liquid investments to the tune of Rs 222 m, to make up for the shortfall in cash flow generation from operations.
If the addition to gross block is substantial, then the classification of gross block is very revealing. Of the Rs 1.1 bn added during the year, the addition to land and to buildings amounted to Rs 341 m and Rs 393 m respectively. That is a collective total of Rs 734 m or 64% of the gross block addition. Now the point is also that land and buildings do not yield production. Only the plant and machinery does so. Take it a step further. The total gross block as on end March 2012 was Rs 2 bn. Of this, land and building together accounted for a shade over Rs 1 bn, or 51% of gross block. That amounts to a lot of unproductive assets in a manner of speaking. The wonder then is that it is able to generate much value addition from the balance gross block on tap.
Higher resort to outsourcing
One reason why it is able to report the figures that it does could well be the increasing resort to outsourcing, as stated earlier. In 2011-12, revenues generated by sales of traded goods were Rs 6.2 bn. The revenues generated from manufactured goods amounted to Rs 5 bn. That amounts to a ratio of 55:45. The resort to outsourced sales was an uptick to the ratio of 50:50 of the preceding year. It is next to impossible to get a lowdown on the margins that outsourced sales bring in - but one can still eke out a rough working of the gross margins it would have raked in. Going by the statistics for purchased goods that it has appended in the annual report, the company would have squirreled out a gross margin of Rs 2.3 bn on this exercise. Juxtapose this with the pre-tax profit that it reported for the year on its combined operations, and one can see where the margins are kicking in from. This then begs the question of the renewed emphasis on manufacturing-though the company can argue that the addition to gross block is purely to up its capacity to make more pressure cookers. Presumably, the capacity to make pressure cookers will increase manifold when the expansion scheme kicks into operation.
The company is the numero uno by far in the organised sector of the products that it puts out in the marketplace - leaving Hawkins way behind in the race. And it sure takes some doing to remain there. Due apparently to the searing competition it gave discounts of Rs 605 m to push sales against Rs 476 m that it paid out previously - up 27%. (There is nothing very professional about such expense items). The other significant item of revenue expenditure was on advertising and selling expenses at Rs 713 m against Rs 527 m previously. This expenditure was up 35% over that of the preceding year, and its ability to spend such large sums probably keeps the company well ahead of that of the competition on the one hand, and helps to curtail competition on the other. Significantly, employee benefits too have accelerated by 38% to Rs 730 m - but it is also a sign that the company is expanding rapidly. The icing in the cake of the employee expenses is the take of the family in the overall payout. The total emoluments paid to key management personnel and relatives amounted to Rs 144 m. In percentage terms it would amount a very healthy 20% of the total payout. The point is also that the chairman's take in this outflow of Rs 144 m is Rs 88 m. He must rank as one of the most highly paid CEOs of an Indian promoted publicly listed company.
At full trot
But, by all means, the company is sailing along fine thank you. The trade debtors at year end amounted to a mere 10% of the gross sales during the year implying that it virtually sells cash down. But more importantly the trade payables at year end was almost at the same level as trade receivables - meaning that the company saves on working capital costs. It was only the inventory levels that moved up marginally in percentage terms over that of the levels prevailing at the preceding year end. But this discrepancy was because the company had many more products on offer during the year.
Judging from the looks of it, the company will continue to outperform in the market that it operates in given the ever growing demand for essential brown goods. Add to this the fructification of the capital expenditure schemes currently on.
This is definitely a share that is worth taking a long look at.
Disclosure: I do not hold any shares in this company, either directly, or under any non discretionary portfolio management scheme
This column Cool Hand Luke is written by Luke Verghese. Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.
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