TTK Prestige positive on long term growth prospects: CRISIL

TTK Prestige Ltd (TTK), a leading, organised kitchen appliances manufacturer, has further entrenched its position with the launch of innovative products and entry into allied product market segments. Though competition, due to low entry barriers, threatens to be a risk, TTK’s strong brand, wide distribution network, rich product portfolio and robust financials will hold it in good stead and enable it to tap the growth opportunity in the kitchenware market. We reiterate the fundamental grade of 5/5, indicating that its fundamentals are excellent relative to other listed securities in India.

Portfolio of new products expected to sustain the growth momentum
TTK’s success lies in its ability to innovate and launch new products. In FY12, TTK clocked sales growth of 45% y-o-y, primarily driven by new products such as induction cooktop, cookware, the Apple line of inner-lid pressure cookers, and microware induction cookers launched in the past three years. TTK is planning to launch around 100 more product SKUs (stock keeping units) in FY13. We expect the new products to sustain the growth momentum going ahead.

Business tie-ups: A leg into new product segments with significant market potential
TTK has entered into multiple business collaborations with branded global players such as World Kitchen, Meyers and Schott AG which will enable it to diversify into new categories of dinnerware and glassware, high-end cookware, and water filters, which have significant market potential. The potential of the dinnerware and glassware market is expected to be US$750 mn in India. The water purifier market is expected to grow at greater than 20% CAGR in the next few years. TTK can leverage its strong brand equity and distribution network to realise this potential.

Competition remains the foremost challenge
TTK operates in a highly competitive and fragmented kitchenware segment; intensifying competition is a big risk to growth. We expect competition, particularly in induction cooktops, to increase with the entry of large players such as Havells and Bajaj and some unorganised players. However, TTK has strong brand equity and a distribution network catering specially to kitchenware and kitchen appliances that we believe will help it hold its ground.

Revenues expected to grow at a two-year CAGR of 25%
We expect revenues to grow at a two-year CAGR of 25% from Rs 11.0 bn to Rs 17.3 bn driven by growth in all product segments. EBITDA margin is estimated to decline from 16.1% in FY12 to 15.1% in FY13 because of weaker rupee but is estimated to improve to 15.7% in FY14. We expect EPS to grow at 21% CAGR from Rs 99.9 in FY12 to Rs 146.4 in FY14.

Valuations: The current market price has downside
We have used the discounted cash flow (DCF) method to value TTK and assign a fair value of Rs 3,250 after rolling over our valuation to FY15E. The fair value implies P/E multiples of 22x FY14 EPS estimates, respectively. At the current market price, the valuation grade is 2/5.

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