ICICI Direct is bullish on TTK Prestige recommended buy rating on the stock with a target price of Rs 6900 in its research report dated November 11, 2020.
ICICI Direct's research report on TTK Prestige
TTK Prestige reported moderate topline growth of 2.9% YoY to Rs 590.2 crore. The headline number does not reflect the underlying demand scenario. The recovery in demand for kitchen and home appliances has been robust and the company was unable to cope up with demand owing to slow ramp up of its own capacities coupled with supply chain constraints at the vendor’s end. Hence, it lost sales of ~ Rs 70 crore in July. The supply side issues are largely behind. Since August, the company has been on a strong growth path with August and September revenues growing over 20% YoY. Gross margins for the quarter contracted 260 bps YoY to 39.5% owing to higher share of online sales. However, a reduction in overheads (employee and other expenses down 6% and 5%, respectively), led EBITDA margins to decline 50 bps YoY to 14.6% (I-direct estimate: 14.0%). Absolute EBITDA remained constant YoY at Rs 86.0 crore. On the back of a steady operational performance, PBT remained flattish YoY at Rs 83.0 crore. However, owing to lower tax rate in the base quarter (25.17% vs. 3.97% in Q2FY20), PAT declined 22.6% YoY to Rs 62.2 crore. Demand for the festive season appears to be encouraging with TTK reporting strong growth of 15% YoY in October (on a high base).
With supply side issues mostly resolved and encouraging festive trends, we expect revenue trajectory to improve materially in H2FY21E. The company is augmenting its manufacturing capacities with additional lines to cater to the healthy domestic and exports demand (outlaid capex worth Rs 50 crore in FY21E). We introduce FY23 estimates and build in revenue and earnings CAGR of 9% and 14%, respectively, in FY20-23E, with higher RoIC of ~30% in FY23E. TTKP continues to be virtually debt free and has substantial free cash worth Rs ~470 crore. We reiterate our BUY rating on the stock with a target price of Rs 6900 (35x FY23E EPS, previous TP: Rs 6300).
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