ttkprestige crisil initiating coverage
TRANSCRIPT
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TTK Prestige Ltd
Enhancing investment decisions
Initiating Coverage
© CRISIL Limited. All Rights Reserved.
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Explanation of CRISIL Fundamental and Valuation (CFV) matrix
The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process –
Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental
grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The
valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to
grade 1 (strong downside from the CMP).
CRISIL Fundamental Grade
Assessment CRISIL Valuation Grade
Assessment
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)
Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest
that can bias the grading recommendation of the company. Disclaimer: This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL
(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for
any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without
any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes
investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold
any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this
Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be
reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or
published or copied in whole or in part, for any purpose.
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 1
December 07, 2011 Fair Value Rs 2,392 CMP Rs 2,787
Fundamental Grade 4/5 (Strong fundamentals)
Valuation Grade 5/5 (CMP has strong upside)
Industry Information technology
Polaris Software Limited
Business momentum remains intact
Fundamental Grade 5/5 (Excellent fundamentals)
Valuation Grade 2/5 (CMP has downside)
Industry Household durables
TTK Prestige Ltd An unabated growth story
TTK Prestige Ltd (TTK) is a leading, organised kitchen appliances manufacturing company with products catering to the entire kitchenware segment. Increasing urbanisation, growing number of nuclear families, rising disposable income and growing number of new gas connections are driving the demand for kitchenware appliances in India. TTK, with a strong brand, a wide distribution network, a strong product portfolio and robust financials is well positioned to tap this growth. We assign TTK a fundamental grade of 5/5, indicating that its fundamentals are excellent relative to other listed securities in India.
A leading player with a strong brand and wide distribution network
TTK is the only organised kitchen appliances company in India with a comprehensive product portfolio covering the entire kitchenware segment. It is particularly dominant in the pressure cooker and non-stick cookware categories where it commands a market share of ~40 - 44% in the organised space. Its brand ‘Prestige’ has a strong consumer recall. A wide distribution network and a strong brand have helped TTK create a pan-India presence with south India comprising the biggest share (67% of revenues).
Growth in kitchenware industry to complement TTK’s strong position
The branded kitchen appliances industry in India is expected to grow at a fast pace driven by rising disposable income, increasing urbanisation, increase in the number of new gas connections with the rise in the number of nuclear families, and increasing rural income leading to a shift towards branded products. TTK, being one of the leading players in the branded segment, is well poised to leverage the growth opportunities in this space.
Preparing for the next level of growth through capacity expansion
TTK is doubling its pressure cooker manufacturing capacity to 9.6 mn units and quadrupling its non-stick cookware capacity to 8 mn units by FY12. The company plans to invest Rs ~2,000 mn for putting up the capacities. Strong cash reserves and continuous cash generation will enable the company to fund the entire expansion plan through internal accruals and hence reduce the risk of equity dilution or increased gearing.
Expect two-year revenue CAGR of 35%; two-year EPS CAGR of 32% We expect TTK’s revenues to grow at a two-year CAGR of 35% to Rs 13.9 bn by FY13 driven by strong growth across all product segments. EBITDA margin is expected to remain stable at 16.0% in FY13 and EPS is estimated to grow at a two-year CAGR of 32% to Rs 129 in FY13 primarily driven by sales growth.
Valuations – the current price has ‘downside’
We have used the discounted cash flow method to value TTK. We initiate our coverage with a valuation grade of 2/5 and a fair value of Rs 2,392 per share.
KEY FORECAST
(Rs mn) FY09 FY10 FY11 FY12E FY13E
Operating income 4,019 5,077 7,641 10,552 13,867 EBITDA 394 780 1,267 1,677 2,212 Adj Net income 224 483 841 1,130 1,467 Adj EPS-Rs 19.7 42.6 74.2 99.7 129.4 EPS growth (%) 29.5 115.9 74.0 34.4 29.7 Dividend Yield (%) 0.2 0.4 0.4 0.6 0.8 RoCE (%) 32.5 64.1 76.4 61.1 57.2 RoE (%) 29.2 46.3 53.3 47.8 43.1 PE (x) 141.2 65.4 37.6 27.9 21.5 P/BV (x) 37.3 25.4 16.5 11.2 7.9 EV/EBITDA (x) 80.5 40.0 24.3 18.7 13.7
NM: Not meaningful; CMP: Current Market Price
Source: Company, CRISIL Equities estimate
CFV MATRIX
KEY STOCK STATISTICS NIFTY/SENSEX 5039/16805
NSE/BSE ticker TTKPRESTIG/TT
KPRES Face Value (Rs per share) 10 Shares outstanding (mn) 11.3 Market cap (Rs mn)/(US$ mn) 31,593/615 Enterprise value (Rs mn)/(US$ mn) 30,858/600 52-week range (Rs) (H/L) 3,175/1,376 Beta 1.1 Free float (%) 25.1% Avg daily volumes (30-days) 96,104 Avg daily value (30-days) (Rs mn) 249
SHAREHOLDING PATTERN
PERFORMANCE VIS-À-VIS MARKET
Returns
1-m 3-m 6-m 12-m TTK 5% -7% 2% 71% NIFTY -5% 0% -9% -16%
ANALYTICAL CONTACT Chetan Majithia (Head) [email protected]
Bhaskar Bukrediwala [email protected]
Yash Taneja [email protected]
Client servicing desk
+91 22 3342 3561 [email protected]
1 2 3 4 5
1
2
3
4
5
Valuation Grade
Fu
nd
am
en
tal G
rad
e
Poor Fundamentals
ExcellentFundamentals
Str
on
gD
ow
nsi
de
Str
on
gU
psi
de
74.9% 74.9% 74.9% 74.9%
8.0% 6.3% 6.8% 8.4%2.0% 5.1% 5.8% 4.3%15.1% 13.8% 12.5% 12.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-10 Mar-11 Jun-11 Sep-11
Promoter FII DII Others
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 2
TTK Prestige Ltd
Table: 1 TTK: Business Environment
Product / Segment Pressure Cooker Non-stick
Cookware
Kitchen Electrical
Appliances Gas Stoves
Revenue contribution
(FY11)*
39% 20% 27% 11%
Revenue contribution
(FY13)*
37% 25% 27% 8%
Product / service offering Outer lid, inner lid,
and pressure handi
Cooking pan Mixer grinders, rice
cookers, ovens,
juicers, induction
cook top and others
Gas stoves
Geographic presence Dominant in south India with increasing presence in western, northern and eastern India
Market position Leading player in the
organised space with
43-44% market
share closely followed
by Hawkins.
Market leader in
the organised
space with 40%
market share
Highly fragmented market with numerous
unorganised players. In the branded category in
electrical space, Bajaj Electricals is the largest
player in the North and Preethi (Maya Appliances
and now owned by Philips) in the South. In gas
stove category, Sunflame is the largest in the North
and Butterfly the largest in the South.
Industry growth
expectations
• Kitchen appliances industry is growing at a steady pace of 10-11% in the non-electrical
segment and 15% in the electrical segment.
• The branded space is expected to grow at a much higher rate driven by the rising disposable
income and increasing urbanisation leading to a shift towards branded products, and
increasing preferences for lifestyle products from the young demographic population of
India.
Sales growth
(FY08-FY11 – 3-yr CAGR) 19% 42% 60% 32%
Sales forecast
(FY11-FY13 – 2-yr CAGR) 31% 54% 43% 16%
Demand drivers • Rising disposable income and increasing urbanisation resulting in shift from unorganised to
organised players. This is also expected to lead to higher demand for lifestyle products
• Demand for pressure cookers and other appliances will be driven by increasing penetration
of gas connection. Only 50% of the estimated 225 mn households in India has gas
connection; the government has a target to provide gas connections to 55 mn more
households by 2015
• Increasing number of nuclear families will see a consequent rise in the number of kitchens
which will drive growth in the kitchen appliances industry
Key competitors Hawkins, Butterfly Hawkins, Butterfly Bajaj, Philips
(including Preethi),
Kenstar, Butterfly
Butterfly, Sunflame
Key risks • Competition from new players entering into the market including foreign brands
• Rising raw material prices
• Higher inflation impacting consumer spending
• Labour intensive operation
* The company also has a small presence in other kitchen appliances like knives, kitchen tools and others which contribute 2-3% to
overall revenue
Source: Company, CRISIL Research
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 3
TTK Prestige Ltd
Grading Rationale
TTK - a leading kitchen appliance manufacturer in India
TTK, over the years, has transformed itself from a mere outer-lid pressure
cooker manufacturer to a complete kitchen solution provider. The share of
pressure cookers in overall sales has reduced from 60% in FY03 to 39% in
FY11. The company has entered into many new product categories like non-
stick cookware, kitchen electrical appliances and gas stoves as part of its
strategy to become a one-stop solution provider for kitchen appliances. Also,
this wide product portfolio has enabled the company to distinguish itself from its
competitors in the organised segment, such as Hawkins, Gandhimathi
Appliances, and Bajaj Electricals.
Figure 1: FY06 - Pressure cooker sales dominate Figure 2: FY11 – A diversified portfolio
Source: Company, CRISIL Research Source: Company, CRISIL Research
Table 2: Product portfolio of organised players – TTK leads the pack
TTK Hawkins Gandhimathi
Appliances
Bajaj Electricals IFB
Industries
Panasonic
Home
Appliances
Pressure cooker, non-
stick cookware, gas
stoves, mixer grinder,
juicer grinder, toaster,
induction cook top, rice
cookers, microwave
oven, microwave cooker
Pressure
cooker,
non-stick
cookware
Gas stoves,
pressure cooker,
table top wet
grinder, mixer
grinder, vacuum
flasks
Mixer grinders, food
processors, juicer grinder,
toasters, microwave ovens,
electric cooker, induction
cookers, pressure cooker,
cook tops, coffee makers,
hand blenders
Microwave
oven, gas
stoves, hobs,
chimneys
Microwave oven,
oven toaster,
automatic cooker,
mixer grinder,
juicer grinder,
food processor
Source: Company, CRISIL Research
From a South India to a pan-India presence
The company, being a traditionally southern market focussed player, derives the
majority of its revenue (67% of gross sales) from this market. Though the
contribution of the southern market in the overall pie is still the largest, the
company, over the past few years, has been successful in leveraging its brand
and distribution network to penetrate the western, northern and eastern
regions.
Pressure Cookers
60%
Non-stick Cookware
16%
Gas Stoves10%
Kitchen Electricals
9%
Others5%
Pressure Cookers
39%
Non-stick Cookware
20%
Gas Stoves11%
Kitchen Electricals
27%
Others3%
TTK transformed itself from
a mere outer-lid pressure
cooker maker to a complete
kitchen solution provider
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TTK Prestige Ltd
Figure 3: Market wise revenue break-up - FY11
Source: Company, CRISIL Research
Leveraging the brand ‘Prestige’ – A household name
TTK markets its products under the brand ‘Prestige’ which is now a widely
popular household name acknowledged for superior quality, long product life
and premium pricing. In an industry which is highly fragmented and is
dominated by the local and regional unorganised players, TTK has been able to
earn a strong brand recall in the consumers’ minds especially in the southern
market. The brand has also won several accolades over the past few years. TTK
is among the few household durable companies in India which have been able to
successfully market their products under one brand umbrella since inception.
We believe that the strong branding power will enable the company to further
penetrate the growing market.
Table 3: Awards won by the Prestige brand
Awards
• Awarded Master Brand by Chief Marketing Officer Council in
2011
• Super brand award by Super Brand India in FY10
• Mera Brand Award by Master Brand 2011
• Voted as India’s most Trusted Kitchen Appliances Brand by
a consumer survey conducted by the Economic Times in
2010
Source: Company, CRISIL Research
Has been able to pass on costs due to brand strength
The strong consumer preference for the brand has always enabled TTK to pass
on any increase in raw material prices irrespective of the industry cycle. This is
despite the competition from unorganised players where product pricing is the
differentiating factor.
Southern India67%
Western India13%
Eastern India8%
Northern India9%
Exports3%
TTK has been able to pass on
rise in raw material cost due
to strong consumer
preference for its brand
Able to create a strong
brand in a highly fragmented
and unorganised industry
Focus on newer market has
led to pan-India presence
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TTK Prestige Ltd
Figure 4: Brand has ability to pass on costs
Source: Company, CRISIL Research
Creating brand visibility through continuous spending
TTK has been continuously investing in strengthening its brand with an aim to
enter new markets and widen its product portfolio. This has really paid off in the
past few years with the company’s newly launched products / variants receiving
good response in the market despite tough competition from existing players in
those products. To sustain brand awareness, the company has been
continuously spending on advertisements, with spends averaging around 7% of
sales. In contrast, Hawkins spends only 3-4% of its sales while Bajaj Electricals
spends merely 1.3-1.5% of its sales on advertisements. We believe higher
spending on advertising and brand building augurs well for TTK, considering it is
eyeing to penetrate into the competitive the northern and north eastern
markets (dominated by Hawkins in pressure cooker, Sunflame in LPG stove and
Bajaj Electricals and Philips in kitchen electrical appliances).
Figure 5: Spends more on branding than its peers Figure 6: Volume growth across all products
Source: Company, CRISIL Research Source: Company, CRISIL Research
54.2%
55.0%
55.4%55.7%
52.5%
53.8%
50%
51%
52%
53%
54%
55%
56%
FY06 FY07 FY08 FY09 FY10 FY11
Raw material cost as a % of net sales
1.8% 1.6% 1.5% 1.3% 1.5% 1.3%
5.4% 5.1%
6.1%
7.1%
8.6%7.8%
4.4%3.9% 4.1% 3.8% 3.9%
3.3%
8.3%7.7%
7.1%8.0%
6.9% 6.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
FY06 FY07 FY08 FY09 FY10 FY11
(as % of sales)
Bajaj Electricals Gandhimathi Appliances
Hawkins Cookers T T K Prestige
9%
13%
17%
11%
19%
32%
26%
5%
1%
28%
27%
83%
9%
22%
3%
17%
12%
12%
172%
7%
7%
22%
187%
103%
0% 50% 100% 150% 200% 250%
FY06
FY07
FY08
FY09
FY10
FY11
Pressure Cookers Non-stick Cookware Gas Stoves Kitchen Electricals
TTK spends ~7% of sales on
advertisements in order to
create brand awareness in
non-traditional market
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TTK Prestige Ltd
Growing kitchen appliances industry Complements TTK’s strong positioning
We expect the branded kitchen appliances industry in India to grow at a healthy
rate driven by several favourable macro-economic factors. TTK, being one of the
leading players in the branded segment, is well poised to leverage the
opportunities in this space.
Table 4: Industry structure and TTK’s positioning
Product /
Segment
Market
Size
(Rs mn)
Marker characteristics
TTK’s
Market
Share
Competitors Market position & strength
Pressure
Cookers
12,000 • Highly competitive with low entry
barriers and a high number of
unorganised players
• Moderate growth rate of 10-11%;
however, the branded segment is
growing at a much faster pace
• High brand recall partially offsets
the price differentials
~30% Hawkins and
Butterfly
• Leading player with 44% market
share in the branded segment
• Wide range of cookers
• Regular product innovations
Non-stick
Cookware
8,550 • Low entry barriers; unorganised
player accounts for 55% of the
market
• High growth due to increasing
demand for lifestyle products by
the young population of India
~22% Hawkins,
Butterfly, Jaipan
and Nirlep
• Commands 40% market share in
the organised space
Gas
Stoves
16,000 • Highly fragmented market
• Characterised by high price
competitiveness
~5% Sunflame and
Butterfly
• Relatively small player
Kitchen
electrical
appliances
38,500 • Highly fragmented market
• Intense competition on price front
• Branded players command
premium
~5% Bajaj Electricals,
Maya Appliances
(Preethi),
Butterfly,
Panasonic Home
Appliances &
Philips
• Has been able to penetrate the
market despite being a new
entrant
• Regular product introduction and
rapidly expanding product
portfolio
• Leveraging the brand Prestige
Source: Company, CRISIL Research estimates
Rising disposable income and increasing urbanisation resulting in shift in preference for the organised market
Over the years, the Indian kitchen appliances industry has been experiencing a
rapid shift in preference from the unorganised to organised branded players.
Rising disposable income and increasing urbanisation have led to this shift due
to which players like TTK, Hawkins, and Gandhimathi Appliances have shown
strong growth in the past five years. Given the rising urban population and
growth in disposable income, we do not see this trend to reverse over the next
decade.
Rising disposable income
and increasing urbanisation
is leading to higher demand
for branded products
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TTK Prestige Ltd
Figure 7: Rising urban population in India… Figure 8: ... contributing more to GDP
Source: McKinsey Global Institute, CRISIL Research Source: McKinsey Global Institute, CRISIL Research
Figure 9: ... and rising disposable income… Figure 10: ...is leading to growth of branded players
Source: McKinsey Global Institute, CRISIL Research Source: Company, CRISIL Research
Today, the organised branded players account for ~60% of the pressure cooker
market, whereas the non-stick cookware and kitchen electrical appliances
market is still dominated by the regional and unorganised players. But over the
years, we expect the non-stick cookware and electrical appliances category will
also see a shift from unorganised to organised players.
Only 50% households with gas connection– room for further penetration
With 115 mn gas connections and 225 mn estimated households in India, there
is still a lot of room for further expansion. The lower penetration and the
Government of India’s (GoI) target to provide gas connection to another 55 mn
households by 2015 pave the road for future growth especially for the pressure
cooker and gas stoves category.
220290
340
590
0
100
200
300
400
500
600
1991 2001 2008 2030
(mn)
Total population (mn) 856 1,040 1,155 1,470
Total urban population (%) 26 28 30 40
+250
46 54 5869
54 46 4231
0%
20%
40%
60%
80%
100%
1991 2001 2008 2030
Sh
are
of In
dia
's G
DP
(%
)
Rural Urban
Rs bn, real 2008
100% = 15,903 9,100 49,043 238,041
CAGR (2008-30)
%)
Share of Growth
(%)
5.9 28.0
8.3 72.0
7.4 100.0
18% 13%
52%
26%
46%
25%
72%
13%16% 0% 0%0%
10%
20%
30%
40%
50%
60%
70%
80%
Cookers Stoves Kitchen Electricals
Cookware
(Volume CAGR)
TTK Prestige Gandhimathi Hawkins
GoI target to provide new 55
mn gas connections by 2015
to boost demand for
pressure cooker and gas
stoves
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TTK Prestige Ltd
Figure 11: New gas connections in India growing at 6%
Source: Company, CRISIL Research
More nuclear families – more family kitchens
India is witnessing a shift from the traditional joint families to more and more of
nuclear families. As per the industry sources, nearly 1.5 - 2% of joint families
are giving rise to nuclear families annually which is translating into more of
household kitchens and hence higher demand for kitchen appliances products.
Rising rural income + under-penetration = scope for growth
With households in rural India using fewer kitchen appliances, there is strong
growth potential for branded players in these areas. For instance, there are only
~200-220 pressure cookers for every 1,000 households in the rural market
against 85-90% penetration in the urban market. One of the main reasons for
the low penetration is that fewer rural households have gas connections though
this is expected to change given the GoI’s agenda of new gas connections.
Further, the GoI’s National Rural Employment Guarantee Act and rising crop
prices have led to a rise in disposable income among the farming community,
which is also driving the demand for branded kitchen appliances. TTK is eyeing
to tap this market by involving NGOs and women’s self help groups as its
distributors and has test marketed this model in Andhra Pradesh. TTK’s strong
brand, rising rural income, increasing brand awareness and higher aspiration of
rural consumers towards branded products will help the company to penetrate
faster.
Young India will have higher demand for lifestyle products
The demand for branded kitchen appliances products in India has also seen
significant growth due to its aesthetic appeal and better features which is
preferred by the younger population. Further, over the last decade, Indian
kitchens have undergone a major conceptual transformation - what was a
traditionally unappealing space located in an unnoticeable part of the house, is
now seen as a prestige and aesthetic part of any house; modular or designer
kitchens are gaining popularity in urban homes. This has boosted the demand
84,4
92
88,6
42
94,2
60
100
,977
105
,731
115
,064
10%
5%
6%7%
5%
9%
0%
2%
4%
6%
8%
10%
12%
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2005 2006 2007 2008 2009 2010
('000)
All India cummulative gas connections Y-o-Y growth (RHS)
Young demographic profile
of India is leading to higher
demand for branded and
lifestyle products
1.5 – 2% of joint families in
India are giving rise to
nuclear families annually,
which is subsequently
increasing the number of
family kitchens
Rising farm income is
leading to higher demand for
branded kitchen appliance
product
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 9
TTK Prestige Ltd
for branded products which are crucial for modular kitchens. Besides, with the
younger generation becoming health conscious and women left with less time to
spend in the kitchens, the demand for products like non-stick cookware, juicer
grinders and mixer grinders is rising rapidly. TTK, over the past three years, has
witnessed significant growth in its non-stick cookware and kitchen electrical
appliances category; we expect the growth to remain robust given the young
demographic profile of India.
Figure 12: TTK’s growth in non-stick cookware... Figure 13: ... and in kitchen electrical appliances
Source: Company, CRISIL Research Source: Industry sources, CRISIL Research
Changes in tax structure bridged the gap between organised and unorganised players
Prior to FY04, the excise duty on manufacturing of pressure cookers was 16%.
This coupled with the states’ sales tax and octroi hindered the organised players
from competing with the unorganised players who were able to play on lower
pricing. However, the change in tax structure by the government (current excise
duty is 5%) has bridged the pricing gap and led to a shift in the market from
the unorganised to organised players. We further believe that with the
introduction of goods and services tax, the gap will be further narrowed and will
lead to faster penetration by organised players like TTK.
Figure 14: Revenue growth between FY96-03 and FY03-11
Source: Company, CRISIL Research
357 435 540 636 873 1,540
45%
22% 24%18%
37%
76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY06 FY07 FY08 FY09 FY10 FY11
(Rs mn)
Revenue - non-stick cookware Y-o-Y growth (RHS)
216 389 471 726 1,037 1,929
90%
80%
21%
54%
43%
86%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
500
1,000
1,500
2,000
2,500
FY06 FY07 FY08 FY09 FY10 FY11
(Rs mn)
Revenue - kitchen electrical appliances Y-o-Y growth (RHS)
1%
26%
-0.2%
28%
2%
17%
-5%
0%
5%
10%
15%
20%
25%
30%
FY96-03 FY03-11
Gandhimathi TTK Pretige Hawkins
Reduction in excise duty on
pressure cooker levelled the
field between organised and
unorganised players
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TTK Prestige Ltd
Reaching last mile via vast distribution network
TTK sells its products through multiple distribution channels supported by a
large network of dealers. This strategy has enabled TTK to reach new markets
and more consumers. TTK markets its product through authorised direct
dealers, authorised re-distributors, large format stores (like Big Bazar, Star
Bazar), institutions (large corporate houses which make bulk orders for the
purpose of gifts), multi-level marketing and its franchise retail outlets ‘Prestige
Smart Kitchen’. These also provide better bargaining power to the company and
eliminate the risk of dependency on any one particular channel. Further, the
increasing urbanisation and rising income levels will pep up the consumer
demand from tier II and tier III markets, which can only be met by an extensive
distribution network and strong brand presence. TTK, with a pan India presence
and a vast distribution network of ~23,000 direct dealers is well positioned to
tap these opportunities.
Figure 15: Revenue break-up by distribution channel (FY11)
Source: Company, CRISIL Research
Retail foray – marketing tool turned into a distribution model
TTK’s exclusive retail outlets ‘Prestige Smart Kitchen’ was launched in early
2003 as part of its marketing strategy. The company’s foray into the non-
traditional products such as non-stick cookware, gas stoves and kitchen
electrical appliances initially failed to generate interest among dealers who were
apprehensive about acceptance of TTK’s new products in the market given the
presence of other brands. Hence, to market these products and reach out to
consumers, the company opened retail stores under the franchisee model. The
retail stores met with a high degree of success and attracted a large number of
consumers, which eventually encouraged dealers to ask for TTK’s new products.
TTK’s direct marketing strategy has paid them significantly well in recent times.
As of March 31, 2011, revenue from the exclusive outlets has grown at a five-
year CAGR of 36% to Rs 1,125 mn, accounting for 15% of overall sales; the
number of outlets has increased to 279 from 84 in FY06. Further, the increasing
Authorised redistributors
39%
Direct dealers22%
Prestige smart kitchen15%
Large format stores12%
Institutions9%
Multilevel marketing
3%
TTK strategy to sell through
multiple distribution channel
eliminate the risk of
dependency on any one
particular channel
TTK’s revenue through its
exclusive retail outlet
growing at a 5-year CAGR of
36%
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 11
TTK Prestige Ltd
preference of consumers for TTK’s new products besides the non-traditional one
is also prompting dealers to stock TTK’s products.
Figure 16: More Smart Kitchen outlets... Figure 17: ... leading to better sales
Source: Company, CRISIL Research Source: Industry sources, CRISIL Research
An asset-light model eliminates risk
Given the Smart Kitchen stores are an asset light model (as the franchise owner
bears the entire cost including establishment cost) and a useful marketing tool
which helps increase visibility, the company plans to further increase the
number of outlets to 500 by FY13. This will enhance TTK’s brand value and lead
to better sales. Further, the strategy has negligible risk as the stores are under
the franchisee model - product transfers to these outlets are treated as a
normal sale to a dealer and the company has no liability thereafter.
Regular launches of new and innovative products / variants – encashing the brand
TTK has been successful in encashing its strong brand pull, by continuously
launching new products/variants in the past few years. The company entered
the inner-lid pressure cooker segment to penetrate the northern and north-
eastern markets (where the product is popular) through the launch of ‘Prestige
Nakshatra’ range of inner-lid pressure cookers in the regular and ‘handi’
varieties. It further widened its offering through the ‘Prestige Apple’ range of
small inner-lid pressure cookers with 3 litre capacity in various vibrant colours
targeting the younger urban families to meet the requirements of their modern
kitchens and also for aesthetic appeal. Similarly, it is continuously upgrading its
‘Prestige Omega’ range of cookware products and introducing new products in
the kitchen electrical appliances category. The introduction of induction cook top
for the urban market became a hit in the rural market as well due to non-
availability of gas connection and increasing availability of power. Better
margins in these new life-style products compared to the traditional stainless
steel pressure cooker range have also led to improvements in overall margins of
the company. Further, the management is planning to enter into manufacturing
and marketing of ultra-premium category of pressure cookers which will further
boost the higher margins being achieved in the past few years.
84
180 174195
229
279
0
50
100
150
200
250
300
FY06 FY07 FY08 FY09 FY10 FY11
Smart Kitchen Outlets
239 440 468 553 741 1,125
10%
84%
6%
18%
34%
52%
-20%
0%
20%
40%
60%
80%
100%
0
200
400
600
800
1,000
1,200
FY06 FY07 FY08 FY09 FY10 FY11
(Rs mn)
Smart kitchen outlets' revenue
Contribution to total revenue (RHS)
Meeting changing
demands of the consumer
through continuous focus
on launching of new
products / variants
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 12
TTK Prestige Ltd
Figure 18: Continuous launches in the past few years
2005-06 2006-07 2007-08 2008-09 2009-10
Prestige
Nakshatra and
pressure handi
range of
inner-lid
cooker,
pressure
kadai, duplex
gas tables
85 new
products
launched
across
various
categories
45 products
launched
across five
categories in
80+
variants
New range
of induction
cook tops
Prestige
Apple range
of pressure
cookers
targeting
small urban
families
Source: Company, CRISIL Research
Creating replacement demand through exchange schemes
TTK is deriving ~25% of its sales through exchanges and promotional schemes.
This has led to creation of substantial replacement demand for its products in
the pressure cooker, non-stick cookware and gas stoves category, which have
otherwise high durability with product life of 8-9 years. Contrary to this, the
kitchen electrical appliances have a much shorter life of 2-3 years, thereby
fostering a natural replacement market. Consumers are always attracted to
branded products being sold at a discounted price. Besides, the higher income
levels have also led the consumers to shift to a product with better features and
brand value. We believe that the strong brand positioning coupled with such
schemes will enable the company to achieve higher sales.
Figure 19: Promotional and discounts cost as % of sales
Source: Company, CRISIL Research
Capacity expansion to support future growth
TTK is planning to double its pressure cooker manufacturing capacity to 9.6 mn
units and quadrupling its non-stick cookware capacity to 8 mn units by FY12.
The company is planning to invest Rs ~2,000 mn for this of which Rs 320 mn
has already been invested in FY11. The company, besides expanding its
manufacturing capacities at its Coimbatore (Tamil Nadu) and Roorkee
(Uttarakhand) plants, is also putting up greenfield capacities in Gujarat and
Maharashtra for manufacturing non-stick cookware including hard anodised
146 223 188 241 296 461
6.6%
7.9%
5.8% 6.0% 5.8% 6.0%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
50
100
150
200
250
300
350
400
450
500
FY06 FY07 FY08 FY09 FY10 FY11
(Rs mn)
Discounts and schemes % of sales (RHS)
TTK’s exchanges and
promotional schemes are
creating substantial
replacement demand for
its products
Strong cash generation
from the operation enables
TTK to fund majority of its
expansion plan through
internal accruals
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 13
TTK Prestige Ltd
pressure cookers. These capacity additions will be funded predominantly by
internal accruals and debt of Rs 500 mn. Hence the expansion plan will not
carry the risk of any equity dilution or rising gearing levels.
Figure 20: More utilisation = fresh capacities Figure 21: Cash generating business
Source: Company, CRISIL Research Source: Company, CRISIL Research
Continues to follow outsourcing model for other products
TTK sources its gas stoves and kitchen electrical appliances from third parties
and will continue to do so to maintain its focus on manufacturing of pressure
cookers and cookware products. While gas stoves are being sourced from
dedicated small and medium scale enterprises in North India under TTK’s strict
supervision, 60% of kitchen electrical appliances requirement is being sourced
from China (as they cost 20% cheaper than in-house manufacturing) and rest
from India. This strategy will enable TTK to grow faster without investing too
much in building capacities. This will also enable the company to maintain its
high asset turnover, thereby yielding higher return on equity.
Real estate - non-core operation with one-time cash flow and annual lease rentals…
TTK has decided to develop the surplus land of its oldest factory in Bangalore;
the sale of the residential portion of the project is expected to yield a one-time
cash flow of Rs 650 mn in FY15 while the leasing of commercial space will lead
to annual rental cash flows of Rs 70 mn from FY15. The company has handed
over development of 6.5 acre of surplus land at Dooravaninagar (near
Whitefield), Bangalore to Rajmata Realtors (Salarpuria group company) for
developing an office cum residential complex (60% commercial and 40%
residential). The project has received all the necessary approvals and
construction has begun.
… and zero liability
TTK has given the land as an equity contribution to the developer for 43% stake
in the project with no further liability on account of cost of development. The
real estate development is a non-core operation of the company. The land was
housing the oldest factory of TTK and the location has turned into a residential
54%57%
58%
81%
29%
36%
77%
85%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
FY08 FY09 FY10 FY11
Pressure Cookers Non-stick Cookware
200 29 511 463 751 821
9%
1%
16%
12%
15%
11%
-5%
0%
5%
10%
15%
20%
-
100
200
300
400
500
600
700
800
900
FY06 FY07 FY08 FY09 FY10 FY11
(Rs mn)
Cash from operation Cash from operation as % of sales (RHS)
Outsourcing model for
kitchen electrical
appliances and gas stoves
to maintain high asset
turnover
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 14
TTK Prestige Ltd
area. The company was finding it difficult to continue with factory operation at
an optimum level due to environmental issues and hence decided to shift the
plant to Coimbatore. As per our interaction with the management, the company
is not focusing on expanding into the real estate business and will continue to
expand in the kitchen appliances segment.
Intensifying competition amidst significant growth
The kitchen appliances industry is highly fragmented with large number of
unorganised and regional players. Low entry barriers and price based
competition remain the key concerns in this industry. Besides competition from
unorganised players, TTK also faces competition from organised players given
the strong growth expected in the industry. However, we believe that a player
with a strong brand, a wide range of product portfolio, a strong distribution
network, wider market penetration and better financial muscle will be able to
cope with such a competition. With TTK scoring ahead of its competitors in all
the parameters, we do not see competitive pressure as a major risk to growth.
Table 5: TTK competitive positioning
Characteristics TTK Hawkins Gandhimathi
Products offering Only company in India offering a
product portfolio across entire
range of kitchen appliances.
It is only into pressure cooker
and non-stick cookware
Pressure cookers, mixer grinders,
table-top wet grinders and gas
stoves. The product basket and
variants are not as wide as TTK.
Market Position Market leader in pressure cooker
and non-stick cookware. Rapidly
capturing the market in other
product categories
Second largest player in the
pressure cooker category after
TTK
Market leader in gas stove in South
India. Limited presence outside
southern markets
Dominant market South India North and East India Tamil Nadu
Other market North and West India NA Karnatka, Andhra Pradesh,
Maharasta and Gujarat
Brand Prestige Hawkins, Miss Mary and Futura Butterfly
Brand recall Strong in South and is known in
the North and West market
Strong in North and East India Strong in Tamil Nadu especially in
gas stove category
Distribution
Network
Has a wide distribution network
and markets its products through
distributors, dealers, exclusive
retail outlets and big format stores
Wide distribution network;
markets products through
distributors, and big format
stores. Has no exclusive retail
outlets
Wide distribution network; However
it very limited retail presence and
also limited sales in big format
stores
Target segment Catering to all income class ; but
does not have products into utlra
premium category
Catering to all income class;
Have a range of products for
utlra premium high income
class
More concentrated towards mid-
mid and mid-lower income; also
does not have products into utlra
premium category
EBIDTA Margins 15-16% This is due to high
margins product like non-stick
cookware and electrical appliances
product.
14-15% 11-12%. Since they do not have
too many premium products their
margins is lower
Balance sheet Debt free, efficiently managed
working capital, high asset
turnover and high RoE
Low gearing, highest RoE,
efficiently managed working
capital, low asset turnover
High debt, comparatively higher
working capital and relatively low
asset turnover
Source: Company, CRISIL Research
Strong brand and
extensive distribution
network of TTK help to
mitigate the rising
competition
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 15
TTK Prestige Ltd
Key risks
Rising inflation may impact consumer spending power
Rising inflation has added to the woes of Indian consumers by adversely
impacting purchasing power. In case inflation continues to remain above 8-9%,
it may have an impact on the spending power of the consumers, thereby
impacting the demand for consumer durables, including kitchen appliances.
Volatility in raw material prices
Aluminium and stainless steel are the major raw materials in case of non-
electrical kitchen appliance products and accounts for 52-55% of revenues.
Though TTK has been successful in passing on increases in raw material prices
due to its established brand, any significant rise in prices and the company’s
inability to pass on the rise can exert pressure on operating margins.
Low entry barriers; intense competition
Kitchen appliance is a highly fragmented industry with many unorganised
players. This coupled with low entry barriers leads to intense competition.
Though TTK has been able to diversify its product portfolio over a period of time
and enjoy a strong branding power, future growth might be impacted due to
competition based on pricing in the kitchen appliance industry.
Labour intensive operation
Kitchen appliances industry is a labour intensive industry and any dispute
between the factory labour workforce and management can disrupt production,
thereby impacting profitability. However, TTK’s management has been
instrumental in maintaining a cordial relationship with the factory workforce and
has not seen any major dispute over the last six-seven years. Besides its major
expansion plans are less labour intensive due to more mechanisation. Hence we
do not see this as a major risk to the company.
Rising inflation may
impact consumer
spending power thereby
impacting demand for
consumer durables
Kitchen appliance is a
fragmented industry with
low entry barriers
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 16
TTK Prestige Ltd
Financial Outlook
Revenues to grow at two-year CAGR of 35%
TTK’s revenue registered a strong five-year CAGR of 28% during FY06-11 driven
by healthy growth of 18% in the pressure cooker segment and diversification
into non-stick cookware, kitchen electrical appliances and gas stoves segment,
which registered robust growth of 34%, 55% and 29% respectively during the
same period. Apart from the strong industry demand, factors like strong brand
recall, foray into new product categories and variants, continuous upgradation
and extensive distribution reach has led to a significant growth in the past.
Going forward, we expect the revenues to grow at a two-year CAGR of 35% to
Rs 13.9 bn by FY13 driven by strong growth across all segments. While the
pressure cooker segment is expected to register a strong growth of 31%, non-
stick cookware, kitchen electrical appliances and gas stoves category is
expected to register 54%, 43% and 16% growth respectively.
Figure 22: Strong growth in revenue to continue Figure 23: Contribution from each of the segments
Source: Company, CRISIL Research Source: Company, CRISIL Research
EBITDA margin to remain stable
In the past two years, EBITDA margins increased ~700 bps to 16.6% in FY11
mainly due to higher contribution from relatively high margin non-stick
cookware and kitchen electrical appliances. Further the company’s ability to
efficiently manage its overhead costs, and achieve higher economies of scale
has also boosted margins. Given that the company is entering into high margin
pressure cooker manufacturing and increasing contribution from the high
margin cookware and electrical appliances segment, we expect margins to
remain more or less stable at 16% over the next two years.
4,019 5,077 7,641 10,552 13,867
23.4%26.3%
50.5%
38.1%
31.4%
0%
10%
20%
30%
40%
50%
60%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
FY09 FY10 FY11 FY12E FY13E
(Rs mn)
Revenue Y-o-Y growth (RHS)
53% 47% 41% 38% 37%
15%17%
20% 25% 25%
18%20% 25% 25% 27%
10% 12% 10% 8% 7%
5% 4% 3% 3% 3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY09 FY10 FY11 FY12E FY13E
Pressure cooker Non-stick cookware
Kitchen electrical appliances Gas stoves
Others
Revenue growth is driven
by strong volume growth
across the product
category
Increasing contribution
from better margins
products to maintain
stable and higher margins
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 17
TTK Prestige Ltd
Figure 24: EBITDA margin to remain stable Figure 25: Operating cost as % of sales
Source: Company, CRISIL Research Source: Company, CRISIL Research
Well managed overheads; enjoys economies of scale
Over the years, TTK’s management was successful in managing its overhead
cost; its employee and SG&A costs as a percentage of sales declined by 350 bps
to 25.3% in FY11 compare to 28.8% in FY09.
Figure 26: Higher margins depict TTK’s efficiency – FY11
Source: Company, CRISIL Research
PAT to grow at a two-year CAGR of ~32%, EPS to increase from Rs 74 in FY11 to Rs 129 in FY13
PAT is expected to grow at a two-year CAGR of 32.1% to Rs 1.5 bn in FY13,
primarily driven by strong growth in revenues and stable margins. PAT margin
is expected to remain stable at 10.5-11% over the next two years. EPS is
expected to grow in-line with PAT from Rs 74 in FY11 to Rs 129 in FY13.
394 780 1,267 1,677 2,212
9.8%
15.4%16.6%
15.9% 16.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
-
500
1,000
1,500
2,000
2,500
FY09 FY10 FY11 FY12E FY13E
(Rs mn)
EBIDTA EBIDTA margins (RHS)
55.7% 52.5% 53.8%
7.8%7.7% 6.9%
20.9%19.1% 18.4%
5.8%5.3% 4.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
FY09 FY10 FY11
(as % of sales)
Raw material cost Employee cost SGA cost Other cost
53.8%
41.7%
60.3%
6.9%
11.4%
5.5%
18.4%
19.5%
14.3%
4.3%12.9% 9.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
TTK Prestige Hawkins Cookers Gandhimathi Appliances
(as % of sales)
Raw Material cost Employee cost Selling & Administrative expenses Other costs
TTK’s margins among the
best in the industry
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 18
TTK Prestige Ltd
Figure 27: EPS and PAT margin
Source: Company, CRISIL Research
RoE to decline due to capex; however, will remain strong above 40%
TTK’s RoE and RoCE increased significantly from 29% and 32% in FY09 to 53%
and 76%, respectively, in FY11 driven by substantial improvement in margins
and an increase in asset turnover. However with the ongoing capex of Rs 2,000
mn, the asset turnover is expected to decline thereby leading to a fall in RoE
and RoCE at 43.1% and 57.2% in FY13 respectively, though still at healthy
levels.
Figure 28: RoE and RoCE to remain strong Figure 29: Asset turnover ratio to decline
Source: Company, CRISIL Research Source: Company, CRISIL Research
Efficient working capital management low gearing significant cash generation
TTK’s efficient working capital management (working capital days declined from
90 days in FY06 to 40 days in FY09 to 12 days in FY11) has led the company to
become virtually debt-free given minimal requirements of funds for working
capital. This coupled with strong revenue growth, better management of
overheads and eventually better margins has led to significant generation of
cash. From a mere Rs 89 mn of cash generated (before any investments) in
19.7 42.6 74.2 99.7 129.4
5.6%
9.5%
11.0% 10.7% 10.6%
0%
2%
4%
6%
8%
10%
12%
0
20
40
60
80
100
120
140
FY09 FY10 FY11 FY12E FY13E
(Rs / share)
EPS (LHS) PAT margins
32.5%
64.1%
76.4%
61.1%57.2%
29.2%
46.3%
53.3%47.8%
43.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
FY09 FY10 FY11 FY12E FY13E
RoCE RoE
12.313.8
18.9
11.5
7.5
5.86.6
9.1
7.6
5.8
0
2
4
6
8
10
12
14
16
18
20
FY09 FY10 FY11 FY12E FY13E
(x)
Net asset turnover Gross asset turnover
Working capital days
decline to 12 days in FY11
from 90 days in FY06
RoE to remain healthy
above 40% in FY13
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 19
TTK Prestige Ltd
FY06, the company has generated Rs ~800 mn in FY11. This will enable the
company to fund its proposed capital expenditure of Rs 2,000 mn largely
through internal accruals and marginally by debt of Rs 500 mn.
Figure 30: Strong working capital management... Figure 31: ... led to surplus cash generation
Source: Company, CRISIL Research Source: Company, CRISIL Research
90 80 68 40 21 12
1.2 1.3
0.7
0.2
0.0 0.0
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
0
10
20
30
40
50
60
70
80
90
100
FY06 FY07 FY08 FY09 FY10 FY11
(Days) (X)
Working capital days Gearing (RHS)
89 142 154 133 543 799
70% 59%
8%-14%
307%
47%
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
350%
0
100
200
300
400
500
600
700
800
900
FY06 FY07 FY08 FY09 FY10 FY11
(Rs mn)
Cash generation before any investment Y-o-Y growth (RHS)
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 20
TTK Prestige Ltd
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of
management quality, apart from other key factors such as industry and
business prospects, and financial performance.
Experienced top management with strong business acumen
TTK has an experienced management team. Mr. T.T. Jagannathan, Promoter
and Executive Chairman, is a Gold medallist from IIT, Chennai and has done
masters in operations research from Cornell University, USA. He has been
associated with the company for the past 35 years. He along with veterans like
Mr. S. Ravichandran, Managing Director, who did his engineering from IIT,
Chennai and MBA from IIM, Ahmedabad and Mr. K. Shankaran, Director –
Corporate Affairs have led the company to yield strong CAGR of 20% in
revenues and 50% at the PAT level in past one decade.
Successful in establishing a strong brand
TTK’s management has been successful in establishing a strong brand ‘Prestige’
in a highly fragmented kitchen appliance industry in India dominated by
unorganised players. The brand has won several accolades in the past; all of
TTK’s products are successfully marketed under the same brand since inception.
The ability to pass on any rise or fall in the raw materials prices over the past
decade also speaks about the strength of the brand. With continuous
investment in branding, the management has been able to create a significant
demand for its non-traditional product portfolio.
Professional set-up and strong second line
TTK’s management has a professional approach towards managing the
company. Based on our interactions with various business heads – Mr. Chandru
Kalro (Executive VP – Marketing), Mr. V. Sundaresan (CFO), Mr. H. T Rajan
(Chief Manufacturing Officer) and plant managers - we believe that TTK has a
strong second line with 10-15 years of experience in their respective domains.
Apart from being well-versed with their respective departments, they have
hands-on experience in the overall business of the company. Further their
association with the company since the past seven-eight years and the strong
growth reported by the company depicts that these people have been successful
enough in implementing their overall strategy and vision.
Management ready to hand over charge to professionals
Mr T.T. Jagannathan, 62, has shown inclination towards a professional
management set-up. Though his two sons are involved in managing the other
group companies we do not see succession a major issue given that Mr.
Jagannathan over the years has built a strong team and is ready to hand over
the charge to professionals.
TTK has an experienced
management with strong
business acumen
Strong and experienced
second line of management
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 21
TTK Prestige Ltd
Corporate Governance
CRISIL’s fundamental grading methodology includes a broad assessment of
corporate governance and management quality, apart from other key factors
such as industry and business prospects, and financial performance. In this
context, CRISIL Research analyses the shareholding structure, board
composition, typical board processes, disclosure standards and related-party
transactions. Any qualifications by regulators or auditors also serve as useful
inputs while assessing a company’s corporate governance.
Overall, corporate governance at TTK meets the requisite standard and is
supported by reasonably good board practices and an independent board.
Board composition
The board comprises 10 members, of whom five are independent directors,
which meets the requirements under Clause 49 of SEBI’s listing guidelines. The
board brings industry expertise as well as diversified technical and business
experience.
Board’s processes
The board's processes appear to be well structured, with all the committees -
audit, remuneration and investor grievance - in place, supporting good
corporate governance practices and decision-making framework. The fact that
audit committee and remuneration committee is chaired by an independent
director speaks well of the good governance practices. The committee meets at
timely and regular intervals. The board also includes well-known names like
Mr R Srinivasan, who is currently on the board of companies such as
Cholamandalam MS General Insurance Co. Ltd, Kirloskar Oil Engines Ltd,
Sundaram Fasteners Ltd. Mr. Arun K. Thiagarajan, another independent
director, has held senior positions in ABB, Wipro and Hewlett-Packard.
Good disclosure levels; strong internal control systems
The company’s quality of disclosure can be considered good, judged by the level
of information and details furnished in the annual report, websites and other
publicly available data. The disclosure level is sufficient to analyse the various
business aspects. It has strong internal control systems and has engaged
management audit firms who will focus on risk management processes,
operational efficiencies and improved utilization of SAP processes.
Corporate governance
practices are good
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 22
TTK Prestige Ltd
Valuation Grade: 2/5 We initiate coverage on TTK with a valuation grade of 2/5, indicating that the
current market price has downside to our fair value of Rs 2,392 per share. We
have used the discounted cash flow (DCF) method and our fair value indicates
an implied one year forward price-to-earning (PER) multiple of 18.5x FY13 EPS
and one year forward enterprise value-to-EBITDA (EV/EBITDA) multiple of
11.7x FY13 EBIDTA.
Key DCF assumptions
We have discounted the free cash flows of TTK from FY13 to FY22, post which
we have applied a terminal growth of 5%. Considering the demographic profile
of India and rising income levels of Indians, we believe the terminal growth rate
of 5% is justified. We have assumed a cost of equity of 15.1% and post tax cost
of debt at 7.7%.
Sensitivity to valuation
We tested our valuation sensitivity on various key assumptions:
Table 6: Sensitivity to WACC and terminal growth rate
Terminal growth rate
WA
CC
3.0% 4.0% 5.0% 6.0% 7.0%
13.5% 2,472 2,627 2,819 3,063 3,381
14.5% 2,252 2,371 2,515 2,692 2,917
15.0% 2,161 2,266 2,392 2,545 2,738
16.0% 2,002 2,083 2,180 2,296 2,438
17.0% 1,873 1,938 2,013 2,103 2,210
Source: CRISIL Research estimates
Sensitivity of change in EPS to change in overall revenue growth and margins
• For every change of ±250 bps in revenue growth assumption, our EPS
estimate for FY12 and FY13 changes by ±5% and ±12%, respectively.
• For every change of ±100 bps in our EBITDA margin assumption, our
estimates of EPS for FY12 and FY13 changes by ~±7%.
We initiate coverage on
TTK with a fair value of
Rs 2,392 per share and
valuation grade of 2/5
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 23
TTK Prestige Ltd
Valuation comparison
Company M.Cap
(Rs mn)
P/E EV/EBITDA RoE (%) P/BV
FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E
TTK Prestige Ltd 31,593 37.6 27.9 21.5 24.3 18.7 13.7 53 48 43 16.5 11.2 7.9
Direct competitors
Hawkins Cookers Ltd 8,016 25.2 NA NA 16.5 NA NA 75 NA NA 17.4 NA NA
Gandhimathi Appliances Ltd 2,918 22.8 12.2 12.3 11.9 8.9 7.6 37 63 40 4.3 5.9 4.2
Bajaj Electricals Ltd 17,652 12.1 10.5 8.4 8.0 6.6 5.4 26 24 25 2.9 2.3 1.9
Median 22.8 11.4 10.3 11.9 7.7 6.5 37 43 32 4.3 4.1 3.0
Weighted average 20.0 11.4 10.3 12.1 7.7 6.5 46 43 32 8.2 4.1 3.0
Consumption based other peers
IFB Industries Ltd 2,875 5.2 NA NA 4.1 2.6 NA 28 NA NA 1.3 NA NA
Lovable Lingerie Ltd 6,532 31.8 27.6 23.1 32.4 24.0 18.4 17 16 16 4.6 4.0 3.5
Page Industries Ltd 28,203 48.2 33.7 25.8 29.8 21.3 16.5 53 58 57 22.8 15.9 11.1
Kewal Kiran Clothing Ltd 8,823 19.1 15.3 12.6 11.8 9.4 7.7 24 26 27 5.1 4.3 3.7
Jubilant Foodworks Ltd 55,547 76.4 52.5 35.6 45.8 29.2 20.7 47 43 42 28.8 19.3 13.2
Median 31.8 30.6 24.5 29.8 21.3 17.4 28 34 35 5.1 10.1 7.4
Weighted average 36.1 32.3 24.3 24.8 17.3 15.8 34 35 36 12.5 10.9 7.9
Overall peer group
Median 24.0 21.4 17.9 14.2 9.4 12.1 32 34 33 4.9 5.1 3.9
Weighted average 30.1 25.3 19.6 20.0 14.6 12.7 38 38 34 10.9 8.6 6.3
Source: CRISIL Research estimates, Industry
TTK Prestige currently trades at P/E multiple of 21.5x based on our FY13 EPS
estimate, which indicates that the stock is trading at a premium over its direct
competitors. Also based on our fair value of Rs 2,392 the implied PE multiple is
18.5x. We believe that the premium over its direct competitors is justified given
its better wide product profile, strong distribution network, higher profitability
margins, a strong balance sheet and a prudent management.
Simultaneously, we have analysed valuation multiples of other consumption
driven companies such as Jubilant Foodworks, IFB Industries, Page Industries
Ltd, and others to get an insight of market sentiments on consumption driven
thematic story. We found that these stocks are trading at a median FY13 P/E of
24.5x, which implies that TTK is trading at 12% discount to these companies.
Also at our FV of Rs 2,392 the stock trades at 18.5x FY13 multiple which is a
discount of ~25%. We believe TTK’s valuation has limited scope for any further
discount beyond this given the company’s strong positioning kitchen appliance
segment, its historical performance and positive business outlook.
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 24
TTK Prestige Ltd
One-year forward P/E band One-year forward EV/EBITDA band
Source: NSE, BSE, Company, CRISIL Research Source: NSE, BSE, Company, CRISIL Research
P/E – premium / discount to NIFTY P/E movement
Source: NSE, BSE, Company, CRISIL Research Source: NSE, BSE, Company, CRISIL Research
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Apr-
08
Jun-
08
Aug-0
8
Oct
-08
Dec-
08
Feb-
09
Apr-
09
Jun-
09
Aug-0
9
Oct
-09
Dec-
09
Feb-
10
Apr-
10
Jun-
10
Aug-1
0
Oct
-10
Dec-
10
Feb-
11
Apr-
11
Jun-
11
Aug-1
1
Oct
-11
Dec-
11
(Rs)
TTK Prestige 1x 8x 15x 22x 29x
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Apr-
08
Jun-
08
Aug-0
8
Oct
-08
Dec-
08
Feb-
09
Apr-
09
Jun-
09
Aug-0
9
Oct
-09
Dec-
09
Feb-
10
Apr-
10
Jun-
10
Aug-1
0
Oct
-10
Dec-
10
Feb-
11
Apr-
11
Jun-
11
Aug-1
1
Oct
-11
Dec-
11
(Rs mn)
EV 3x 10x 17x 24x
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Apr-
08
Jun-0
8
Aug
-08
Oct
-08
Dec
-08
Feb
-09
Apr-
09
Jun-0
9
Aug
-09
Oct
-09
Dec
-09
Feb
-10
Apr-
10
Jun-1
0
Aug
-10
Oct
-10
Dec
-10
Feb
-11
Apr-
11
Jun-1
1
Aug
-11
Oct
-11
Dec
-11
Premium/Discount to NIFTY Median premium/discount to NIFTY
-5
0
5
10
15
20
25
30
35
Apr-
08
Jun-0
8
Aug-
08
Oct
-08
Dec-
08
Feb-
09
Apr-
09
Jun-0
9
Aug-
09
Oct
-09
Dec-
09
Feb-
10
Apr-
10
Jun-1
0
Aug-
10
Oct
-10
Dec-
10
Feb-
11
Apr-
11
Jun-1
1
Aug-
11
Oct
-11
Dec-
11
(Times)
1yr Fwd PE (x) Median PE
+1 std dev
-1 std dev
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 25
TTK Prestige Ltd
Company Overview
TTK is the flagship company of the TT Krishnamachari group of companies,
which has interest in healthcare and consumer products. TTK Prestige Ltd was
set up in 1955 as a private limited company, which went public in 2000. The
company through its brand ‘Prestige’ is among the leading brands in the kitchen
appliances space in India, especially in the pressure cooker and non-stick
cookware category. The company has a well diversified product profile, with
~60% of revenues from pressure cooker and non-stick cookware products and
the remaining from gas stoves and kitchen electrical appliances. The company,
being India’s first ISO 9001:2000 certified kitchenware company, has a market
share of about 43-44% in the domestic pressure cooker segment in the
organised space.
The company has three manufacturing facilities located at Hosur, Coimbatore
(in Tamil Nadu) and Roorkee (in Uttarakhand) and is planning to set-up a green
field manufacturing facility primarily for non-stick cookware in Gujarat.
Key milestones
1955 Incorporated as a private limited company
1959 Commenced manufacturing of pressure cookers with technical collaboration from Prestige Group (UK)
1984 Launched Prestige pressure pan
1990 Launched ready-to-eat snacks, fryums, in India
1994 Came out with an IPO
1994 Changed name from TT Limited to TTK Prestige Limited.
1995 Launched its products under the brand name Manttra in the US market
1998 Made an entry into the UK and Australian markets
2000 Company launched Prestige omega non-stick cookware
2001 Launched a new range of vacuum flasks with imported shells
2003 Recast its debt portfolio by converting majority of its borrowing into ECBs and FCNRB loans aggregating to US $9.5 mn
2004 Inaugurated the exclusive TTK Prestige showroom in Vijayawada
2005 Obtained license for Prestige brand for the use in USA, launched new product Prestige Nakshatra (Inner lid), pressure Handi, pressure kadai, duplex gas tables
2008-09 Introduced new range of Induction cook tops
2009-10 Launched “Prestige Apple” range of inner lid cookers, “Prestige Micro chef” microwave cookers, Inducted compatible base cookware
2010 Voted as India’s most trusted kitchen appliance brand by Brand Equity survey of India’s most trusted brands 2010
2011 Envisaged capacity expansion of Rs 2,000 mn
TTK, incorporated in 1955,
is the leading kitchen
appliance manufacturer of
India
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 26
TTK Prestige Ltd
Annexure: Financials
Source: CRISIL Equities
Income statement Balance Sheet
(Rs mn) FY09 FY10 FY11 FY12E FY13E (Rs mn) FY09 FY10 FY11 FY12E FY13E
Operating income 4,019 5,077 7,641 10,552 13,867 Liabilities
EBITDA 394 780 1,267 1,677 2,212 Equity share capital 113 113 113 113 113
EBITDA margin 9.8% 15.4% 16.6% 15.9% 16.0% Reserves 733 1,128 1,801 2,706 3,879
Depreciation 35 36 43 63 108 Minorities - - - - -
EBIT 359 744 1,225 1,614 2,103 Net worth 846 1,242 1,915 2,819 3,993
Interest 72 37 44 60 59 Convertible debt - - - - -
Operating PBT 286 707 1,181 1,554 2,044 Other debt 207 28 22 522 22
Other income 4 6 26 61 51 Total debt 207 28 22 522 22
Exceptional inc/(exp) - 41 (3) - - Deferred tax liability (net) 31 31 33 33 33
PBT 290 754 1,204 1,615 2,095 Total liabilities 1,085 1,301 1,970 3,374 4,048
Tax provision 66 230 366 484 629 Assets
Minority interest - - - - - Net fixed assets 343 394 414 1,415 2,263
PAT (Reported) 224 524 838 1,130 1,467 Capital WIP 237 235 495 947 -
Less: Exceptionals - 41 (3) - - Total fixed assets 580 629 909 2,361 2,263
Adjusted PAT 224 483 841 1,130 1,467 Investments 4 4 4 4 4
Current assets
Ratios Inventory 503 613 1,050 1,445 1,900
FY09 FY10 FY11 FY12E FY13E Sundry debtors 489 603 747 1,156 1,520
Growth Loans and advances 213 426 782 712 936
Operating income (%) 23.4 26.3 50.5 38.1 31.4 Cash & bank balance 109 440 535 507 1,030
EBITDA (%) 19.6 98.3 62.4 32.3 31.9 Marketable securities - - 222 222 222
Adj PAT (%) 29.5 115.9 74.1 34.4 29.7 Total current assets 1,314 2,081 3,336 4,043 5,607
Adj EPS (%) 29.5 115.9 74.0 34.4 29.7 Total current liabilities 829 1,424 2,285 3,039 3,832
Net current assets 485 657 1,052 1,004 1,775
Profitability Intangibles/Misc. expenditure 16 11 5 5 5
EBITDA margin (%) 9.8 15.4 16.6 15.9 16.0 Total assets 1,085 1,301 1,970 3,374 4,048
Adj PAT Margin (%) 5.6 9.5 11.0 10.7 10.6
RoE (%) 29.2 46.3 53.3 47.8 43.1 Cash flow
RoCE (%) 32.5 64.1 76.4 61.1 57.2 (Rs mn) FY09 FY10 FY11 FY12E FY13E
RoIC (%) 30.2 59.6 81.9 59.2 54.3 Pre-tax profit 290 713 1,207 1,615 2,095
Total tax paid (66) (230) (365) (484) (629)
Valuations Depreciation 35 36 43 63 108
Price-earnings (x) 141.2 65.4 37.6 27.9 21.5 Working capital changes 136 159 (77) 20 (249)
Price-book (x) 37.3 25.4 16.5 11.2 7.9 Net cash from operations 395 678 808 1,213 1,326
EV/EBITDA (x) 80.5 40.0 24.3 18.7 13.7 Cash from investments
EV/Sales (x) 7.9 6.2 4.1 3.0 2.2 Capital expenditure (64) (80) (317) (1,515) (10)
Dividend payout ratio (%) 25.3 21.6 16.9 17.1 17.1 Investments and others - - (222) - -
Dividend yield (%) 0.2 0.4 0.4 0.6 0.8 Net cash from investments (64) (80) (539) (1,515) (10)
Cash from financing
B/S ratios Equity raised/(repaid) 0 0 0 - -
Inventory days 69 71 80 78 80 Debt raised/(repaid) (262) (179) (6) 500 (500)
Creditors days 60 77 81 80 80 Dividend (incl. tax) (66) (132) (164) (226) (293)
Debtor days 43 43 35 38 38 Others (incl extraordinaries) (0) 44 (3) - -
Working capital days 40 21 12 10 11 Net cash from financing (328) (267) (173) 274 (793)
Gross asset turnover (x) 5.8 6.6 9.1 7.6 5.8 Change in cash position 3 331 96 (28) 523
Net asset turnover (x) 12.3 13.8 18.9 11.5 7.5 Closing cash 109 440 535 507 1,030
Sales/operating assets (x) 7.0 8.4 9.9 6.5 6.0
Current ratio (x) 1.6 1.5 1.5 1.3 1.5 Quarterly financials
Debt-equity (x) 0.2 0.0 0.0 0.2 0.0 (Rs mn) Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12
Net debt/equity (x) 0.1 (0.3) (0.4) (0.1) (0.3) Net Sales 1,999 2,365 1,819 2,331 3,035
Interest coverage 5.0 19.9 27.9 27.1 35.5 Change (q-o-q) 38% 18% -23% 28% 30%
EBITDA 327 422 238 371 498
Per share Change (q-o-q) 43% 29% -44% 56% 34%
FY09 FY10 FY11 FY12E FY13E EBITDA margin 16% 18% 13% 16% 16%
Adj EPS (Rs) 19.7 42.6 74.2 99.7 129.4 PAT 218 293 166 253 337
CEPS 22.8 45.8 77.9 105.3 139.0 Adj PAT 224 293 166 253 337
Book value 74.7 109.6 168.9 248.7 352.2 Change (q-o-q) 40% 31% -43% 52% 33%
Dividend (Rs) 5.0 10.0 12.5 17.0 22.1 Adj PAT margin 11% 12% 9% 11% 11%
Actual o/s shares (mn) 11.3 11.3 11.3 11.3 11.3 Adj EPS 20 26 15 22 30
© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 27
TTK Prestige Ltd
Focus Charts
FY11 – Revenue break-up – Well diversified New gas connections in India growing at 6%
Source: Company, CRISIL Research Source: Company, CRISIL Research
Revenue growth between FY96-03 and FY03-11 TTK’s revenue is growing through its retail outlet
Source: Company, CRISIL Research Source: Company, CRISIL Research
TTK’s PE movement Shareholding pattern over the quarters
Source: Company, CRISIL Research Source: Company, CRISIL Research
Pressure Cookers
39%
Non-stick Cookware
20%
Gas Stoves11%
Kitchen Electricals
27%
Others3%
84,
492
88,
642
94,
260
100,
977
105,
731
115,
064
10%
5%
6%7%
5%
9%
0%
2%
4%
6%
8%
10%
12%
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2005 2006 2007 2008 2009 2010
('000)
All India cummulative gas connections Y-o-Y growth (RHS)
1%
26%
-0.2%
28%
2%
17%
-5%
0%
5%
10%
15%
20%
25%
30%
FY96-03 FY03-11
Gandhimathi TTKP Hawkins
239 440 468 553 741 1,125
10%
84%
6%
18%
34%
52%
-20%
0%
20%
40%
60%
80%
100%
0
200
400
600
800
1,000
1,200
FY06 FY07 FY08 FY09 FY10 FY11
(Rs mn)
Smart kitchen outlets' revenue
Contribution to total revenue (RHS)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Apr-
08
Jun-0
8
Aug-
08
Oct
-08
Dec-
08
Feb-
09
Apr-
09
Jun-0
9
Aug-
09
Oct
-09
Dec-
09
Feb-
10
Apr-
10
Jun-1
0
Aug-
10
Oct
-10
Dec-
10
Feb-
11
Apr-
11
Jun-1
1
Aug-
11
Oct
-11
Dec-
11
(Rs)
TTK Prestige 1x 8x 15x 22x 29x
74.9% 74.9% 74.9% 74.9%
8.0% 6.3% 6.8% 8.4%2.0% 5.1% 5.8% 4.3%
15.1% 13.8% 12.5% 12.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-10 Mar-11 Jun-11 Sep-11
Promoter FII DII Others
© CRISIL Limited. All Rights Reserved.
CRISIL Research Team
Senior Director
Mukesh Agarwal +91 (22) 3342 3035 [email protected]
Analytical Contacts Tarun Bhatia Director, Capital Markets +91 (22) 3342 3226 [email protected]
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Ajay D'Souza Head, Industry Research +91 (22) 3342 3567 [email protected]
Ajay Srinivasan Head, Industry Research +91 (22) 3342 3530 [email protected]
Sridhar C Head, Industry Research +91 (22) 3342 3546 [email protected]
Manoj Mohta Head, Customised Research +91 (22) 3342 3554 [email protected]
Sudhir Nair Head, Customised Research +91 (22) 3342 3526 [email protected]
Business Development
Vinaya Dongre Head, Industry & Customised Research +91 (22) 33428025 [email protected]
Ashish Sethi Head, Capital Markets +91 (22) 33428023 [email protected]
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Email : [email protected] I Phone : 9920225174
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Regional Contacts:
To know more about CRISIL IER, please contact our team members:
Ashish Sethi – Head, Business Development
Email : [email protected] I Phone : 9920807575
About CRISIL Limited
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are
India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks
and leading corporations.
About CRISIL Research CRISIL Research is the country’s largest independent and integrated research house with strong domain expertise
on Indian economy, industries and capital markets. We leverage our unique research platform and capabilities to
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Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai - 400 076 Phone : 91-22-3342 3000 Web: www.crisil.com Download reports from: www.ier.co.in
Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai - 400 076 Phone : 91-22-3342 3000 Web: www.crisil.com Download reports from: www.ier.co.in
Ahmedabad / Mumbai Vishal Shah - Manager, Business Development Email : [email protected] I Phone : 9820598908 Bengaluru Gayathri Ananth – Senior Manager, Business Development Email : [email protected] I Phone : 9886498175 Chennai / Hyderabad Kaliprasad Ponnuru - Manager, Business Development Email : [email protected] I Phone : 9642004668
Delhi Arjun Gopalkrishnan - Manager, Business Development Email :[email protected] I Phone : 9833364422 Kolkata Priyanka Agarwal - Manager, Business Development Email : [email protected] I Phone : 9903060685 Mumbai / Pune Vivek Tandon - Manager, Business Development Email : [email protected] I Phone : 9903060685
Ashish Sethi – Head, Business Development Email : [email protected] I Phone : 9920807575
Regional Contacts:
To know more about CRISIL IER, please contact our team members:
Sagar Sawarkar – Senior Manager, Business Development Email : [email protected] I Phone : 9821638322
Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai - 400 076 Phone : 91-22-3342 3000 Web: www.crisil.com Download reports from: www.ier.co.in