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TTK Prestige Ltd's (TTK's) Q2FY13 results were significantly below CRISIL Research's expectations. Revenues grew by just 11% y-o-y because of de-growth in cookware and induction cook-top sales. EBITDA margins declined by 160 bps y-o-y to 14.8% due to increase in other operating expenses (includes advertisement cost/selling/ discounts & promotions). PAT declined by 10% y-o-y to Rs 303 mn driven by the decline in EBITDA margins and increase in interest expenses. We believe the challenges faced by the company during the quarter are likely to impact the near-term growth and profitability as we view the challenges to be short term in nature. We retain our fundamental grade of 5/5.
De-growth in induction cook-tops and cookware hurt overall growth
The sale of induction cooktops were significantly impacted by lack of availability of power in Tamil Nadu (TN) (the state accounts for 45% of cooktop sales) and decrease in consumer spending. As per our industry sources, power cuts in suburban cities and rural areas of TN had aggravated to around 13-14 hours/daily in the second quarter that led to consumers deferring purchase of induction cooktops. Sales volume of cooktops was down 15% y-o-y in 2QFY13. In addition, sale of induction-based cookware was also affected as these are often bundled with induction cooktops. However, the management believes that the recent move to limit the number of subsidised cylinders per household to six from 12 and the onset of the winter season are likely to revive the sale of induction cooktops. While we concur with the management on the benefit resulting from the cap on subsidised cylinders, we expect its impact to be limited because the availability of power is a relatively bigger issue.
The sale of induction cooktops were significantly impacted by lack of availability of power in Tamil Nadu (TN) (the state accounts for 45% of cooktop sales) and decrease in consumer spending. As per our industry sources, power cuts in suburban cities and rural areas of TN had aggravated to around 13-14 hours/daily in the second quarter that led to consumers deferring purchase of induction cooktops. Sales volume of cooktops was down 15% y-o-y in 2QFY13. In addition, sale of induction-based cookware was also affected as these are often bundled with induction cooktops. However, the management believes that the recent move to limit the number of subsidised cylinders per household to six from 12 and the onset of the winter season are likely to revive the sale of induction cooktops. While we concur with the management on the benefit resulting from the cap on subsidised cylinders, we expect its impact to be limited because the availability of power is a relatively bigger issue.
Competition likely to increase with Havells' entry in kitchen appliances business
We believe that competition in the electrical kitchen appliances segment is likely to increase further with the entry of large players such as Havells (with products like induction cooker, induction rice cooker and mixers). Not only is Havells a strong brand name but it also has a strong pan-India dealer and retailer network. We believe that it is likely to have an impact on the long-term growth momentum and as a result, it is our key monitorable.
We believe that competition in the electrical kitchen appliances segment is likely to increase further with the entry of large players such as Havells (with products like induction cooker, induction rice cooker and mixers). Not only is Havells a strong brand name but it also has a strong pan-India dealer and retailer network. We believe that it is likely to have an impact on the long-term growth momentum and as a result, it is our key monitorable.
Reducing FY13 and FY14 EPS estimates by 10% and 8% respectively
We have lowered our FY13 revenue estimates by 5% to Rs 13.5 bn from Rs 14.2 bn and FY14 revenue estimates by 4% to Rs 17.4 bn from Rs 18.1 bn. EBITDA margin estimates for the same period have been lowered by 60 bps and 30 bps to 15.1% and 15.7%, respectively. Consequently, FY13 and FY14 EPS estimates are lowered from Rs 127 and Rs 160 to Rs 113 and Rs 146, respectively.
We have lowered our FY13 revenue estimates by 5% to Rs 13.5 bn from Rs 14.2 bn and FY14 revenue estimates by 4% to Rs 17.4 bn from Rs 18.1 bn. EBITDA margin estimates for the same period have been lowered by 60 bps and 30 bps to 15.1% and 15.7%, respectively. Consequently, FY13 and FY14 EPS estimates are lowered from Rs 127 and Rs 160 to Rs 113 and Rs 146, respectively.
Valuations: Current valuations suggest downside
We continue to use the DCF method to value TTK and lower our fair value estimate to 2,800 from Rs 2,950. The fair value implies P/E multiples of 24x and 19x FY13 and FY14 EPS estimates, respectively. At the current market price of Rs 3,203, the valuation grade is 2/5.
We continue to use the DCF method to value TTK and lower our fair value estimate to 2,800 from Rs 2,950. The fair value implies P/E multiples of 24x and 19x FY13 and FY14 EPS estimates, respectively. At the current market price of Rs 3,203, the valuation grade is 2/5.
Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The 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. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. 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 of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.
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