Consumer Durables India I Equities
Result Update Change in Estimates Target Reco
16 October 2015
TTK Prestige
Rating: Sell Target Price: `3,496 Share Price: `4,200
Huge spike in Q2 sales; valuation expensive; Sell TTK Prestige’s Q2 revenue growth came at 10.2% yoy, to `4.2bn. The EBITDA margin rose 41bps yoy, to 12.5%, aided by a better product mix and utilisation. PAT grew 21.7% yoy, to `340m. TTK is going aggressive in e-commerce and is focusing on a better product mix. Highest ever Q2 sales. Q2 sales rose to `4.2bn (up 10.2% yoy), 2.6% above our estimate. This was because of growth in its appliances (up 16% yoy), cookers (up 9% yoy), and cookware (up 2.7% yoy). Q2 domestic sales grew 10.5% yoy, whereas exports declined slightly. The non-southern market grew 16% yoy, the southern market, 6%. For H1, revenue came at `7.7bn (up 7.1% yoy) Margins improve slightly. The Q2 margin improved 41bps yoy, to 12.5%, because of better fixed-cost absorption, capacity utilisation and product mix. Management plans launches with a better product mix. During H1, margins, at 11.8%, were flattish. PAT up 21%. Q2 profit was `340m (up 21.7% yoy). This was aided by declining interest cost (down 33% yoy), increase in other income (up 95.5% yoy) and a 166-bp yoy cut in the tax rate. For H1 FY16, PAT grew 2.8% yoy, to `560m. Guidance. The recent launches would drive consumer interest. With this, the company expects double-digit growth in FY16. PSK has been growing robustly and plans to widen its network. The company has no major capex plans for the next two years besides minimal capex of ~`150m every year. It is focusing on expanding its after-sales service. Also, it expects exports to do ` better in coming quarters. Valuation. At the CMP, the stock trades at P/E of 34.6 FY17e and 30x FY18e EPS. This, we believe, is richly valued, given the macro-economic headwinds and restricted short-term potential. Based on the above and because of the poor monsoon, we maintain our Sell call, with a Mar’18 price target of `3,496. Risks. Easing input costs and better power available in the south. Quarterly results (YE Mar)
Q2 FY15
Q2 FY16
% yoy
H1 FY15
H1 FY16
3,820
4,210
10.2
7,183
7,696
7.1
EBITDA (` m)
462
526
13.9
854
909
6.4
EBITDA margin (%)
12.1
12.5
41 bps
11.9
11.8
(8)bps
11
7
-33.3
16
13
-18.3
Sales (` m)
Interest (` m)
Key data
TTKPT IN / TTKL.BO
`4401 / `2989 27000 / 8100 $1m `49.2bn / $0.8bn 11.65m
52-week high / low Sensex / Nifty 3-m average volume Market cap Shares outstanding
Shareholding pattern (%)
Jun’15
Mar’15
Dec’14
Promoters - of which, Pledged Free Float - Foreign Institutions - Domestic Institutions - Public
70.3 29.7 16.8 5.0 7.7
70.3 29.7 14.8 6.0 8.7
70.3 29.7 18.1 4.5 6.9
Financials (YE Mar)
Sales (` m)
FY17e
FY18e
18,036
20,604
Net profit (` m)
1,416
1,629
EPS (`)
121.5
139.9
Growth (%)
23.2
15.1
PE (x)
34.6
30.0
PBV (x)
6.0
5.2
RoE (%)
18.3
18.6
RoCE (%)
25.1
25.4
Dividend yield (%)
0.8
0.8
Net gearing (%)
-0.1
-0.2
Source: Anand Rathi Research
% yoy
Depreciation (` m)
48
49
1.7
94
95
1.7
Other income (` m)
11
22
95.5
23
46
98.3
PBT (` m)
414
492
18.8
767
846
10.3
Girish Solanki
Tax (` m)
135
152
12.7
240
249
3.5
Tax rate (%)
32.5
30.8
(166)bps
31.3
29.4
(195)bps
Research Analyst +9122 66266712
[email protected]
280
340
21.7
545
560
2.8
PAT (` m) Source: Company
Share price as on 15th October 2015
Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research
India Equities
16 October 2015
TTK Prestige - Huge spike in Q2 sales; valuation expensive; Sell
Quick Glance – Financials and Valuations Fig 2 – Balance sheet (` m)
Fig 1 – Income statement (` m) Year-end: Mar
Net revenues Revenue growth (%) - Oper. expenses EBIDTA EBITDA margins (%) - Interest - Depreciation + Other income - Tax Effective tax rate (%) + Associates/(Minorities) Adjusted PAT + Extraordinary items Reported PAT Adj. FDEPS (`/share) Adj. FDEPS growth (%)
FY14
FY15
FY16e
FY17e
FY18e
12,938 -5 11,336 1,602 12.4 85 148 79 400 27.6
13,883 7 12,391 1,492 10.7 45 190 51 410 31.3
15,559 12 13,769 1,789 11.5 20 200 109 529 31.5
18,036 16 15,872 2,164 12.0 224 126 651 31.5
20,604 14 18,132 2,472 12.0 238 144 749 31.5
1,048 70 1,118 91.6 -21.9
899 24 923 77.8 -15.0
1,149 1,149 98.7 26.8
1,416 1,416 121.5 23.2
1,629 1,629 139.9 15.1
FY14
FY15
FY16e
FY17e
FY18e
117 5,737 5,853 308 205 6,366 3,621 18 91 90 2,341 296 6,366 66 502.4
117 6,343 6,460 50 260 6,770 3,618 11 35 35 2,810 295 6,770 74 554.5
117 7,152 7,268 260 7,528 3,552
117 8,090 8,207 260 8,467 3,628
117 9,243 9,359 260 9,619 3,690
35 3,390 550 7,528 80 623.9
35 3,829 974 8,467 77 704.5
35 4,467 1,427 9,619 79 803.4
Fig 4 – Ratio analysis @ `4,200
Fig 3 – Cash-flow statement (` m) Adjusted PAT + Non-cash items Cash profit - Incr. / (decr.) in WC Operating cash-flow - Capex Free-cash-flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash-flow + Op. cash & bank bal. Cl. Cash & bank bal.
Share capital Reserves & surplus Net worth Total debt Minority interest Def. tax liab. (net) Capital employed Net fixed assets Intangible assets Investments - of which, Liquid Working capital Cash Capital deployed Working capital (days) Book value (`/sh)
Source: Company, Anand Rathi Research
Source: Company, Anand Rathi Research
Year-end: Mar
Year-end: Mar
FY14
FY15
FY16e
FY17e
FY18e
Year-end: Mar
FY14
FY15
FY16e
FY17e
FY18e
1,118 252 1,370 547 822 705 117 273 1,053 -887 87 -76 372 296
923 245 1,168 469 699 180 519 300 -17 -258 -55 -1 296 295
1,149 200 1,350 581 769 123 646 341 -50 255 295 550
1,416 224 1,640 439 1,200 300 900 477 423 550 974
1,629 238 1,867 637 1,230 300 930 477 453 974 1,427
P/E (x) Cash P/E (x) EV/EBITDA (x) EV/sales (x) P/B (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Net debt/equity (x) Debtor (days) Inventory (days) Payables (days) RM/ Sales (%) Fixed asset T/O (x)
45.9 40.2 30.5 3.8 8.4 22.8 25.7 0.5 24.4 -0.0 41 71 105 56.6 3.6
54.0 44.6 32.6 3.5 7.6 15.0 20.6 0.5 32.5 -0.0 41 71 88 57.3 3.8
42.6 36.3 27.0 3.1 6.7 16.7 23.1 0.6 29.6 -0.1 41 70 80 59.5 4.4
34.6 29.8 22.2 2.7 6.0 18.3 25.1 0.8 33.7 -0.1 41 71 85 58.8 5.0
30.0 26.2 19.2 2.3 5.2 18.6 25.4 0.8 29.3 -0.2 41 71 85 58.8 5.6
Source: Company, Anand Rathi Research
Source: Company, Anand Rathi Research
Fig 5 – PE Chart
Fig 6 – FY15 revenue break-up (standalone)
(`) 5,000 4,500
TTK
4,000
OTHERS 4%
35x
3,500 28x
3,000 2,500
21x
2,000 14x
1,500 1,000
COOKERS 37% APPLIANCES 40%
7x
500
Source: Bloomberg, Anand Rathi Research
Anand Rathi Research
COOKWARE 19%
Oct-15
Apr-15
Oct-14
Apr-14
Oct-13
Apr-13
Oct-12
Apr-12
Oct-11
Apr-11
Oct-10
Apr-10
Oct-09
0
Source: Company
2
16 October 2015
TTK Prestige - Huge spike in Q2 sales; valuation expensive; Sell
Result Highlights TTK Prestige reported healthy sales growth in Q2 FY16, with revenues improving a huge 10.2% yoy, to `4.2bn (2.6% above what we expected). The chief reason for the robust revenue growth was growth in the cooker and appliances sub-segments. The EBIDTA margin came at 12.5%, against 12.1% in Q2 FY15. The better fixed-cost absorption and capacity utilisation helped drive the EBIDTA margin. The company incurred `8m on CSR activities. Net profit came at `340m, up 21.7% yoy. The tax rate was 30.8% (down 166bps yoy). Fig 7 – Quarterly results vs expectations (`m)
Q2 FY15
Q2 FY16
% var
Q1 FY16
% var
Q2 FY16e
3,820
4,210
10.2
3,486
20.8
4,103
2.6
EBIDTA
462
526
13.9
382
37.6
468
12.5
PBT
414
492
18.8
317
55.5
420
17.1
PAT
280
340
21.7
220
55.0
286
19.1
Sales
% var
Source: Company, Anand Rathi Research
Fig 9 – Improved revenues
(`m) 4,500
(%) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
4,000 3,500 3,000 2,500 2,000 1,500 1,000
FY11
FY12 Revenue
FY13
FY14
FY15
3,500 3,000 2,500 2,000 1,500 1,000 500
FY11
FY16
FY12
FY13
Revenue
Ebitda Margin (RHS)
Source: Company, Anand Rathi Research
(%) 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0
4,000
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
500
(`m) 4,500
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Fig 8 – Margins improve in Q2 FY16
FY14
FY15
FY16
Growth yoy (RHS)
Source: Company, Anand Rathi Research
Key concall highlights
Anand Rathi Research
The company registered the highest-ever Q2 sales of the past 10-12 quarters. The domestic business has grown well; exports have not grown because of slow economic growth. The company expects exports to grow in H2 FY16. It expects double-digit growth in FY16, with margins rising substantially, in line with revenue growth.
There has been good volume growth in induction cooktops, and mixer-grinders has also done well. PSK sales continue to rise, growing about 20%. The company is going aggressive in e-commerce. Currently, e- commerce contributes about 2-3% of revenue.
Utilisation levels have improved and the company is at a reasonable level of utilisation. There are no major capex plans for the next two years besides minimal capex of `150m each year.
Currently, ad spend is about 6% and the company is focused on expanding its after-sales services. The company is planning acquisitions (not more than `4bn), funded through internal accruals and short-term debt. 3
16 October 2015
TTK Prestige - Huge spike in Q2 sales; valuation expensive; Sell
Valuation We believe that demand for induction-based pressure cookers, cookware and cooktops has been hurt by competition, increasing e-commerce and declining commodity prices (rubber, oil, etc.). Inflationary trends in consumer articles are affecting consumer sentiment. Because of the macroeconomic headwinds and restricted short-term potential, we maintain our Sell call on the stock, with an FY18 price target of `3,496. Risks
Anand Rathi Research
Volatility in input prices. The sharp decline in raw material prices of aluminium, copper, steel and zinc might increase profitability of the company
Currency fluctuation. As some products are imported from China, the appreciating rupee against the dollar could push up the margins.
4
Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 15 October 2015)
5,000
TTK Prestige
4,500 10
4,000
8
6
3,500
2
3,000
4
3
11
7
9
5
1
2,500
Oct-15
Jul-15
May-15
Feb-15
Nov-14
Aug-14
Jun-14
Mar-14
Dec-13
Oct-13
Jul-13
May-13
Feb-13
Nov-12
Sep-12
Jun-12
Mar-12
Jan-12
2,000
1 2 3 4 5 6 7 8 9 10 11
Date Rating 05-Mar-12 Buy 09-May-12 Buy 15-Oct-12 Sell 17-Jul-13 Sell 23-Oct-13 Sell 20-Jan-14 Sell 19-May-14 Sell 14-Oct-14 Sell 22-Jan-15 Sell 29-May-15 Sell 27-Jul-15 Sell
TP (`) 3,647 3,637 3,116 3,255 3,060 2,746 3,107 3,285 3,344 3,040 3,060
Share Price (`) 2,837 3,102 3,314 3,482 3,330 3,482 3,262 4,030 3,585 3,914 3,988
Anand Rathi Ratings Definitions Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (US$1bn) Mid/Small Caps (15% >25%
Anand Rathi Research Ratings Distribution (as of 15 October 2015) Buy 60% Anand Rathi Research stock coverage (196) % who are investment banking clients 4%
Hold 5-15% 5-25%
Sell
