TTK Prestige Ltd. December 3, 2012

continues to consolidate and expand its retail network under

Prestige Smart Kitchen brand through the franchise model, making it the largest kitchenware retail chain. The company plans to expand to 500 outlets by FY13 from 390 outlets as on 30th Sep 2012. Under its product portfolio, the company introduced around 60 new products during FY’12 covering Pressure Cookers, Induction Cook Tops, Mixer Grinders, Rice Cookers, Gas Stoves and other small electric appliances.

During FY’12, the company announced three major tie-ups—with Meyer

4,168.8 ~18.3%

Potential Upside Duration

Long Term

52 week H/L (`)

3,996.0/2,151.4

All time High (`) Decline from 52WH (%) Rise from 52WL (%) Beta Mkt. Cap (` bn) Enterprise Value (` bn)

3,996.0 11.8 63.8 1.0 39.9 40.0

Fiscal Year Ended Y/E

FY11A

FY12A

FY13E

FY14E

Revenue (`mn)

7,678.3

11,065.2

13,825.0

17,412.8

Net Profit(`mn)

837.5

1,133.6

1,324.6

1,750.3

Share Capital

113.3

113.3

113.3

113.3

EPS (`)

73.9

100.0

116.9

154.4

P/E (x)

47.7

35.2

30.2

22.8

P/BV (x)

20.9

14.0

10.9

8.1

EV/EBITDA (x)

31.4

22.8

18.9

14.6

ROCE (%)

58.6

52.3

43.7

48.1

ROE (%)

43.7

39.8

36.1

35.7

One year Price Chart

Corp., World Kitchen and the Vestergaard Frandson Group. These strategic alliances not only consolidate the company's position in the mass market segment but also tap the top of the pyramid segment to drive revenue visibility in future. Further, the impact of new launches like Corelle, Circulon etc will be seen in H2FY13.

150 100 50 Dec-11

0

With soaring prices of LPG, TTKP ventured into the Induction cook tops segment and witnessed a robust demand scenario. India is facing shortage of LPG, particularly in South India which augurs well for the demand of induction cook tops. Moreover, the government’s recent move to limit the number of subsidized cylinders per household to 6 from 12 and the onset of the winter season would further boost the sale of induction cook tops.

3,523.9

Nifty

Shareholding Pattern

Nov-12

TTK

CMP (`) Target (`)

Oct-12

cookware capacity to 12 million pieces and increase the annual induction cook‐tops capacity to 1 million pieces. The company has already added capacity in Uttarakhand and Coimbatore and it is building fresh capacity in Gujarat. By the end of FY13, the company will also have a capacity to make in excess of 8 million pressure cookers. We expect that these capacity additions would be able to meet the demand for next 3-5 years, which will also curb import dependency and help in improving the margins.

BUY

Sep-12

is doing capex since April 2010 to double its annual non‐stick

Rating

Aug-12

TTKP

TTKPT:IN

Market Data

Jul-12

Investor’s Rationale

Bloomberg Code:

Jun-12

TTK Prestige Ltd. (TTKP) established in October 1955, is an Indian company which operates in two business segments - Kitchen Appliances and Property & Investment. The company has been enlarging its products through global firms to bring advanced product ranges and foreign brands through tie-ups. Furthermore, as a part of its expansion plan, TTK Prestige has signed a deal with the US Company, World Kitchen that would enable it to enter the highend tableware/cookware and storeware segments.

TTKL.NS

May-12

Reuters Code:

Apr-12

TTKPRESTIG

Mar-12

NSE Code:

Feb-12

517506

Jan-12

BSE Code:

TTKP

Sep’12

Jun’12

Diff.

Promoters

74.9

74.9

-

FII

13.3

11.8

1.5

DII

2.8

3.4

(0.6)

Others

9.0

9.9

(0.9)

Emerged as India’s largest kitchen appliances company…

The product range of TTKP includes Pressure Cookers, Non-Stick Cookware, Rice Cookers, OTG’s, Kitchen Hoods (Chimneys), Hobs, LP Gas Stoves, Coffee Makers, Kettles, Sandwich Toasters and many other small electrical appliances.

TTKP also offers Modular Kitchen solutions with the widest range of options in terms of design, choice of materials, accessories and hardware.

TTK Prestige Ltd. is a part of TTK Group. Over the past five decades TTKP emerged as India’s largest Kitchen Appliances Company catering to the needs of home makers in the country. Every Prestige brand product is built on the pillars of safety, innovation, durability and trust, making the brand the first choice in millions of homes. TTKP is one of the world’s largest manufacturers of Pressure Cookers and it has been forefront in introducing several innovations like Gasket Release System (GRS), Gasket Offset Device (GOD) and Double Locking System, all firsts in India. Presently, TTKP has the widest product portfolio covering all aspects of the Kitchen making it the only brand to offer TOTAL KITCHEN SOLUTIONS to the customer. The product range includes Pressure Cookers, Non-Stick Cookware, Rice Cookers, OTG’s, Kitchen Hoods (Chimneys), and Hobs, LP Gas Stoves, Coffee Makers, Kettles, Sandwich Toasters and many other small electrical appliances. The company also offers Modular Kitchen solutions with the widest range of options in terms of design, choice of materials, accessories and hardware. The company has manufacturing facilities in Hosur, Coimbatore and Roorkee and distributes from sales branches located across the country to cater to the needs of specific markets. The company exports its products to USA, Europe, South Africa, Kenya, Australia, Singapore, Middle East, Sri Lanka and many other countries. The company's growth is steadily built on its core strengths of brand, manufacturing, design, distribution, sourcing and service capabilities. Over the last ten years, the company has been enlarging its scope to occupy the entire kitchen, providing a concept rather than a mere product and offering a host of simple solutions to the problems of day-to-day kitchen user through relevant products. Continuous innovation has been the key to the offering of well differentiated products.

Vision

The company's vision is "A Prestige in Every Indian Kitchen".

The strategy of focusing on Total Kitchen Solutions continues to create newer and newer opportunities every year to add new product categories and new customer base.

Core values

Strategy

TTK’s key core values are "to provide quality consumer products at affordable prices" and "fairness in dealings with every stake holder".

The company's strategy is to continue to focus on Total Kitchen Solutions.

True adherence to the above stated strategy, vision and values has enabled the company to make product offerings relevant to the various consumer segments and tap geographies outside the traditional strong holds of South Indian market. The company has built a strong goodwill amongst all the stake holders in the distribution chain across geographies. TTKP continues to enjoy the recognition of “Super brand” in the Kitchen Appliances segment. The company’s Prestige Smart Kitchen retail network continues to receive several awards and recognitions. With 4.5 million pressure cookers, 5.1 million pieces of non-stick cookware and 0.9 million induction cook tops sold during FY’12, the company has established clear leadership over competition in these categories.

Diverse product portfolio across all processes Over the past five years, TTKP has transformed itself from a single product company (i.e. outer lid pressure cooker) to a total kitchen solutions company lead by innovations like induction tops, apple cookers, microwave pressure cookers and a host of appliances. It also becomes the India’s first company to offer the complete Induction cooking solutions. The strategy of focusing on total kitchen solutions creates newer opportunities to add new product categories and customer base. Under the Prestige product portfolio the company has wide range of products in all the processes of cooking i.e. appliances required in preparation before cooking, food preparation, kitchen supplements and kitchen hardware.

The Prestige Product Portfolio Preparation Before Cooking

Kitchen supplements

Kitchen Hardware

Chopping

Pressure Cooking

Heaters

Chimneys

Blending

Cooking

Toasting

Modular kitchen furniture

Grinding

Frying

Beverage makers

Store management

Processing

Baking

-Mixer Grinders -Food Processors -Choppers -Blenders -Juicers -Wet Grinders -Knives

TTKP is the market leader in Pressure Cooker segment with market share of around 40% and in Induction cooktops segment it has a market share of about ~20%.

Food preparation

-Pressure Cookers -Non-stick Cookers -LPG Gas Stoves -Induction Cook tops -LPG Hobs -OTG’s -Microwave ovens -Rice cookers -Barbecues

-Kettles -Pop up -Toasters -Sandwich toasters -Coffee Makers -Tea Makers

-Complete Kitchen Solutions -Service business

The market for Pressure Cookers has organized national branded players, regional players and unorganized players. Over the years, the share of the unorganized players has come down as there has been a shift in the consumer preference to reliable branded players. TTKP is the market leader in Pressure Cooker segment with market share of around 40% and in Induction cooktops segment it has a market share of about ~20%. Revenue contribution from pressure cooker accounted for 37% in FY12, whereas revenue contribution of kitchen electric appliances (KEA) grew to 33.6% in FY12 from 9.3% in FY03 led by introduction of new product offerings. Around 80% of its sales came from products introduced in the last 3 years. The company has also foray into Tableware and Cookware (both glass and ceramic) segments, Kitchen Store ware and Domestic Water Filters. It has received US patent for Microwave Pressure Cookers recently and has been exporting the same to the US, Japan, the UK, Germany, France, China, Korea and Middle‐East. The management expects to increase export quantity from 0.2 million in FY12 to 0.8 million pieces in FY13E.

Strong brand with a solid distribution network

Expansion of retail network across India 600

The company extended its coverage to another 16 towns. The net addition to the number of stores was 25, taking the total to 390 outlets as on 30th Sep 2012, covering 24 States and 195 towns.

TTKP continues to consolidate and expand its retail network under Prestige Smart Kitchen brand through the franchise model, making it the largest kitchenware retail chain. The company extended its coverage to another 16 towns in H1FY13. The net addition to the number of stores was 25, taking the th total to 390 outlets as on 30 Sep 2012, covering 24 States and 195 towns.

500

500 356

400 279

300

228

196 200 100 0 FY'09

FY'10

FY'11

FY'12

FY'13E

The company plans to expand to 500 outlets by FY13 and also plans further expansion of its existing retail network across India. Under its product portfolio, the company introduced around 60 new products during FY’12 covering Pressure Cookers, Induction Cook Tops, Mixer Grinders, Rice Cookers, Gas Stoves and other small electric appliances.

Strategic partnerships to augment the revenue growth The company has been actively looking for enlarging its product and customer base and in the process to develop/ build relationships with certain global corporations to bring certain advanced product ranges as well as international brands into its business. During the year, it announced three major tie-ups—with Meyer Corp., World Kitchen and the Vestergaard Frandson Group. These strategic alliances not only consolidate the company's position in the mass market segment but also tap the top of the pyramid segment to drive revenue visibility in future Details of these tie-ups and further developments are:

During FY’12, the company announced three major tieups—with Meyer Corp., World Kitchen and the Vestergaard Frandson Group, which in turn will consolidate the company’s position to revive revenue visibility in future.

The company has concluded agreement with World Kitchen, USA which will enable the company to enter the high-end tableware/cookware and store-ware segments. The company's basket of products will henceforth include international brands such as corelle, corningware, Pyrex, Visions and snapware. Except Corelle, all other products will carry the brand of Prestige also. The initial arrangement is one of distribution and after gaining sufficient experience and volumes, a manufacturing Joint Venture may be set up for decoration of Corelle range of products and manufacture of Snapware range of storeware products. The company has also concluded a business collaboration agreement with Vestergaard Frandson Group, Switzerland which will enable it to enter the fast growing domestic water filter segment. The products will be made with the patented LifeStraw technology of Vestergaard. The products will be manufactured / assembled in India through the company and it will market and distribute the same across India. Further, it entered into agreement with Bialetti Industries Spa, Italy whereby it has bought their pressure cooker and cookware manufacturing plants in Romania and Italy for installation in India. Some of the machineries have already been installed and commissioned and the balance will be installed and commissioned during the year FY13. Bialetti Industries is also outsourcing Stainless Steel Pressure cookers from TTK. The company has also entered into outsourcing arrangements with their Indian subsidiary.

Capacity expansion across India to reduce import dependence TTKP is doubling its annual non‐stick cookware capacity to 12 million pieces and increase the annual induction cook‐tops capacity to 1 million pieces.

TTKP has been on capex spree since April 2010. So far, the company has spend `2,570 million and balance of around `750 million will be spent by FY13 to double its annual non‐stick cookware capacity to 12 million pieces and increase the annual induction cook‐tops capacity to 1 million pieces. The company has already added capacity in Uttarakhand and Coimbatore and it is building fresh capacity in Gujarat. By the end of FY13, the company will also have a capacity to make in excess of 8 million pressure cookers.

Installed Capacity (in million pieces) 14.0

12.0

12.0

12.0 10.0

8.0

8.0

8.0 6.0

8.0

6.0 4.8

4.0

4.0 2.0

4.8

1.8

2.0

2.0

FY09

FY10

FY11

1.0

1.0

0.0

Pressure Cookers

FY12

Nonstick Cookware

FY13E

FY14E

Induction Cook‐tops

We expect that these capacity additions would be able to meet the demand for next 3-5 years, which will curb import dependency to meet demand as imported products contributed around 38% of the sales in FY12 as compared to 30% in FY11. Going forward, imports are expected to come down to around 20% of the sales in FY14.

Trend in Production and Sales (in million pieces) FY09

FY10

FY11

FY12

Pressure Cookers

2.3

2.8

3.9

4.5

Nonstick Cookware

1.3

1.7

1.7

5.1

Induction Cook‐tops

-

-

-

-

Pressure Cookers

2.1

2.8

3.7

4.5

Nonstick Cookware

1.2

1.9

3.5

5.1

Induction Cook‐tops

-

-

-

0.9

Production

Sales

Cook-tops segment would be the key revenue growth driver in future After foreseeing the changing lifestyle pattern and soaring prices of LPG, TTKP ventured into the Induction cook tops segment and witnessed a robust demand scenario. India is facing shortage of LPG, particularly in South India which augurs well for the demand of induction cook tops. In FY12, induction cook tops accounted for 40% of total appliances sales of the company, whereas in FY11, it stood at ~25%. The company has also strong distribution network (especially in South India) of over 30,000 retail outlets and 390 PSK outlets covering across 195 towns in 24 states which aid the sales growth.

Moreover, the government’s recent move to limit the number of subsidized cylinders per household to 6 from 12 and the onset of the winter season would further boost the sale of induction cook tops. TTKP sells two products under the brand Prestige Premia and has over 20% market share in this category. However, it generates 62% of sales from South India, which is a power deficient region. Tier‐II/III cities experience power cuts in the range of 5‐6 hours during peak hours. This could hamper the sales if the situation gets more worsened.

With soaring prices of LPG, Induction cook tops segment will witness a robust demand. Moreover, the government’s recent move to limit the number of subsidized cylinders per household to 6 from 12 and the onset of the winter season would further boost the sale of induction cook tops.

Earlier, the company used to import induction cooktops but now it has started manufacturing the same at Roorkee plant with an initial capacity of 1 million units. Moreover, they are also moving their cookware to induction compatible ones, which offer higher margins. Further, the company expects that the industry wide demand for induction cook tops to increase significantly at a CAGR of 45% to 16 million units by 2016 and `34 billion by market value.

Strong performance expected in H2FY’13 Despite economic headwinds, TTKP has witnessed strong Q2FY’13 performance with 10.6% YoY growth in revenue to `3,355.5 million. The company’s export sales during the quarter grew impressively to `198.6 million as against `55.6 million in Q2FY’12. While, severe power cuts in Tamil Nadu (TN) has impacted the sales of induction cooktops during the quarter as TN accounts for 45% of induction cook-tops sales. However, the company's market share and brand salience was not affected but improved in key product categories. In the previous year, Diwali was in the month of October and this year Diwali was in November month. So, if this year’s October is compared to last year’s September, the company has grown by 30%. Pressure cooker sales grew by 19.8% YoY, appliances 7.0% YoY, whereas cookware de-grew by 12.5% YoY. Further, the company’s EBITDA remains more or less same as last year at `496.7 million with margins stood at 14.8%. While, the net profit declined marginally during Q2FY13 to `302.8 million as against `337.1 million in Q2FY12.

TTKP reported 10.6% YoY growth in revenue to `3,355.5 million in Q2FY’13 and exports surged impressively to `198.6 million as against `55.6 million in Q2FY’12.

During H1FY13, TTKP’s revenue surged by 19.3% YoY and the management guided revenue grow of 30% in H2FY13. Robust festive demand and six cylinder cap on subsidized cylinders should see a significant pick-up in demand for appliances such as Induction cook tops which will enable it to achieve its guidance. Further, the management has guided for robust 25% growth with EBITDA margin of around 15.5% for FY13.

Quarterly trend in Revenue, EBIDTA & EBIDTA Margin% 4000 3,356

16.4

3500 3,035

3,025

17.0

1,600

16.5

1,400 1,200

16.0 15.8

2500 2000

15.0 1500

14.8

1000 498

478

497

500 0 Q2FY12 Revenue

Q1FY13 EBIDTA

1,370

1,330

1,280

1,110

1,000 15.5

Q2FY13 EBIDTA Margin%

` Million

` Million

3000

Segmental revenue trend

800

640

600

14.5

400

14.0

200

13.5

Cookers Q2FY12

560

Cookware

Appliances Q2FY13

Balance Sheet Y/E (`million)

Profit & Loss Account FY11A

FY12A

FY13E

FY14E

113.3

113.3

113.3

113.3

Reserve and surplus

1,801.5

2,737.7

3,552.2

4,792.4

Net Worth

1,914.8

2,851.0

3,665.6

4,905.8

Loan funds

8.4

147.4

736.8

87.4

114.0

2,176.5

Other liabilities Deferred tax liabilities

Y/E (`million)

FY11A

FY12A

FY13E

FY14E

Total Income

7,678.3

11,065.2

13,825.0

17,412.8

Expenses

6,418.8

9,313.9

11,682.6

14,668.0

221.0

EBITDA

1,259.5

1,751.3

2,142.4

2,744.8

136.8

146.3

EBITDA margin (%)

16.4

15.8

15.5

15.8

3,605.5

4,332.2

4,851.8

Depreciation

42.6

62.4

102.3

143.2

35.0

50.0

59.0

64.9 1,216.9

1,688.8

2,040.1

2,601.6

32.6

68.1

68.1

68.1

4,254.7

6,835.9

8,998.4

10,257.9

Interest

7.6

56.4

147.8

101.2

Fixed assets

809.9

2,300.3

3,105.3

3,540.1

Exceptional Item.

5.9

-

-

-

Loans and advances

119.0

96.8

123.9

152.5

Profit Before Tax

1,203.5

1,632.4

1,892.3

2,500.4

Investment

225.8

3.9

3.9

3.9 Tax

366.0

498.8

567.7

750.1

Other asset

3.4

4.5

5.7

7.1

Current assets

3,096.7

4,430.4

5,759.5

6,554.4

Net Profit

837.5

1,133.6

1,324.6

1,750.3

Capital Deployed

4,254.7

6,835.9

8,998.4

10,257.9

NPM (%)

10.9

10.2

9.6

10.1

Share Capital

Long Term Provisions Current liabilities

EBIT

Capital Employed

Key Ratios Y/E

FY11A

FY12A

FY13E

FY14E

EBITDA Margin (%)

16.4

15.8

15.5

15.8

EBIT Margin (%)

15.9

15.3

14.8

15.0

NPM (%)

10.9

10.2

9.6

10.1

ROCE (%)

58.6

52.3

43.7

48.1

ROE (%)

43.7

39.8

36.1

35.7

EPS (`)

73.9

100.0

116.9

154.4

P/E (x)

47.7

35.2

30.2

22.8

BVPS(`)

168.9

251.5

323.4

432.8

20.9

14.0

10.9

8.1

5.2

3.6

2.9

2.3

EV/EBITDA (x)

31.4

22.8

18.9

14.6

EV/EBIT (x)

32.5

23.7

19.9

15.4

P/BVPS (x) EV/Operating Income (x)

Valuation and view TTKP is confident to continue strong growth in profitability given the healthy margins and robust business growth in future. Strong brand recall, deeper distribution channel, diversified product offering and constantly updating & innovating to changing demand has enabled TTKP to gain market share. Also, capacity expansion plans and tie-ups with MNCs will drive the future growth. The impact of new launches like Corelle, Circulon etc will be seen in H2FY13. Further, the cap on 6 cylinders is positive for TTKP as it would revive the sale of induction cook tops. We rate the stock as ‘BUY’ at the current market price of `3,523.9, given the strong fundamentals, apt management and long term growth visibility. The current market price of `3,523.9 implies a P/E of ~30.2x FY’13E EPS of `116.9 and 22.8x on FY’14E EPS of `154.4 respectively.

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