Consumer Durables

India I Equities

Result Update
Change in Estimates Target Reco

9 May 2012

TTK Prestige
4QFY12 results slightly below estimates
TTKs 4QFY12 revenue rose 27.8%, to `2.3bn, up from `1.8bn in 4QFY11. EBITDA was `316m, 33% higher yoy. Net profit was `197m, 18.7% higher yoy and 5% below our estimates due to the rupee depreciation and larger proportion of revenues from its low-margin segment. We lower our FY13 profit estimates 4.8% due to the moderating growth rate but maintain a Buy, with revised price target of `3,637.

Key data

Rating: Buy Target Price: `3,637 Share Price: `3,102

TTKPT IN/TTKL.BO

52-week high / low Sensex / Nifty 3-m average volume Market cap Shares outstanding

`3659 / `2151 16480 / 4975 US$11.7m `35bn / US$650m 11.3m

4QFY12 results review. TTKs 4QFY12 revenue rose 27.8% yoy to `2.3bn. EBITDA margin improved 50bps yoy to 13.6%, due to lower other expenditure, while EBITDA stood at `316m (8% below our estimates). Net profit was 18.7% higher at `197m (5.4% lower than our estimates) due to the rupee depreciation and larger proportion of revenue from the low-margin segment. Business prospects and recent developments. We expect the growth momentum in kitchen appliances (cookers, cookware, electric appliances and gas stoves) to moderate. TTK has announced a JV with World Kitchen, under which it would market premium storage-ware products. It also announced business collaboration with Vestergaard Frandson, Switzerland, enabling it (TTK) to enter the fast-growing domestic waterfilter segment. It also plans to widen its traditional dealer network and increase its Prestige Smart Kitchen (PSK) store-count to 480 by endFY13, from 356 at present. Lower estimates. We lower FY13 and FY14 sales estimates 3% and 3.7% respectively, and earnings estimates 4.8% and 4.3% due to the moderating growth rate and rupee depreciation. We revise the FY13 EBIDTA margin estimate to 15.6%, from 16.1% earlier. Valuation. At our DCF-based price target of `3,637, the stock trades at 20x FY14e earnings and 2.1x EV/sales. Risks. Slow demand, rise in input costs.
4QFY11 4QFY12 % yoy FY11 FY12 % yoy

Shareholding pattern (%) Mar 12 Dec 11 Sep 11 74.9 74.9 74.9 Promoters - of which, Pledged 25.1 25.1 25.1 Free float 8.9 8.4 6.8 - Foreign institutions 5.3 4.3 5.8 - Domestic institutions 10.9 12.4 12.5 - Public Estimates revision (%) Sales EBITDA EPS Target multiple (x)
Financials (YE: Mar)

FY12e FY13e FY14e (2.4) (3.0) (3.7) (1.2) (6.0) (4.8) (1.0) (4.8) (4.3) FY12e FY13e

Sales (`m) Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%)
Source: Anand Rathi Research

11,034 1,134 100.0 34.7 31.2 12.4 47.6 61.9 0.5 12.2

14,369 1,486 131.1 31.0 23.8 8.7 42.9 52.5 0.6 3.3

Quarterly results (YE: Mar)

Sales (`m) EBITDA (`m) EBITDA margin (%) Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) Tax (`m) Tax rate (%) Std PAT (`m)
Source: Company, Anand Rathi Research

1,819 238 13.1 2 11 11 236 70 29.5 166

2,325 316 13.6 14 20 8 291 93 32.1 197

27.8 32.7 50 bps 513.6 74.1 (29.7) 23.3 34.2 261 bps 18.7

7,636 1,253 16.4 44 43 43 1,209 366 30.3 838

11,034 1,720 15.6 56 62 31 1,632 499 30.6 1,134

44.5 37.3 (82) bps 27.3 46.5 (28.4) 35.0 36.3 29 bps 35.4

Anand Rathi Share and Stock Brokers Limited does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Disclosures and analyst certifications are located in Appendix 1 Anand Rathi Research India Equities

9 May 2012

TTK Prestige 4QFY12 results slightly below estimates

Quick Glance Financials and Valuations

Fig 1 Income statement (`m)
Year-end: Mar FY10 FY11 FY12e FY13e FY14e

Fig 2 Balance sheet (`m)

Year-end: Mar FY10 FY11 FY12e FY13e FY14e

Net revenues Revenue growth (%) - Op. expenses EBIDTA EBITDA margin (%) - Interest expenses - Depreciation + Other income - Tax Effective tax rate (%) Reported PAT +/- Extraordinary items +/- Minority interest Adjusted PAT Adj. FDEPS (`/share) Adj. FDEPS growth (%)

5,079 26.6 2,646 774 15.2 35 36 11 230 30.5 524 40 497 43.8 122.0

7,636 50.3 4,098 1,253 16.4 44 43 43 366 30.4 838 (6) 842 74.2 69.4

11,034 44.5 6,179 1,720 15.6 56 62 31 499 30.6 1,134 1,134 100.0 34.7

14,369 30.2 8,047 2,242 15.6 78 111 87 654 30.6 1,486 1,486 131.1 31.0

18,474 28.6 10,290 3,011 16.3 46 136 112 898 30.6 2,042 2,042 180.1 37.4

Share capital Reserves & surplus Net worth Debt Minority interests Deferred tax liab (net) Capital employed Net fixed assets Investments - of which, Liquid Net working capital Cash and bank balance Capital deployed Net debt / equity (%) W C turn (days) Book value (`/share)

113 1,128 1,242 28 31 1,301 640 4 4 217 440 1,301 (33.2) 21.3 109.7

113 1,801 1,915 22 33 1,970 914 226 226 294 535 1,970 (26.8) 12.2 169.1

113 2,738 2,851 570 68 3,489 2,300 4 962 223 3,489 12.2 20.8 251.8

113 3,958 4,071 630 68 4,769 3,299 4 969 498 4,769 3.3 24.5 359.6

113 5,602 5,715 80 68 5,863 3,432 4 687 1,740 5,863 (29.0) 16.4 504.8

Source: Company, Anand Rathi Research

Source: Company, Anand Rathi Research

Fig 3 Cash-flow statement (`m)

Year-end: Mar FY10 FY11 FY12e FY13e FY14e

Fig 4 Ratio analysis @ `3102

Year-end: Mar FY10 FY11 FY12e FY13e FY14e

Consolidated 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 + Opening cash Closing cash

524 36 560 (159) 719 80 639 132 3 (179) 331 109 440

838 44 882 77 804 317 488 164 0 (6) 222 96 440 535

1,134 98 1,232 667 564 1,448 (884) 199 2 548 (222) (312) 535 223

1,486 111 1,597 7 1,590 1,110 480 265 0 60 274 223 498

2,042 136 2,178 (282) 2,460 270 2,190 398 (550) 1,242 498 1,740

P/E (x) P/B (x) EV/sales (x) EV/EBITDA (x) RoAE (%) RoACE (%) Dividend yield (%) Dividend payout (%) RM to sales (%) Ad-spend to sales (%) EBITDA growth (%) EPS growth (%) PAT margin (%) Volume growth (%) Realization growth (%)

67.5 28.5 6.9 45.2 50.2 61.8 0.3 25.2 52.1 8.2 97.0 122.0 9.8 -

42.3 18.5 4.5 27.7 53.1 74.0 0.4 19.6 53.7 7.0 62.0 69.4 11.0 -

31.2 12.4 3.2 20.8 47.6 61.9 0.5 17.5 56.0 7.0 37.3 34.7 10.2 -

23.8 8.7 2.5 15.9 42.9 52.5 0.6 17.9 56.0 7.0 30.3 31.0 10.3 -

17.3 6.2 1.8 11.2 41.7 54.8 1.0 19.5 55.7 7.0 34.3 37.4 11.0 -

Source: Company, Anand Rathi Research

Source: Company, Anand Rathi Research

Fig 5 PE band
(`) 3,600 3,200 2,800 2,400 2,000 1,600 1,200 800 400 0 Apr-08 Apr-09 Apr-10 Apr-11 Jan-09 Jan-10 Jan-11 Jan-12 Apr-12 Oct-08 Oct-09 Oct-10 Oct-11 Jul-08 Jul-09 Jul-10 Jul-11 4x 12x 8x TTK 16x 20x

Fig 6 FY12 revenue breakdown

Others 3% Cookers 37% Appliances 40%

Cookware 20%
Source: Company

Source: Bloomberg, Anand Rathi Research

Anand Rathi Research

9 May 2012

TTK Prestige 4QFY12 results slightly below estimates

Results review
TTKs 4QFY12 revenue rose 27.8% to `2.3bn vs `1.8bn in 4QFY11. EBITDA was `316m, 33% yoy higher. Net profit came at `197m, 18.7% higher yoy and 5% below our estimates as a result of the rupee depreciation and larger proportion from the low-margin business. We reduce FY13 profit estimates 4.8% due to the moderating growth rate, but maintain our Buy call, with a price target of `3,637. Q4FY12 and FY12 results analysis TTKs 4QFY12 results registered a 28% yoy increase in revenue to `2.3bn, 10% below our estimates. EBITDA stood at `316m, 33% higher yoy (8% lower than we expected). The EBITDA margin was 13.6%, 50bps higher yoy owing to lower employee costs and other expenditure. Net profit came at `197m, up 19% yoy, but 5% below our estimates. Profit declined on account of the larger proportion of revenue from the low-margin appliances business. (The EBITDA margin in appliances is currently around ~12%, compared to ~20% in the traditional cooker and cookware business.) The decline in net profit margins stemmed from the higher depreciation and rise in interest expenditure.
Fig 7 Quarterly revenue breakdown (`m)
4QFY11 4QFY12 % change

The larger proportion of revenue from the low-margin importedappliances sub-segment resulted in the lower profit margins

Cookers Cookware Appliances Others Total

Source: Company, Anand Rathi Research

709 400 658 89 1,856

890 440 950 90 2,370

25.5 10.0 44.4 0.9 27.8

FY12 revenues came at `11bn, 44.5% higher yoy and 2.4% below our estimates. FY12 EBITDA was `1.7bn, up 37.3% yoy, from FY11s `1.2bn. Interest outgo during the year increased to `56m, from `44m in FY11, on account of debt taken for the ongoing capex programme. Net profit was `1.1bn, compared to `0.84bn in FY11, while the FY12 net profit margin was 10.2%, compared to 10.9% the previous year. Fixed assets rose from `810m in FY11 to `2.3bn as of Q4FY12. Despite the increase in working capital, TTK registered strong operating-cash-flow, of `823m, during the year. For the first time after FY07, it reported negative free-cash-flow of `625m on account of the high capex (`1.45bn) incurred during the year. The company has also announced a dividend of `15 a share.
Fig 8 Revenue breakdown (`m)
FY11 FY12 % change

Cookers Cookware Appliances Others Total

Source: Company, Anand Rathi Research

3,170 1,540 2,740 310 7,760

4,130 2,250 4,500 350 11,230

30.3 46.1 64.2 12.9 44.5

Anand Rathi Research

9 May 2012

TTK Prestige 4QFY12 results slightly below estimates

Recent tie-ups and developments TTK has been actively looking to widen its product range, focusing on the kitchen segment by introducing products or through tie-ups with others. During the year, it announced three major tie-ups -- with Meyer Corp., World Kitchen and the Vestergaard Frandson group. Details of these tieups and developments are:
1.

The agreement with World Kitchen, USA, would enable it to enter the high-end tableware/cookware and store-ware sub-segments. TTKs products would then include international brands such as Corelle, Corningware, Pyrex, Vision and Snapware. Except for Corelle, all the other products will also carry the Prestige brand. Sale of these products will commence from Jun12. The collaboration agreement with the Vestergaard Frandson Group of Switzerland would enable it to enter the fast-growing domestic waterfilter sub-segment. TTK would assemble the products at its unit coming up in Gujarat, India, and expects to start selling them in early FY14. Under the tie-up with Meyer Corp., USA, TTK would market cookware products of the brands Circulon, Anolon, Farberware, Rachael Ray, Paula Deen, SilverStone and KitchenAid Cookware. Its agreement with Bialetti Industries Spa, Italy, gives it the latters pressure cooker and cookware manufacturing plants. Bialetti also outsources stainless steel pressure cookers from TTK.

2.

3.

4.

Key takeaways from the conference call The net profit margin during the quarter came lower due to the larger proportion of sales of low-margin (imported) appliances, at around 40%. In traditional cookers and cookware, the EBITDA margin is ~20%; for electrical appliances, it was ~12%. The sharp depreciation in the rupee has impacted EBITDA by ~`50m during the quarter. In FY13 the company plans to concentrate chiefly on selling inductionbased cookware as growth in the cookware segment came at around 10% during the quarter. The industry size of induction-cooktops in FY12 is estimated at ~3.5m units. TTK sold 0.93m such units during the year. Induction cooktop sales were 40% of total appliances in FY12, compared to 25% in FY11. Induction cookers were ~50% of cooker sales in FY12 and are expected to further increase, to ~75% of cooker sales in FY13. TTK anticipates maintaining an EBITDA margin of 15-16% in FY13. It expects to incur capex of `1.1bn in FY13 and repay the entire debt in FY14. (It expects debt to be around `600m at end-FY13.) Management has guided to generate revenues of `600m in FY13 from the launch of products under the new tie-ups. It also expects to launch 100 new products during the year. Advertising expenditure for the year was ~`720m. Sales from the PSK outlets grew 60% during the year, with the number of PSK outlets at end-FY12 standing at 356. TTK also expects to add at least another 110 stores in FY13. It is also in the process of adding at Roorkee capacity for 1m induction cooktop. Management guidance for FY13 Management has guided to 30% growth in revenue and an EBITDA margin of 15-16%.Revenue from the JV with World Kitchen and Meyer Corp. are expected to come at `0.6bn in FY13 and `1.1bn in FY14.
Anand Rathi Research 4

9 May 2012

TTK Prestige 4QFY12 results slightly below estimates

Valuation
In view of the slightly lower-than-expected results during the quarter and on account of the sharp depreciation in the rupee and higher proportion of revenues from the low-margin business, we reduce our FY13 and FY14 profit expectations 4.8% and 4.3% respectively. We lower our DCF-based price target to `3,637 (from `3,647 earlier), but retain our Buy rating. Change in estimates For FY13 and FY14 we reduce our EBITDA margin estimates to 15.6% and 16.3% respectively, from 16.1% and 16.5%. This is because of the high rupee depreciation and the larger proportion of revenue from the low-margin imported products, both of which had led to the lower-thanexpected FY12 margins. Imports in FY12 comprised 38% of raw material cost, compared to 30% in FY11. We also lower our FY13 and FY14 net profit estimates, by 4.8% and 4.3%, respectively.
Fig 9 Change in estimates
FY13e (`m) New Old % Change New FY14e Old % Change

Net sales EBITDA EBITDA margins (%) PAT

Source: Anand Rathi Research

14,369 2,242 15.6 1,486

14,812 2,385 16.1 1,561

(3.0) (6.0) (50) bps (4.8)

18,474 3,011 16.3 2,042

19,179 3,165 16.5 2,134

(3.7) (4.8) (20) bps (4.3)

Valuation We maintain our Buy call on the stock, with a revised DCF-based price target of `3,637 (`3,647 earlier). At our target price, it would trade at 20x FY14e earnings. Risk

Any slowdown in demand could affect sales. Any further depreciation in the rupee would have an adverse impact on the company on account of its imported products.

Anand Rathi Research

Appendix 1
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. Important Disclosures on subject companies
Rating and Target Price History (as of 9 May 2012)

TTK Prestige
1

Date 5-Mar-12

Rating Buy

TP (`) 3,647

Share Price (`) 2,837

3,600 2,700 1,800 900 0 Jan-08 Oct-08 Jan-09 Oct-09 Jan-10 Oct-10 Jan-11 Oct-11 Jan-12 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Jul-08 Jul-09 Jul-10 Jul-11 1

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. 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) as described in the Ratings Table below. Ratings Guide Large Caps (>US$1bn) Mid/Small Caps (<US$1bn) Buy >20% >30% Hold 5-20% 10-30% Sell <5% <10%

Anand Rathi Research Ratings Distribution (as of 09 May 2012) Buy Anand Rathi Research stock coverage (121) 73% % who are investment banking clients 6%

Hold 14% 6%

Sell 13% 0%

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