TTK Prestige (TTKP) has transformed itself from being just a single product company -- producing aluminum outer lid pressure cookers -- to a total kitchen solution provider over the past few years. It is also India's first company to offer complete induction cooking solutions. Its product range includes pressure cookers, non-stick cookware, rice cookers, ovens, toaster and grills, kitchen hoods (chimneys), hobs, LP gas stoves, coffee makers, kettles, sandwich toasters and many other small electrical appliances. The company also offers modular kitchen solutions.
Strengths
With over 50 years of presence, TTKP is positioned as a leading player in the domestic pressure cooker market. The market for pressure cookers is shared among organised sector, unorganised players and regional companies. According to a report by ICRA equity research (dated: May 18, 2011), the pressure cooker market in India is estimated to be at 20 million units per annum and has been growing at around 8-9 per cent per year. The market is characterised by low-entry barriers and a highly competitive environment with 50 per cent of it dominated by organised sector and rest distributed between regional and unorganised players. Among organised players, TTKP and Hawkins are in the lead, collectively accounting for over 80 per cent of the segment.
* It has built an extensive distribution network reaching about 25,000 dealers. Apart from this, TTKP has also ventured into the company branded Prestige Smart Kitchens exclusive outlets.
* According to the ICRA report, TTKP currently sources nearly 60 per cent of its requirement from China and the balance is met domestically. The outsourcing model offers several operational advantages to the company as it allows TTKP to focus on marketing, distribution and product development.
* It further ensures lower capital engagement as vendors invest their own capital for capacity creation besides providing flexibility with respect to managing production in line with trends in demand.
Concerns
The company continues to face intense competition from unorganised players in most of its business segments. Other branded players are also expanding their product range and their extensive distribution reach gives a significant competition to TTKP.
* With the company expanding its presence in not-so-strong markets in north and east, and not to forget the rural areas, it is likely to face pricing pressure from cheaper unorganised players.
* Raw material cost is a major cost component, forming around 25 per cent of sales. Aluminium, stainless steel and other traded products are the major constituents. Thus, any increase in material prices, particularly of aluminium and stainless steel, can exert pressure on company's operating margins.
* TTKP scores over Hawkins in terms of both operating profit margin and net profit margin. However, in terms of profitability ratios, Hawkins scores over TTKP.
Financials
The company's foray in the kitchen appliances space has been the key driver for its robust growth, which is clearly highlighted in its profitability numbers. Both return on capital employed and return on net worth have consistently stood above 20 per cent and averaged around 46 per cent and 39 per cent respectively over last five years. Its margins too have increased considerably in the past two years with operating profit margin averaging 11 per cent and net profit margin averaging around 7 per cent over five years.
The company has witnessed a robust growth in its topline and the bottomline. The total income of TTKP grew at a compounded annual growth (CAGR) rate of 28.1 per cent and its net profits have grown at a CAGR of 63.7 per cent, over five years.
* TTKP has effectively diversified its revenue mix with pressure cookers contributing 41 per cent of its turnover. The share of kitchen appliances stands at 25 per cent, of cookware at 20 per cent and of gas stoves at 11 per cent.
* TKP has successfully managed to reduce its debt burden by 1.4 percentage points over five years. It is virtually a debt-free company with debt-to-equity ratio of just 0.01 in FY11.
Valuations
The stock price has seen an astronomical (absolute) gain of 2,348 per cent over last five years. It is currently trading at a price-to-earnings (P/E) ratio of 27.14 which is more than twice its five-year median P/E of 12.1. At the same time, its price-to-book value (P/B) ratio, is over three times its five year median P/B of 3.2. The price-to-earnings to growth (PEG) ratio of TTKP comes at an attractive level of 0.4 times, based on a robust five-year CAGR of 63.8 per cent in earnings per share.
The valuations of the stock are currently stretched, particularly in terms of its PE and PB ratio. But regular product innovations, a strong brand, and the space in which it operates paves way for TTKP's long term growth. So wait till its valuations improve.
This article was originally published on May 01, 2012.
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