TECHNO SHARES & STOCKS LTD INDIA RESEARCH CONSUMER DURABLES

14TH OCTOBER 2009

TTK PRESTIGE LTD.

WHISTLING ITS WAY TO THE TOP

SHIVANI MEHRA 6633 8900 EXT. 158 shivani.mehra@technogroup.co.in

NILESH DOSHI 6633 8900 EXT. 160 nilesh.doshi@technogroup.co.in

INITIATING COVERAGE BUY

Date CMP 14th October 2009 INR 295.65

TTK PRESTIGE LTD.

A TTK Group Chennai based company, TTK prestige is one of the leading players in the domestic kitchen appliances industry. Its product portfolio spans from domestic

52 week High / Low Equity Cap (current)

295.65/87.65 INR 11.3 crs

cooking vessels to electrical appliances and has recently forayed into modular kitchen designing. TTKs products include pressure cookers, non-stick cookware, electrical appliances & gas stoves all of which command high brand recall and a price premium over competitors.

Face Value Mkt. Capitalization Avg.Yearly Vol. (12 M)

INR 10/INR 334.1 crs 18,390

The companys topline has grown at 150%+ CAGR over the last 5 years. Profitability also improved and grew by 30%+ over the same time period. The strategy for maintaining growth and improving profitability has been product innovation, brand

BSE SENSEX NSE - NIFTY NSE Code Bloomberg Code BSE Code

17,026.67 5,054..25 TTKPRESTIG TTKPT IS 517506

building and financial prudence. The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand. Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry, while branded industry itself will grow at 5-6%. The pressure cooker industry, which has a penetration of mere 30-35% in India, has a

SHAREHOLDING PATTERN @ 30-06-09 Promoters Institutions Public & Others 3-MTS TTK NIFTY SENSEX 150% 27% 27% 74.92% 2.75% 22.33% 6-MTS 185% 49% 55% 1-YR 99% 45% 51%

lot of scope of growth with increased availability of LPG & piped natural gas in the next few years. While the non-stick cookware segment will grow on the back of replacement demand, urbanization and growing health consciousness in cooking styles. We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se. The companys vision for new business opportunities such as modular kitchens and its product innovation provides good business visibility for the company. Hence, we initiate coverage on the company with a BUY recommendation.

BRIEF FINANCIALS Net Sales Sales growth EBITDA EBITDAM PAT EPS P/E (x) RONW(%)

FY08A 325.6 15.9% 11.7 3.6% 17.9 15.8 18.8 28.8%

FY09E 402.4 22.5% 39.3 9.8% 22.4 19.8 15.0 29.2%

FY10E 469.4 16.7% 54.9 11.7% 36.8 32.5 9.1 35.7%

FY11E 549.4 17.1% 60.4 11.0% 41.3 36.5 8.1 29.1%

TTK Prestige Ltd.

14th October 2009

INVESTMENT RATIONALE THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE Pressure Cookers is TTKs single largest segment which contributes around 54% to the topline currently. TTKs pressure cookers are different from other cookers on account of its outer lid-closing feature. This feature provides the user with some additional cooking capacity vis--vis inner lid cookers. The Indian pressure cooker market size is approx. 9 million pieces p.a., which is equally divided between organized and unorganized sector. TTK enjoys 30%+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65% market share and 5% of its recently entered into and a highly competitive inner lid market. The branded cookers market has been growing at 5-6% over the last 4-5 years while TTK has witnessed volumes growth at 13-15%. We expect this segment to continue to clock similar volumes growth over the next 2-3 years.
Competitor1, 2.33

No. of units Sold (in mn.)

TTK, 2.37 Unorganised, 4.3

Apart from that, TTK has introduced a niche product through the launch of pressure handi a few years back.

Source: Annual Report & Company

Volumes Growth (5 Yr CAGR)

14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Industry 3-5%

13%

35% 30% 25% 20% 15% 10% 5% 0% YoY

32%

Sales Growth Comparison

23% 15% 10% 5% 1% 9% 17% 13% 14% 13.0% 11% 10% 10.4%

FY04 TTK

FY05

FY06

FY07

FY08

FY09

5 Year CAGR

TTK Prestige

Competitor 1

Source: Annual Report & Company

Source: Annual Report & Company

Though the scope for innovation might be limited in this segment, but the industry will see potential for growth from increased availability of LPG & piped natural gas in the next few years. We believe TTK will continue to clock higher growth on the back of the aggressive retail push, penetrating through new markets while garnering share from the unorganized players and growing nuclearisation of Indian families. Hence, we believe this segment to clock a volume growth of 10%+ for the next 2-3 years.

TTK Prestige Ltd.

14th October 2009

TTKs strategy in this segment has been to innovate and give the user a better product experience. TTK has introduced both aluminum and stainless steel cookers, the latter of which has given boost to the overall average realization. TTKs product innovation, superior quality and product technology has always enabled it to command a superior price realization over its peers. Prestige cookers are targeted towards middle class and the upper middle class and enjoy a 3-5% price premium over other branded manufacturers. Realisation for Cookers
1000 INR/Cooker 800 600 400 200 0 FY04 FY05 FY06 TTK FY07 Competitor 1 FY08 FY09 817.5 661.9 699.5 866.8 872.5 856.7927.7 894.9 877.1 799.0 768.6

733.8

Source: Annual Report & Techno Research

DE-RISKING THE BUSINESS BY FOCUSING ON THE NON-STICK COOKWARE Market leader in non-stick cookware In a bid to de-risk its business from single product dependence TTK forayed into the cookware segment. Over the years TTK has emerged as the market leader in the non-stick segment. It was only recently in FY07 when the company was flushed with demand and hence operated at 200%+ capacity utilization. TTK increased its capacity from 500,000 units to 1,800,000 units in FY08. TTK competes primarily with local and regional players such as Premier in this segment. Growing urbanization, health consciousness in cooking styles of customers and the segments unique ability for bulky sales (majority consumers do not buy a single pan but a set of non-stick items) will help TTK to grow at a healthy rate. The life cycle for the non-stick cookware is 2-3 years hence giving rise to a large replacement market. Hence we expect the cookware segment to grow at a CAGR of 15-17% for the next 2-3 years.

The life cycle for the non-stick cookware is 2-3 years hence giving rise to a large replacement market

Sales Volume in No. of Units ('000) 2500 2070.0 2000 1526.2 1500 1000 500 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E 890.7 629.2 1123.1 1179.1 1193.3 1800.0

Source: Company,Techno Research

TTK Prestige Ltd.

14th October 2009

INVESTING IN SETTING UP IN-HOUSE KITCHENWARE (ELECTRICAL APPLIANCES) FACTORY IN UTTARAKHAND

Kitchenware segments revenue contribution 25.0% 20.0% 15.0% 10.0% 7.0% 6.0% 5.0% 0.0% FY10E FY11E FY12E FY04 FY05 FY06 FY07 FY08 FY09 20.6% 20.2% 17.4% 17.5% 13.2% 13.9% 9.3%

Electric kitchenware is the companys third business segment and has been growing much more aggressively than the other segment. This segment includes all types of electric kitchen appliances such as mixer, toaster, chimneys, etc. The companys strategy is mainly to offer complete range of kitchen appliances while encashing on its existing retail network setup & existing brand which symbolizes quality, reliability, and safety for all kitchen products for a housewife. The finished products of this segment are primarily outsourced at present. The growing demand for TTKs electric kitchen appliances has enabled this segment to grow much faster. On the back volume growth the company plans to set up its own unit in Uttarakhand at a cost of INR 11 crs. This will enable TTK to control outsourcing cost, monitor quality and at the same time aggressively penetrate this segment. It is important to note that the contribution of this segment to topline has gone up in the last one-year from 13% to 17%. We expect its contribution to go up to 20% once the new plant is commissioned by at the end of this fiscal. AGGRESSIVE RETAIL EXPANSION

Source:Techno Research

RETAIL VENTURES

Prestige Smart Kitchens

Prestige Kitchen Boutiques

Prestige Smart kitchen: This retail network offers all Prestige products under one roof. This network is spread across 19 states and 120 towns. The company plans to ramp it up to 220 from the current 196 outlets by the end of FY10. The contribution on this sales network to the revenue has gone up to ~15%. It is noteworthy to mention that 3 years back pressure cookers primarily formed a major part of sales which now is equally divided amongst all segments. CATERING TO THE AESTHETICS OF KITCHEN DESIGNING

Long term good growth potential

TTK has taken the next step from being a kitchen appliances provider to taking up the task of designing kitchen for a housewife. TTK forayed into modular kitchens in 2005 but this segment picked up stream only in the last 2 years. Highly competitive with the presence of aggressive international players the company is taking the business forward slowly. The company is showcasing its modular kitchens through its exclusive. Prestige Kitchen Boutiques. Presently it has 9 such showrooms. Due to lack of visibility, we expect minimum growth for next 2 to 3 years but see high potential, as it is an early entrant in a foreign players dominated segment. PROPERTY DEVELOPMENT (ONE TIME GAIN) TTK prestige has 6 acres of free area available in Bangalore. The company is planning to unlock value of the same by entering into land development agreement. We have not taken into account any benefit from this for our projections.

TTK Prestige Ltd.

14th October 2009

RISK Geographical concentration towards south India Pressure on price realization as it penetrates deeper in the inner lid pressure cooker segment. Volatility in raw material cost. Scalability of modular kitchen business depending on consumer trends and companys ability to penetrate this segment. INDUSTRY DRIVERS
Kitchen appliances Breakup

14.8% 3.7%

29.6%

26.7% 20.7%

4.4%

The kitchen appliances segment is a part of the much larger Indian consumer durable sector estimated at ~ INR 25,000 crs. which is growing at 10-11%pa. The main difference between the kitchen appliances segment and other consumer durable product segment is basically the former has a shorter life cycle hence leading to an earlier replacement demand resulting in a much higher growth in the Indian kitchen appliances segment .

Modular Kitchens Mixer Grinders Noon-Stick Cookware

Rice Cookers Gas Stoves Pressure Cookers

Source: Company

Stable growth in demand for Kitchen appliances comes from increase in urbanization and housing requirement. The 11th Working paper for urban housings requirement estimates a total housing shortage of 24 mn units during the period of 2007-12. This along with nuclearisation of families will add to the households addition. This provides an opportunity of minimum 2 million houses per year for the kitchen appliances industries.
Housing Stock Shortage 30 25 (in Mn) 20 15 10 5 0 1961-62 1971-72 1981-82 1991-92 2001-02 2011-12E 15.2 17.6 23.3 22.9 24.7 26.53

Urban Households & Housing Stock Data 75.01 Housing Stock (in mn) 80 60 40 14.9 20 0 1961 1971 1981 1991 2001 2007E 2012P 29.3 19.1 40.7 66.3 55.8 80 60 mn) 40 20 0 No. of Households(in

Total Housing Stock (mn)

Households (in mn)

Source : 11th Working paper for urban housings requirement

Source : 11th Working paper for urban housings requirement

Additionally, demand is expected to get a boost from the governments city gas distribution initiatives. In July 2008, about 775,000 households in 19 cities across India were receiving piped gas. Those numbers are set to explode in the next five yearsabout 70 cities and 30 million households. The prospects of this endeavor will provide some incremental growth for the kitchen appliances solution providers.

TTK Prestige Ltd.

14th October 2009

VALUATION & OUTLOOK The company has over the years evolved from being a mere pressure cooker brand to a full-fledged kitchen appliances brand. Its wide product portfolio and wide spread retail initiative will help company to grow faster than the industry. The pressure cooker industry, which has a penetration of mere 36% in India, has a lot of scope of growth. While the non-stick cookware segment will grow on the back of rising urbanization & growing health conscious trends. We believe the macro demographic trends in India will definitely drive the growth of the kitchen appliance industry. TTK is one of the leading players in the Indian kitchen appliances industry. The company has seen topline growth of more than 20% over the last 5 years with profitability also improving. The companys increased profitability are set to improve its cashflows as the company is almost debt-free. We expect topline & bottomline to grow in the range of 15-17%+ for the next 2-3 years. Margins are set to improve on the back of product mix, insourcing of electrical appliances and lower interest cost. At the current CMP of INR 295.65/- the stock trades at 9.1x and 8.1x its FY10E & FY11E EPS of INR 32.5 and INR 36.5. We initiate a BUY recommendation on the stock with an upside of 20-22% over the next one year.

TTK Prestige Ltd.

14th October 2009

FINANCIAL SUMMARY
(Rs. in crs)

INCOME STMT. Net Sales Total Expenditure PBIDT Other Income Interest

FY08 325.6 313.9 11.7 25.8 9.2

FY09 402.4 363.1 39.3 0.5 7.3

FY10E 469.4 414.5 54.9 0.5 3.7

FY11E 549.4 489.0 60.4 0.5 2.5

PBDT Depreciation PBT Tax PAT Minority Interest

Extraordinary Adj. Adjusted Profit

28.3 3.8 24.5 3.8 20.7

2.8 17.9

32.5 3.5 29.0 6.6 22.4

0.0 22.4

51.7 3.9 47.8 11.0 36.8

0.0 36.8

58.4 4.8 53.6 12.3 41.3

0.0 41.3

EPS

15.8

19.8

32.5

36.5
(Rs. in crs)

BALANCE SHEET Share Capital Reserves & Surplus Less: ME & RR Net Worth Minority interest Secured loans Unsecured loans Total Debt

FY08 11.3 57.6 68.9 20.5 30.3 50.8

FY09 11.3 73.3 84.6 0.0 17.9 7.0 24.9

FY10E 11.3 110.1 121.4 10.9 2.3 13.2

FY11E 11.3 151.4 162.7 5.9 2.4 8.3

Sources of fund Gross Assets (Net of revaluation)

Less: Dep Net Assets CWIP Investments Current Assets Inventory Debtors Cash & Bank Advances Current Liabilities & Prov. Current Liabilities Provisions Working Capital Uses of Funds

119.7 67.4
36.1 31.3 25.3 0.4 135.6 60.7 47.3 10.6 17.0 73.8 59.2 14.6 61.8 119.7

109.5 75.5
39.6 35.9 23.7 0.4 131.4 50.3 48.9 10.9 21.3 82.9 59.2 23.7 48.5 109.5

134.6 99.1
43.1 56.1 0.0 5.0 163.5 64.3 54.0 22.2 23.0 90.0 64.0 25.9 73.5 134.6

171.0 119.1
47.0 72.2 0.0 5.0 191.1 75.3 63.2 27.7 25.0 97.3 69.5 27.8 93.9 171.0

TTK Prestige Ltd.

14th October 2009

RATIO ANALYSIS PROFITABILITY RATIOS PBIDT (%) PBDT(%) PBT (%) PAT(%) Tax Rate (%) RoCE(%) RONW(%) VALUATION RATIOS EPS P/E CEPS BV DPS EV/EBITDA Debt/NW GROWTH RATIOS Net Sales PBIDT Adj.PAT Net Sales to Net FA (x) LIQUIDITY RATIOS Inventory (Days) Debtors (Days) Creditors (Days) Interest Coverage Current Ratio

FY08 3.6% 8.7% 7.5% 5.5% 15.5% 26.8% 28.8% 15.8 18.8 21.6 60.8 3.5 32.6 0.7 15.9% -55.3% 50.8% 10.4 75.4 47.6 61.9 4.1 1.8

FY09 9.8% 8.1% 7.2% 5.6% 22.8% 31.7% 29.2% 19.8 15.0 22.8 74.7 5.0 9.1 0.2 22.5% 235.0% 25.3% 11.2 50.3 42.2 24.3 5.5 1.6

FY10E 11.7% 11.0% 10.2% 7.8% 23.0% 42.2% 35.7% 32.5 9.1 35.9 107.2 5.5 6.3 0.1 16.7% 39.9% 64.4% 8.4 50.0 42.0 24.0 15.0 1.8

FY11E 11.0% 10.6% 9.8% 7.5% 23.0% 36.7% 29.1% 36.5 8.1 40.7 143.6 6.0 5.7 0.1 17.1% 10.0% 12.2% 7.6 50.0 42.0 24.0 24.4 2.0

TTK Prestige Ltd.

14th October 2009

Corporate Office:
Manu Mansion, 2nd Floor, 16, Shahid Bhagatsingh Marg, Fort, Mumbai 400 001. Tel. 91-226633 8900 / 2261 8787 / 4027 8900

Fax No. 91-22 2269 0041

Email: research@technogroup.co.in

website: www.technoworld.in

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TTK Prestige Ltd.

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14th October 2009