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TTK Prestige Ltd

Initiating Coverage

Enhancing investment decisions

Explanation of CRISIL Fundamental and Valuation (CFV) matrix


The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade


5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade


5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (negative 10-25% from CMP) Strong downside (<-25% from CMP)

Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.

Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

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Polaris Software Limited TTK Prestige remains intact Business momentum Ltd
An unabated growth story
Fundamental Grade Valuation Grade Industry 4/5 (Strong fundamentals) 5/5 (Excellent fundamentals) 5/5 strong upside) 2/5 (CMP has downside) Information technology Household durables

December 07, 2011


Fair Value Rs 2,392 CMP Rs 2,787

CFV MATRIX
Excellent Fundamentals

TTK Prestige Ltd (TTK) is a leading, organised kitchen appliances manufacturing company with products catering to the entire kitchenware segment. Increasing urbanisation, growing number of nuclear families, rising disposable income and growing number of new gas connections are driving the demand for kitchenware appliances in India. TTK, with a strong brand, a wide distribution network, a strong product portfolio and robust financials is well positioned to tap this growth. We assign TTK a fundamental grade of 5/5, indicating that its fundamentals are excellent relative to other listed securities in India. A leading player with a strong brand and wide distribution network TTK is the only organised kitchen appliances company in India with a comprehensive product portfolio covering the entire kitchenware segment. It is particularly dominant in the pressure cooker and non-stick cookware categories where it commands a market share of ~40 - 44% in the organised space. Its brand Prestige has a strong consumer recall. A wide distribution network and a strong brand have helped TTK create a pan-India presence with south India comprising the biggest share (67% of revenues). Growth in kitchenware industry to complement TTKs strong position The branded kitchen appliances industry in India is expected to grow at a fast pace driven by rising disposable income, increasing urbanisation, increase in the number of new gas connections with the rise in the number of nuclear families, and increasing rural income leading to a shift towards branded products. TTK, being one of the leading players in the branded segment, is well poised to leverage the growth opportunities in this space. Preparing for the next level of growth through capacity expansion TTK is doubling its pressure cooker manufacturing capacity to 9.6 mn units and quadrupling its non-stick cookware capacity to 8 mn units by FY12. The company plans to invest Rs ~2,000 mn for putting up the capacities. Strong cash reserves and continuous cash generation will enable the company to fund the entire expansion plan through internal accruals and hence reduce the risk of equity dilution or increased gearing. Expect two-year revenue CAGR of 35%; two-year EPS CAGR of 32% We expect TTKs revenues to grow at a two-year CAGR of 35% to Rs 13.9 bn by FY13 driven by strong growth across all product segments. EBITDA margin is expected to remain stable at 16.0% in FY13 and EPS is estimated to grow at a two-year CAGR of 32% to Rs 129 in FY13 primarily driven by sales growth. Valuations the current price has downside We have used the discounted cash flow method to value TTK. We initiate our coverage with a valuation grade of 2/5 and a fair value of Rs 2,392 per share.

Fundamental Grade

5 4 3 2 1

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside
13.8% 5.1% 6.3% 12.5% 5.8% 6.8% 12.4% 4.3% 8.4% 74.9% 74.9% 74.9%

KEY STOCK STATISTICS


NIFTY/SENSEX 5039/16805 TTKPRESTIG/TT NSE/BSE ticker KPRES Face Value (Rs per share) 10 Shares outstanding (mn) 11.3 Market cap (Rs mn)/(US$ mn) 31,593/615 Enterprise value (Rs mn)/(US$ mn) 30,858/600 52-week range (Rs) (H/L) 3,175/1,376 Beta 1.1 Free float (%) 25.1% Avg daily volumes (30-days) 96,104 Avg daily value (30-days) (Rs mn) 249

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-10 Promoter Mar-11 FII Jun-11 DII Sep-11 Others
74.9% 15.1% 2.0% 8.0%

KEY FORECAST
(Rs mn) Operating income EBITDA Adj Net income Adj EPS-Rs EPS growth (%) Dividend Yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) FY09 4,019 394 224 19.7 29.5 0.2 32.5 29.2 141.2 37.3 80.5 FY10 5,077 780 483 42.6 115.9 0.4 64.1 46.3 65.4 25.4 40.0 FY11 7,641 1,267 841 74.2 74.0 0.4 76.4 53.3 37.6 16.5 24.3 FY12E 10,552 1,677 1,130 99.7 34.4 0.6 61.1 47.8 27.9 11.2 18.7 FY13E 13,867 2,212 1,467 129.4 29.7 0.8 57.2 43.1 21.5 7.9 13.7

PERFORMANCE VIS--VIS MARKET


Returns TTK NIFTY 1-m 5% -5% 3-m -7% 0% 6-m 2% -9% 12-m 71% -16%

ANALYTICAL CONTACT
Chetan Majithia (Head) Bhaskar Bukrediwala Yash Taneja Client servicing desk +91 22 3342 3561 clientservicing@crisil.com chetanmajithia@crisil.com bsbukrediwala@crisil.com ytaneja@crisil.com

NM: Not meaningful; CMP: Current Market Price Source: Company, CRISIL Equities estimate CRISIL Limited. All Rights Reserved.

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Table: 1 TTK: Business Environment
Product / Segment Revenue contribution (FY11)* Revenue contribution (FY13)* 37% 25% 27% 8% Pressure Cooker 39% Non-stick Cookware 20% Kitchen Electrical Appliances 27% Gas Stoves 11%

Product / service offering

Outer lid, inner lid, and pressure handi

Cooking pan

Mixer grinders, rice cookers, ovens, juicers, induction cook top and others

Gas stoves

Geographic presence Market position

Dominant in south India with increasing presence in western, northern and eastern India Leading player in the organised space with 43-44% market by Hawkins. Market leader in the organised space with 40% Highly fragmented market with numerous unorganised players. In the branded category in electrical space, Bajaj Electricals is the largest player in the North and Preethi (Maya Appliances and now owned by Philips) in the South. In gas stove category, Sunflame is the largest in the North and Butterfly the largest in the South.

share closely followed market share

Industry growth expectations

Kitchen appliances industry is growing at a steady pace of 10-11% in the non-electrical segment and 15% in the electrical segment. The branded space is expected to grow at a much higher rate driven by the rising disposable income and increasing urbanisation leading to a shift towards branded products, and increasing preferences for lifestyle products from the young demographic population of India.

Sales growth (FY08-FY11 3-yr CAGR) Sales forecast (FY11-FY13 2-yr CAGR) Demand drivers

19% 31%

42% 54%

60% 43%

32% 16%

Rising disposable income and increasing urbanisation resulting in shift from unorganised to organised players. This is also expected to lead to higher demand for lifestyle products Demand for pressure cookers and other appliances will be driven by increasing penetration of gas connection. Only 50% of the estimated 225 mn households in India has gas connection; the government has a target to provide gas connections to 55 mn more households by 2015 Increasing number of nuclear families will see a consequent rise in the number of kitchens which will drive growth in the kitchen appliances industry

Key competitors

Hawkins, Butterfly

Hawkins, Butterfly

Bajaj, Philips (including Preethi), Kenstar, Butterfly

Butterfly, Sunflame

Key risks

Competition from new players entering into the market including foreign brands Rising raw material prices Higher inflation impacting consumer spending Labour intensive operation

* The company also has a small presence in other kitchen appliances like knives, kitchen tools and others which contribute 2-3% to overall revenue Source: Company, CRISIL Research

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Grading Rationale
TTK - a leading kitchen appliance manufacturer in India
TTK, over the years, has transformed itself from a mere outer-lid pressure cooker manufacturer to a complete kitchen solution provider. The share of pressure cookers in overall sales has reduced from 60% in FY03 to 39% in FY11. The company has entered into many new product categories like nonstick cookware, kitchen electrical appliances and gas stoves as part of its strategy to become a one-stop solution provider for kitchen appliances. Also, this wide product portfolio has enabled the company to distinguish itself from its competitors in the organised segment, such as Hawkins, Gandhimathi

TTK transformed itself from a mere outer-lid pressure cooker maker to a complete kitchen solution provider

Appliances, and Bajaj Electricals.

Figure 1: FY06 - Pressure cooker sales dominate


Non-stick Cookware 16%

Figure 2: FY11 A diversified portfolio


Kitchen Electricals 27% Others 3%

Gas Stoves 10%

Gas Stoves 11%

Pressure Cookers 60% Others 5%

Kitchen Electricals 9%

Pressure Cookers 39% Non-stick Cookware 20%

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Table 2: Product portfolio of organised players TTK leads the pack


TTK Hawkins Gandhimathi Appliances Pressure cooker, nonstick cookware, gas stoves, mixer grinder, juicer grinder, toaster, induction cook top, rice cookers, microwave oven, microwave cooker Source: Company, CRISIL Research Pressure cooker, non-stick cookware Gas stoves, pressure cooker, table top wet grinder, mixer grinder, vacuum flasks Mixer grinders, food processors, juicer grinder, toasters, microwave ovens, electric cooker, induction cookers, pressure cooker, cook tops, coffee makers, hand blenders Bajaj Electricals IFB Industries Microwave oven, gas stoves, hobs, chimneys Panasonic Home Appliances Microwave oven, oven toaster, automatic cooker, mixer grinder, juicer grinder, food processor

From a South India to a pan-India presence


The company, being a traditionally southern market focussed player, derives the majority of its revenue (67% of gross sales) from this market. Though the contribution of the southern market in the overall pie is still the largest, the company, over the past few years, has been successful in leveraging its brand and distribution network to penetrate the western, northern and eastern regions.

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Figure 3: Market wise revenue break-up - FY11
Western India 13%

Southern India 67% Eastern India 8%

Focus on newer market has led to pan-India presence

Northern India 9%

Exports 3%

Source: Company, CRISIL Research

Leveraging the brand Prestige A household name


TTK markets its products under the brand Prestige which is now a widely popular household name acknowledged for superior quality, long product life and premium pricing. In an industry which is highly fragmented and is dominated by the local and regional unorganised players, TTK has been able to earn a strong brand recall in the consumers minds especially in the southern market. The brand has also won several accolades over the past few years. TTK is among the few household durable companies in India which have been able to successfully market their products under one brand umbrella since inception. We believe that the strong branding power will enable the company to further penetrate the growing market.

Able

to

create

strong

brand in a highly fragmented and unorganised industry

Table 3: Awards won by the Prestige brand


Awards Awarded Master Brand by Chief Marketing Officer Council in 2011 Super brand award by Super Brand India in FY10 Mera Brand Award by Master Brand 2011 Voted as Indias most Trusted Kitchen Appliances Brand by a consumer survey conducted by the Economic Times in 2010 Source: Company, CRISIL Research

Has been able to pass on costs due to brand strength


The strong consumer preference for the brand has always enabled TTK to pass on any increase in raw material prices irrespective of the industry cycle. This is despite the competition from unorganised players where product pricing is the differentiating factor.

TTK has been able to pass on rise in raw material cost due to strong consumer preference for its brand

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Figure 4: Brand has ability to pass on costs
56% 55.0% 55% 54.2% 54% 53.8% 55.4% 55.7%

53%

52%

52.5%

51%

50% FY06 FY07 FY08 FY09 FY10 FY11

Raw material cost as a % of net sales

TTK spends ~7% of sales on advertisements in order to create brand awareness in non-traditional market

Source: Company, CRISIL Research

Creating brand visibility through continuous spending


TTK has been continuously investing in strengthening its brand with an aim to enter new markets and widen its product portfolio. This has really paid off in the past few years with the companys newly launched products / variants receiving good response in the market despite tough competition from existing players in those products. To sustain brand awareness, the company has been

continuously spending on advertisements, with spends averaging around 7% of sales. In contrast, Hawkins spends only 3-4% of its sales while Bajaj Electricals spends merely 1.3-1.5% of its sales on advertisements. We believe higher spending on advertising and brand building augurs well for TTK, considering it is eyeing to penetrate into the competitive the northern and north eastern markets (dominated by Hawkins in pressure cooker, Sunflame in LPG stove and Bajaj Electricals and Philips in kitchen electrical appliances).

Figure 5: Spends more on branding than its peers


(as % of sales) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1.8% FY06 1.6% FY07 1.5% FY08 4.4% 5.4% 5.1% 6.1% 4.1% 8.3% 8.0% 7.1% 8.6% 7.8%

Figure 6: Volume growth across all products


FY11 FY10 32% 19% 27% 12% 22% 7% 7% 172% 83% 12% 103% 187%

7.7%

7.1%

FY09 11% 28% 17%


6.9% 6.8%

FY08 17% 1%
3.8% 3.9% 3.3% 1.3% FY11

3% 22%

3.9%

FY07

13% 5% 9% 26% 9%

1.3% FY09

1.5% FY10

FY06

Bajaj Electricals Hawkins Cookers

Gandhimathi Appliances T T K Prestige

0%

50%

100% Non-stick Cookware

150% Gas Stoves

200%

250%

Pressure Cookers

Kitchen Electricals

Source: Company, CRISIL Research

Source: Company, CRISIL Research

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Growing kitchen appliances industry Complements TTKs strong positioning
We expect the branded kitchen appliances industry in India to grow at a healthy rate driven by several favourable macro-economic factors. TTK, being one of the leading players in the branded segment, is well poised to leverage the opportunities in this space.

Table 4: Industry structure and TTKs positioning


Product / Segment Pressure Cookers Market Size (Rs mn) 12,000 Highly competitive with low entry barriers and a high number of unorganised players Moderate growth rate of 10-11%; however, the branded segment is growing at a much faster pace High brand recall partially offsets the price differentials Non-stick Cookware 8,550 Low entry barriers; unorganised player accounts for 55% of the market High growth due to increasing demand for lifestyle products by the young population of India Gas Stoves Kitchen electrical appliances 38,500 16,000 Highly fragmented market Characterised by high price competitiveness Highly fragmented market Intense competition on price front Branded players command premium ~5% Bajaj Electricals, Maya Appliances (Preethi), Butterfly, Panasonic Home Appliances & Philips Source: Company, CRISIL Research estimates Has been able to penetrate the market despite being a new entrant Regular product introduction and rapidly expanding product portfolio Leveraging the brand Prestige ~5% Sunflame and Butterfly Relatively small player ~22% Hawkins, Butterfly, Jaipan and Nirlep Commands 40% market share in the organised space Marker characteristics TTKs Market Share ~30% Hawkins and Butterfly Leading player with 44% market share in the branded segment Wide range of cookers Regular product innovations Competitors Market position & strength

Rising disposable income and increasing urbanisation resulting in shift in preference for the organised market
Over the years, the Indian kitchen appliances industry has been experiencing a rapid shift in preference from the unorganised to organised branded players. Rising disposable income and increasing urbanisation have led to this shift due to which players like TTK, Hawkins, and Gandhimathi Appliances have shown strong growth in the past five years. Given the rising urban population and growth in disposable income, we do not see this trend to reverse over the next decade.

Rising

disposable

income

and increasing urbanisation is leading to higher demand for branded products

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Figure 7: Rising urban population in India
(mn) 600 500 +250
Share of India's GDP (%)
100% = 100% 80% 60% 40% 20% 0% 1991 Rural 2001 2008 Urban 2030 46 54 58 46 42 31 5.9 28.0 15,903 Rs bn, real 2008 9,100 49,043 238,041

Figure 8: ... contributing more to GDP


Share of CAGR (2008-30) Growth (%) %) 7.4 100.0

400 300 200 100 0 1991 Total population (mn) Total urban population (%) 856 26 2001 1,040 28 2008 1,155 30 2030 1,470 40 220 290 590 340

54

69

8.3

72.0

Source: McKinsey Global Institute, CRISIL Research

Source: McKinsey Global Institute, CRISIL Research

Figure 9: ... and rising disposable income

Figure 10: ...is leading to growth of branded players


(Volume CAGR)
80% 70% 60% 50% 40% 30% 20% 10% 0% Cookers TTK Prestige Stoves Kitchen Electricals Cookware Hawkins 18% 46% 16% 25% 13% 0% 0% 52% 26% 13% 72%

Gandhimathi

Source: McKinsey Global Institute, CRISIL Research

Source: Company, CRISIL Research

Today, the organised branded players account for ~60% of the pressure cooker market, whereas the non-stick cookware and kitchen electrical appliances market is still dominated by the regional and unorganised players. But over the years, we expect the non-stick cookware and electrical appliances category will also see a shift from unorganised to organised players.

Only 50% households with gas connection room for further penetration
With 115 mn gas connections and 225 mn estimated households in India, there is still a lot of room for further expansion. The lower penetration and the Government of Indias (GoI) target to provide gas connection to another 55 mn households by 2015 pave the road for future growth especially for the pressure cooker and gas stoves category.

GoI target to provide new 55 mn gas connections by 2015 to boost demand and for gas pressure stoves cooker

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Figure 11: New gas connections in India growing at 6%
('000)

140,000 120,000 100,000 80,000 5% 60,000 40,000


100,977 105,731 84,492 88,642 94,260 115,064

12% 10% 9% 10% 8% 6% 4% 2% 0% 2005 2006 2007 2008 2009 2010

6%

7%

5%

20,000 -

All India cummulative gas connections

Y-o-Y growth (RHS)

1.5 2% of joint families in India nuclear which are is the giving rise to families annually, of

Source: Company, CRISIL Research

More nuclear families more family kitchens


India is witnessing a shift from the traditional joint families to more and more of nuclear families. As per the industry sources, nearly 1.5 - 2% of joint families are giving rise to nuclear families annually which is translating into more of household kitchens and hence higher demand for kitchen appliances products.

subsequently number

increasing

family kitchens

Rising rural income + under-penetration = scope for growth


With households in rural India using fewer kitchen appliances, there is strong growth potential for branded players in these areas. For instance, there are only ~200-220 pressure cookers for every 1,000 households in the rural market against 85-90% penetration in the urban market. One of the main reasons for the low penetration is that fewer rural households have gas connections though this is expected to change given the GoIs agenda of new gas connections. Further, the GoIs National Rural Employment Guarantee Act and rising crop prices have led to a rise in disposable income among the farming community, which is also driving the demand for branded kitchen appliances. TTK is eyeing to tap this market by involving NGOs and womens self help groups as its distributors and has test marketed this model in Andhra Pradesh. TTKs strong brand, rising rural income, increasing brand awareness and higher aspiration of rural consumers towards branded products will help the company to penetrate faster.

Rising branded product

farm

income

is

leading to higher demand for kitchen appliance

Young India will have higher demand for lifestyle products


The demand for branded kitchen appliances products in India has also seen significant growth due to its aesthetic appeal and better features which is preferred by the younger population. Further, over the last decade, Indian kitchens have undergone a major conceptual transformation - what was a traditionally unappealing space located in an unnoticeable part of the house, is now seen as a prestige and aesthetic part of any house; modular or designer kitchens are gaining popularity in urban homes. This has boosted the demand

Young demographic profile of India is leading to higher demand for branded and lifestyle products

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for branded products which are crucial for modular kitchens. Besides, with the younger generation becoming health conscious and women left with less time to spend in the kitchens, the demand for products like non-stick cookware, juicer grinders and mixer grinders is rising rapidly. TTK, over the past three years, has witnessed significant growth in its non-stick cookware and kitchen electrical appliances category; we expect the growth to remain robust given the young demographic profile of India.

Figure 12: TTKs growth in non-stick cookware...


(Rs mn)

Figure 13: ... and in kitchen electrical appliances


(Rs mn) 2,500 90% 80% 2,000 54% 43% 1,000 21% 86% 100% 90% 80% 70% 1,500 60% 50% 40% 30% 20% 216 FY06 389 FY07 471 FY08 726 FY09 1,037 FY10 1,929 FY11 Y-o-Y growth (RHS) 10% 0%

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 FY06 FY07 FY08 FY09 FY10 357 435 540 636 873 22% 24% 18% 45% 37%

76%

90% 80% 70% 60% 50% 40% 30% 20%

500

1,540 FY11

10% 0%
0

Revenue - non-stick cookware

Y-o-Y growth (RHS)

Revenue - kitchen electrical appliances

Source: Company, CRISIL Research

Source: Industry sources, CRISIL Research

Changes in tax structure bridged the gap between organised and unorganised players
Prior to FY04, the excise duty on manufacturing of pressure cookers was 16%. This coupled with the states sales tax and octroi hindered the organised players from competing with the unorganised players who were able to play on lower pricing. However, the change in tax structure by the government (current excise duty is 5%) has bridged the pricing gap and led to a shift in the market from the unorganised to organised players. We further believe that with the introduction of goods and services tax, the gap will be further narrowed and will lead to faster penetration by organised players like TTK.

Reduction in excise duty on pressure cooker levelled the field between organised and unorganised players

Figure 14: Revenue growth between FY96-03 and FY03-11


30% 26% 25% 28%

20%

17%

15%

10%

5% 1% 0% FY96-03 -5% Gandhimathi -0.2%

2%

FY03-11 TTK Pretige Hawkins

Source: Company, CRISIL Research

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Reaching last mile via vast distribution network
TTK sells its products through multiple distribution channels supported by a large network of dealers. This strategy has enabled TTK to reach new markets and more consumers. TTK markets its product through authorised direct dealers, authorised re-distributors, large format stores (like Big Bazar, Star Bazar), institutions (large corporate houses which make bulk orders for the purpose of gifts), multi-level marketing and its franchise retail outlets Prestige Smart Kitchen. These also provide better bargaining power to the company and eliminate the risk of dependency on any one particular channel. Further, the increasing urbanisation and rising income levels will pep up the consumer demand from tier II and tier III markets, which can only be met by an extensive distribution network and strong brand presence. TTK, with a pan India presence and a vast distribution network of ~23,000 direct dealers is well positioned to tap these opportunities.

TTK strategy to sell through multiple distribution channel eliminate dependency the on risk any of one

particular channel

Figure 15: Revenue break-up by distribution channel (FY11)


Direct dealers 22% Prestige smart kitchen 15%

Large format stores 12%

Institutions 9% Authorised redistributors 39% Multilevel marketing 3%

Source: Company, CRISIL Research

Retail foray marketing tool turned into a distribution model


TTKs exclusive retail outlets Prestige Smart Kitchen was launched in early 2003 as part of its marketing strategy. The companys foray into the nontraditional products such as non-stick cookware, gas stoves and kitchen electrical appliances initially failed to generate interest among dealers who were apprehensive about acceptance of TTKs new products in the market given the presence of other brands. Hence, to market these products and reach out to consumers, the company opened retail stores under the franchisee model. The retail stores met with a high degree of success and attracted a large number of consumers, which eventually encouraged dealers to ask for TTKs new products. TTKs direct marketing strategy has paid them significantly well in recent times. As of March 31, 2011, revenue from the exclusive outlets has grown at a fiveyear CAGR of 36% to Rs 1,125 mn, accounting for 15% of overall sales; the number of outlets has increased to 279 from 84 in FY06. Further, the increasing

TTKs revenue through its exclusive 36% retail outlet growing at a 5-year CAGR of

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preference of consumers for TTKs new products besides the non-traditional one is also prompting dealers to stock TTKs products.

Figure 16: More Smart Kitchen outlets...


300 250 200 150 100 50 0 FY06 FY07 FY08 FY09 FY10 FY11 229

Figure 17: ... leading to better sales


(Rs mn) 1,200 1,000 800 600 18% 400 200 10% 6% 20% 0% 239 0 FY06 FY07 FY08 FY09 FY10 FY11 440 468 553 741 1,125 -20% 34% 52% 84% 100% 80% 60% 40%

279 180 84 195

174

Smart kitchen outlets' revenue Contribution to total revenue (RHS)

Smart Kitchen Outlets

Source: Company, CRISIL Research

Source: Industry sources, CRISIL Research

An asset-light model eliminates risk


Given the Smart Kitchen stores are an asset light model (as the franchise owner bears the entire cost including establishment cost) and a useful marketing tool which helps increase visibility, the company plans to further increase the number of outlets to 500 by FY13. This will enhance TTKs brand value and lead to better sales. Further, the strategy has negligible risk as the stores are under the franchisee model - product transfers to these outlets are treated as a normal sale to a dealer and the company has no liability thereafter.

Meeting

changing

demands of the consumer through continuous focus on launching of new products / variants

Regular launches of new and innovative products / variants encashing the brand
TTK has been successful in encashing its strong brand pull, by continuously launching new products/variants in the past few years. The company entered the inner-lid pressure cooker segment to penetrate the northern and northeastern markets (where the product is popular) through the launch of Prestige Nakshatra range of inner-lid pressure cookers in the regular and handi varieties. It further widened its offering through the Prestige Apple range of small inner-lid pressure cookers with 3 litre capacity in various vibrant colours targeting the younger urban families to meet the requirements of their modern kitchens and also for aesthetic appeal. Similarly, it is continuously upgrading its Prestige Omega range of cookware products and introducing new products in the kitchen electrical appliances category. The introduction of induction cook top for the urban market became a hit in the rural market as well due to nonavailability of gas connection and increasing availability of power. Better margins in these new life-style products compared to the traditional stainless steel pressure cooker range have also led to improvements in overall margins of the company. Further, the management is planning to enter into manufacturing and marketing of ultra-premium category of pressure cookers which will further boost the higher margins being achieved in the past few years.

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Figure 18: Continuous launches in the past few years
2005-06 Prestige Nakshatra and pressure handi range of inner-lid cooker, pressure kadai, duplex gas tables Source: Company, CRISIL Research 2006-07 85 new products launched across various categories 2007-08 45 products launched across five categories in 80+ variants 2008-09 New range of induction cook tops 2009-10 Prestige Apple range of pressure cookers targeting small urban families

Creating replacement demand through exchange schemes


TTK is deriving ~25% of its sales through exchanges and promotional schemes. This has led to creation of substantial replacement demand for its products in the pressure cooker, non-stick cookware and gas stoves category, which have otherwise high durability with product life of 8-9 years. Contrary to this, the kitchen electrical appliances have a much shorter life of 2-3 years, thereby fostering a natural replacement market. Consumers are always attracted to branded products being sold at a discounted price. Besides, the higher income levels have also led the consumers to shift to a product with better features and brand value. We believe that the strong brand positioning coupled with such schemes will enable the company to achieve higher sales.

TTKs creating

exchanges

and

promotional schemes are substantial demand for replacement its products

Figure 19: Promotional and discounts cost as % of sales


(Rs mn) 500 450 400 350 300 250 200 150 100 50 0 FY06 FY07 FY08 FY09 FY10 FY11 146 223 188 241 296 461 6.6% 5.8% 6.0% 5.8% 6.0% 7.9% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

Discounts and schemes

% of sales (RHS)

Source: Company, CRISIL Research

Strong

cash

generation

Capacity expansion to support future growth


TTK is planning to double its pressure cooker manufacturing capacity to 9.6 mn units and quadrupling its non-stick cookware capacity to 8 mn units by FY12. The company is planning to invest Rs ~2,000 mn for this of which Rs 320 mn has already been invested in FY11. The company, besides expanding its manufacturing capacities at its Coimbatore (Tamil Nadu) and Roorkee

from the operation enables TTK to fund majority of its expansion plan through internal accruals

(Uttarakhand) plants, is also putting up greenfield capacities in Gujarat and Maharashtra for manufacturing non-stick cookware including hard anodised

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pressure cookers. These capacity additions will be funded predominantly by internal accruals and debt of Rs 500 mn. Hence the expansion plan will not carry the risk of any equity dilution or rising gearing levels.

Figure 20: More utilisation = fresh capacities


90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY08 FY09 FY10 FY11 29% 36% 54% 57% 77% 81% 85%

Figure 21: Cash generating business


(Rs mn) 900 800 700 600 9% 16% 12% 15% 15% 11% 10% 20%

58%

500 400 300 200 100 FY06 FY07 FY08 FY09 FY10 FY11 200 29 511 463 751 821 1%

5%

0%

-5%

Pressure Cookers

Non-stick Cookware

Cash from operation

Cash from operation as % of sales (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Continues to follow outsourcing model for other products


TTK sources its gas stoves and kitchen electrical appliances from third parties and will continue to do so to maintain its focus on manufacturing of pressure cookers and cookware products. While gas stoves are being sourced from dedicated small and medium scale enterprises in North India under TTKs strict supervision, 60% of kitchen electrical appliances requirement is being sourced from China (as they cost 20% cheaper than in-house manufacturing) and rest from India. This strategy will enable TTK to grow faster without investing too much in building capacities. This will also enable the company to maintain its high asset turnover, thereby yielding higher return on equity.

Outsourcing kitchen to maintain

model

for

electrical high asset

Real estate - non-core operation with one-time cash flow and annual lease rentals
TTK has decided to develop the surplus land of its oldest factory in Bangalore; the sale of the residential portion of the project is expected to yield a one-time cash flow of Rs 650 mn in FY15 while the leasing of commercial space will lead to annual rental cash flows of Rs 70 mn from FY15. The company has handed over development of 6.5 acre of surplus land at Dooravaninagar (near Whitefield), Bangalore to Rajmata Realtors (Salarpuria group company) for developing an office cum residential complex (60% commercial and 40% residential). The project has received all the necessary approvals and

appliances and gas stoves turnover

construction has begun.

and zero liability


TTK has given the land as an equity contribution to the developer for 43% stake in the project with no further liability on account of cost of development. The real estate development is a non-core operation of the company. The land was housing the oldest factory of TTK and the location has turned into a residential

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area. The company was finding it difficult to continue with factory operation at an optimum level due to environmental issues and hence decided to shift the plant to Coimbatore. As per our interaction with the management, the company is not focusing on expanding into the real estate business and will continue to expand in the kitchen appliances segment.

Intensifying competition amidst significant growth


The kitchen appliances industry is highly fragmented with large number of unorganised and regional players. Low entry barriers and price based

Strong extensive mitigate competition

brand

and

distribution the rising

network of TTK help to

competition remain the key concerns in this industry. Besides competition from unorganised players, TTK also faces competition from organised players given the strong growth expected in the industry. However, we believe that a player with a strong brand, a wide range of product portfolio, a strong distribution network, wider market penetration and better financial muscle will be able to cope with such a competition. With TTK scoring ahead of its competitors in all the parameters, we do not see competitive pressure as a major risk to growth.

Table 5: TTK competitive positioning


Characteristics Products offering TTK Only company in India offering a product portfolio across entire range of kitchen appliances. Market Position Market leader in pressure cooker and non-stick cookware. Rapidly capturing the market in other product categories Dominant market Other market Brand Brand recall Distribution Network South India North and West India Prestige Strong in South and is known in the North and West market Has a wide distribution network and markets its products through distributors, dealers, exclusive retail outlets and big format stores Target segment Catering to all income class ; but does not have products into utlra premium category EBIDTA Margins 15-16% This is due to high margins product like non-stick cookware and electrical appliances product. Balance sheet Debt free, efficiently managed working capital, high asset turnover and high RoE Source: Company, CRISIL Research Low gearing, highest RoE, efficiently managed working capital, low asset turnover High debt, comparatively higher working capital and relatively low asset turnover Wide distribution network; markets products through distributors, and big format stores. Has no exclusive retail outlets Catering to all income class; Have a range of products for utlra premium high income class 14-15% More concentrated towards midmid and mid-lower income; also does not have products into utlra premium category 11-12%. Since they do not have too many premium products their margins is lower North and East India NA Hawkins, Miss Mary and Futura Strong in North and East India Tamil Nadu Karnatka, Andhra Pradesh, Maharasta and Gujarat Butterfly Strong in Tamil Nadu especially in gas stove category Wide distribution network; However it very limited retail presence and also limited sales in big format stores Second largest player in the pressure cooker category after TTK Hawkins It is only into pressure cooker and non-stick cookware Gandhimathi Pressure cookers, mixer grinders, table-top wet grinders and gas stoves. The product basket and variants are not as wide as TTK. Market leader in gas stove in South India. Limited presence outside southern markets

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Key risks
Rising inflation may impact consumer spending power
Rising inflation has added to the woes of Indian consumers by adversely impacting purchasing power. In case inflation continues to remain above 8-9%, it may have an impact on the spending power of the consumers, thereby impacting the demand for consumer durables, including kitchen appliances.

Rising impact

inflation

may

consumer demand for

spending power thereby impacting consumer durables

Volatility in raw material prices


Aluminium and stainless steel are the major raw materials in case of nonelectrical kitchen appliance products and accounts for 52-55% of revenues. Though TTK has been successful in passing on increases in raw material prices due to its established brand, any significant rise in prices and the companys inability to pass on the rise can exert pressure on operating margins.

Low entry barriers; intense competition


Kitchen appliance is a highly fragmented industry with many unorganised players. This coupled with low entry barriers leads to intense competition. Though TTK has been able to diversify its product portfolio over a period of time and enjoy a strong branding power, future growth might be impacted due to competition based on pricing in the kitchen appliance industry.

Kitchen

appliance

is

fragmented industry with low entry barriers

Labour intensive operation


Kitchen appliances industry is a labour intensive industry and any dispute between the factory labour workforce and management can disrupt production, thereby impacting profitability. However, TTKs management has been

instrumental in maintaining a cordial relationship with the factory workforce and has not seen any major dispute over the last six-seven years. Besides its major expansion plans are less labour intensive due to more mechanisation. Hence we do not see this as a major risk to the company.

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Financial Outlook
Revenues to grow at two-year CAGR of 35%
TTKs revenue registered a strong five-year CAGR of 28% during FY06-11 driven by healthy growth of 18% in the pressure cooker segment and diversification into non-stick cookware, kitchen electrical appliances and gas stoves segment, which registered robust growth of 34%, 55% and 29% respectively during the same period. Apart from the strong industry demand, factors like strong brand recall, foray into new product categories and variants, continuous upgradation and extensive distribution reach has led to a significant growth in the past. Going forward, we expect the revenues to grow at a two-year CAGR of 35% to Rs 13.9 bn by FY13 driven by strong growth across all segments. While the pressure cooker segment is expected to register a strong growth of 31%, nonstick cookware, kitchen electrical appliances and gas stoves category is expected to register 54%, 43% and 16% growth respectively.

Revenue growth is driven by strong volume growth across category the product

Figure 22: Strong growth in revenue to continue


(Rs mn) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 FY09 FY10 FY11 FY12E FY13E 10% 4,019 5,077 7,641 10,552 13,867 0% 23.4% 26.3% 50.5% 50% 38.1% 31.4% 40% 30% 20% 60%

Figure 23: Contribution from each of the segments


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY09 Pressure cooker Kitchen electrical appliances Others FY10 FY11 FY12E Non-stick cookware Gas stoves FY13E 53% 47% 41% 15% 5% 10% 18% 4% 12% 20% 17% 3% 10% 25% 3% 8% 25% 3% 7% 27%

20%

25%

25%

38%

37%

Revenue

Y-o-Y growth (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

EBITDA margin to remain stable


In the past two years, EBITDA margins increased ~700 bps to 16.6% in FY11 mainly due to higher contribution from relatively high margin non-stick cookware and kitchen electrical appliances. Further the companys ability to efficiently manage its overhead costs, and achieve higher economies of scale has also boosted margins. Given that the company is entering into high margin pressure cooker manufacturing and increasing contribution from the high margin cookware and electrical appliances segment, we expect margins to remain more or less stable at 16% over the next two years.

Increasing from products to

contribution margins maintain

better

stable and higher margins

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Figure 24: EBITDA margin to remain stable
(Rs mn) 2,500 16.6% 15.4% 15.9% 16.0% 18% 16% 14% 9.8% 12% 10% 8% 6% 500 394 FY09 EBIDTA FY10 FY11 FY12E FY13E 780 1,267 1,677 2,212 4% 2% 0%

Figure 25: Operating cost as % of sales


(as % of sales) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY09 Raw material cost FY10 Employee cost SGA cost FY11 Other cost 55.7% 52.5% 53.8% 20.9% 7.8% 5.8% 5.3% 19.1% 7.7%

2,000

4.3% 18.4% 6.9%

1,500

1,000

EBIDTA margins (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Well managed overheads; enjoys economies of scale


Over the years, TTKs management was successful in managing its overhead cost; its employee and SG&A costs as a percentage of sales declined by 350 bps to 25.3% in FY11 compare to 28.8% in FY09.

Figure 26: Higher margins depict TTKs efficiency FY11


(as % of sales) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% TTK Prestige Raw Material cost Employee cost Hawkins Cookers Gandhimathi Appliances Other costs 53.8% 41.7% 60.3% 18.4% 6.9% 19.5% 4.3% 9.1% 14.3% 5.5%

12.9%

11.4%

TTKs margins among the best in the industry

Selling & Administrative expenses

Source: Company, CRISIL Research

PAT to grow at a two-year CAGR of ~32%, EPS to increase from Rs 74 in FY11 to Rs 129 in FY13
PAT is expected to grow at a two-year CAGR of 32.1% to Rs 1.5 bn in FY13, primarily driven by strong growth in revenues and stable margins. PAT margin is expected to remain stable at 10.5-11% over the next two years. EPS is expected to grow in-line with PAT from Rs 74 in FY11 to Rs 129 in FY13.

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Figure 27: EPS and PAT margin
(Rs / share) 140 120 100 80 60 40 20 19.7 0 FY09 FY10 EPS (LHS) FY11 FY12E PAT margins FY13E 42.6 74.2 99.7 129.4 0% 4% 2% 5.6% 9.5% 11.0% 10.7% 10.6% 12% 10% 8% 6%

RoE

to

remain

healthy

above 40% in FY13

Source: Company, CRISIL Research

RoE to decline due to capex; however, will remain strong above 40%
TTKs RoE and RoCE increased significantly from 29% and 32% in FY09 to 53% and 76%, respectively, in FY11 driven by substantial improvement in margins and an increase in asset turnover. However with the ongoing capex of Rs 2,000 mn, the asset turnover is expected to decline thereby leading to a fall in RoE and RoCE at 43.1% and 57.2% in FY13 respectively, though still at healthy levels.

Figure 28: RoE and RoCE to remain strong


90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY09 FY10 RoCE FY11 FY12E RoE FY13E 29.2% 32.5% 46.3% 53.3% 47.8% 43.1% 64.1% 76.4% 61.1%

Figure 29: Asset turnover ratio to decline


(x) 20 18 18.9

57.2%

16 14 12 10 8 6 4 2 0 FY09 5.8 12.3

13.8 11.5

7.5 9.1 6.6 7.6 5.8

FY10 Net asset turnover

FY11

FY12E

FY13E

Gross asset turnover

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Efficient working capital management gearing significant cash generation

low
Working capital days decline to 12 days in FY11 from 90 days in FY06

TTKs efficient working capital management (working capital days declined from 90 days in FY06 to 40 days in FY09 to 12 days in FY11) has led the company to become virtually debt-free given minimal requirements of funds for working capital. This coupled with strong revenue growth, better management of overheads and eventually better margins has led to significant generation of cash. From a mere Rs 89 mn of cash generated (before any investments) in

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FY06, the company has generated Rs ~800 mn in FY11. This will enable the company to fund its proposed capital expenditure of Rs 2,000 mn largely through internal accruals and marginally by debt of Rs 500 mn.

Figure 30: Strong working capital management...


(Days) 100 90 80 70 60 50 40 30 20 10 0 FY06 FY07 FY08 FY09 FY10 FY11 90 80 68 40 21 12 0.7 1.2 1.3 (X) 1.6 1.4 1.2 1.0 0.8 0.2 0.0 0.0 0.6 0.4 0.2 0.0 -0.2 -0.4

Figure 31: ... led to surplus cash generation


(Rs mn) 900 800 700 600 500 400 300 200 100 0 FY06 FY07 FY08 FY09 FY10 FY11 Y-o-Y growth (RHS) 89 142 154 133 543 799 70% 59% 8% -14% 47% 307% 350% 300% 250% 200% 150% 100% 50% 0% -50% -100%

Working capital days

Gearing (RHS)

Cash generation before any investment

Source: Company, CRISIL Research

Source: Company, CRISIL Research

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Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management quality, apart from other key factors such as industry and business prospects, and financial performance.

Experienced top management with strong business acumen


TTK has an experienced management team. Mr. T.T. Jagannathan, Promoter and Executive Chairman, is a Gold medallist from IIT, Chennai and has done masters in operations research from Cornell University, USA. He has been associated with the company for the past 35 years. He along with veterans like Mr. S. Ravichandran, Managing Director, who did his engineering from IIT, Chennai and MBA from IIM, Ahmedabad and Mr. K. Shankaran, Director Corporate Affairs have led the company to yield strong CAGR of 20% in revenues and 50% at the PAT level in past one decade.

TTK

has

an

experienced

management with strong business acumen

Successful in establishing a strong brand


TTKs management has been successful in establishing a strong brand Prestige in a highly fragmented kitchen appliance industry in India dominated by unorganised players. The brand has won several accolades in the past; all of TTKs products are successfully marketed under the same brand since inception. The ability to pass on any rise or fall in the raw materials prices over the past decade also speaks about the strength of the brand. With continuous investment in branding, the management has been able to create a significant demand for its non-traditional product portfolio.

Professional set-up and strong second line


TTKs management has a professional approach towards managing the company. Based on our interactions with various business heads Mr. Chandru Kalro (Executive VP Marketing), Mr. V. Sundaresan (CFO), Mr. H. T Rajan (Chief Manufacturing Officer) and plant managers - we believe that TTK has a strong second line with 10-15 years of experience in their respective domains. Apart from being well-versed with their respective departments, they have hands-on experience in the overall business of the company. Further their association with the company since the past seven-eight years and the strong growth reported by the company depicts that these people have been successful enough in implementing their overall strategy and vision.

Strong

and

experienced

second line of management

Management ready to hand over charge to professionals


Mr T.T. Jagannathan, 62, has shown inclination towards a professional management set-up. Though his two sons are involved in managing the other group companies we do not see succession a major issue given that Mr. Jagannathan over the years has built a strong team and is ready to hand over the charge to professionals.

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Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate governance and management quality, apart from other key factors such as industry and business prospects, and financial performance. In this context, CRISIL Research analyses the shareholding structure, board

composition, typical board processes, disclosure standards and related-party transactions. Any qualifications by regulators or auditors also serve as useful inputs while assessing a companys corporate governance. Overall, corporate governance at TTK meets the requisite standard and is supported by reasonably good board practices and an independent board.

Board composition
The board comprises 10 members, of whom five are independent directors, which meets the requirements under Clause 49 of SEBIs listing guidelines. The board brings industry expertise as well as diversified technical and business experience.

Corporate governance practices are good

Boards processes
The board's processes appear to be well structured, with all the committees audit, remuneration and investor grievance - in place, supporting good corporate governance practices and decision-making framework. The fact that audit committee and remuneration committee is chaired by an independent director speaks well of the good governance practices. The committee meets at timely and regular intervals. The board also includes well-known names like Mr R Srinivasan, who is currently on the board of companies such as Cholamandalam MS General Insurance Co. Ltd, Kirloskar Oil Engines Ltd, Sundaram Fasteners Ltd. Mr. Arun K. Thiagarajan, another independent director, has held senior positions in ABB, Wipro and Hewlett-Packard.

Good disclosure levels; strong internal control systems


The companys quality of disclosure can be considered good, judged by the level of information and details furnished in the annual report, websites and other publicly available data. The disclosure level is sufficient to analyse the various business aspects. It has strong internal control systems and has engaged management audit firms who will focus on risk management processes, operational efficiencies and improved utilization of SAP processes.

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Valuation Grade: 2/5

We initiate coverage on TTK with a valuation grade of 2/5, indicating that the current market price has downside to our fair value of Rs 2,392 per share. We have used the discounted cash flow (DCF) method and our fair value indicates an implied one year forward price-to-earning (PER) multiple of 18.5x FY13 EPS and one year forward enterprise value-to-EBITDA (EV/EBITDA) multiple of 11.7x FY13 EBIDTA.

We initiate coverage on

Key DCF assumptions


We have discounted the free cash flows of TTK from FY13 to FY22, post which we have applied a terminal growth of 5%. Considering the demographic profile of India and rising income levels of Indians, we believe the terminal growth rate of 5% is justified. We have assumed a cost of equity of 15.1% and post tax cost of debt at 7.7%.

TTK with a fair value of Rs 2,392 per share and valuation grade of 2/5

Sensitivity to valuation
We tested our valuation sensitivity on various key assumptions:

Table 6: Sensitivity to WACC and terminal growth rate


Terminal growth rate 3.0% 13.5% WACC 14.5% 15.0% 16.0% 17.0% 2,472 2,252 2,161 2,002 1,873 4.0% 2,627 2,371 2,266 2,083 1,938 5.0% 2,819 2,515 2,392 2,180 2,013 6.0% 3,063 2,692 2,545 2,296 2,103 7.0% 3,381 2,917 2,738 2,438 2,210

Source: CRISIL Research estimates

Sensitivity of change in EPS to change in overall revenue growth and margins


For every change of 250 bps in revenue growth assumption, our EPS estimate for FY12 and FY13 changes by 5% and 12%, respectively. For every change of 100 bps in our EBITDA margin assumption, our estimates of EPS for FY12 and FY13 changes by ~7%.

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Valuation comparison
Company TTK Prestige Ltd Direct competitors Hawkins Cookers Ltd Gandhimathi Appliances Ltd Bajaj Electricals Ltd Median Weighted average Consumption based other peers IFB Industries Ltd Lovable Lingerie Ltd Page Industries Ltd Kewal Kiran Clothing Ltd Jubilant Foodworks Ltd Median Weighted average Overall peer group Median Weighted average 24.0 30.1 21.4 25.3 17.9 19.6 14.2 20.0 9.4 14.6 12.1 12.7 32 38 34 38 33 34 4.9 10.9 5.1 8.6 3.9 6.3 2,875 6,532 28,203 8,823 55,547 5.2 31.8 48.2 19.1 76.4 31.8 36.1 NA 27.6 33.7 15.3 52.5 30.6 32.3 NA 23.1 25.8 12.6 35.6 24.5 24.3 4.1 32.4 29.8 11.8 45.8 29.8 24.8 2.6 24.0 21.3 9.4 29.2 21.3 17.3 NA 18.4 16.5 7.7 20.7 17.4 15.8 28 17 53 24 47 28 34 NA 16 58 26 43 34 35 NA 16 57 27 42 35 36 1.3 4.6 22.8 5.1 28.8 5.1 12.5 NA 4.0 15.9 4.3 19.3 10.1 10.9 NA 3.5 11.1 3.7 13.2 7.4 7.9 8,016 2,918 17,652 25.2 22.8 12.1 22.8 20.0 NA 12.2 10.5 11.4 11.4 NA 12.3 8.4 10.3 10.3 16.5 11.9 8.0 11.9 12.1 NA 8.9 6.6 7.7 7.7 NA 7.6 5.4 6.5 6.5 75 37 26 37 46 NA 63 24 43 43 NA 40 25 32 32 17.4 4.3 2.9 4.3 8.2 NA 5.9 2.3 4.1 4.1 NA 4.2 1.9 3.0 3.0 M.Cap (Rs mn) 31,593 P/E FY11 FY12E 37.6 27.9 EV/EBITDA FY13E FY11 21.5 24.3 FY12E 18.7 FY13E FY11 13.7 53 RoE (%) FY12E 48 FY13E FY11 43 16.5 P/BV FY12E 11.2 FY13E 7.9

Source: CRISIL Research estimates, Industry TTK Prestige currently trades at P/E multiple of 21.5x based on our FY13 EPS estimate, which indicates that the stock is trading at a premium over its direct competitors. Also based on our fair value of Rs 2,392 the implied PE multiple is 18.5x. We believe that the premium over its direct competitors is justified given its better wide product profile, strong distribution network, higher profitability margins, a strong balance sheet and a prudent management. Simultaneously, we have analysed valuation multiples of other consumption driven companies such as Jubilant Foodworks, IFB Industries, Page Industries Ltd, and others to get an insight of market sentiments on consumption driven thematic story. We found that these stocks are trading at a median FY13 P/E of 24.5x, which implies that TTK is trading at 12% discount to these companies. Also at our FV of Rs 2,392 the stock trades at 18.5x FY13 multiple which is a discount of ~25%. We believe TTKs valuation has limited scope for any further discount beyond this given the companys strong positioning kitchen appliance segment, its historical performance and positive business outlook.

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TTK Prestige Ltd


One-year forward P/E band
(Rs) 3,500 3,000 2,500 2,000 1,500 1,000 500 0

One-year forward EV/EBITDA band


(Rs mn) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

Feb-09

Feb-09

Feb-10

Feb-11

Feb-10

Dec-08

Dec-09

Feb-11

Dec-08

Dec-09

Dec-10

Dec-11

Dec-10

Aug-08

Aug-09

Aug-10

Aug-11

Aug-10

Aug-08

Aug-11 Aug-11

TTK Prestige

1x

8x

15x

22x

29x

EV

3x

10x

17x

24x

Source: NSE, BSE, Company, CRISIL Research

Source: NSE, BSE, Company, CRISIL Research

P/E premium / discount to NIFTY


120% 100% 80% 60% 40% 20% 0% -20% -40% -60% -80% -100%

P/E movement
(Times) 35 30 25 20 15 10 5 0 -5 -1 std dev +1 std dev

Feb-10

Feb-09

Dec-09

Dec-10

Feb-11

Dec-08

Aug-08

Aug-09

Jun-08

Jun-09

Jun-10

Feb-09

Feb-10

Feb-11

Jun-11

Dec-08

Dec-09

Aug-08

Aug-09

Aug-10

Dec-10

Aug-11

Dec-11

Oct-08

Oct-09

Oct-10

Apr-09

Apr-10

Apr-11

Apr-08

Oct-11

Premium/Discount to NIFTY

Median premium/discount to NIFTY

1yr Fwd PE (x)

Median PE

Source: NSE, BSE, Company, CRISIL Research

Source: NSE, BSE, Company, CRISIL Research

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Dec-11

Jun-10

Jun-08

Jun-09

Aug-10

Jun-11

Apr-10

Apr-08

Apr-09

Apr-11

Oct-09

Oct-10

Oct-08

Oct-11

Dec-11

Aug-09

Jun-08

Jun-09

Jun-10

Jun-11

Jun-08

Jun-09

Jun-10

Jun-11

Apr-08

Apr-09

Apr-10

Apr-11

Apr-08

Apr-09

Apr-11

Apr-10

Oct-08

Oct-09

Oct-08

Oct-09

Oct-10

Oct-11

Oct-10

Oct-11

TTK Prestige Ltd


Company Overview
TTK is the flagship company of the TT Krishnamachari group of companies, which has interest in healthcare and consumer products. TTK Prestige Ltd was set up in 1955 as a private limited company, which went public in 2000. The company through its brand Prestige is among the leading brands in the kitchen appliances space in India, especially in the pressure cooker and non-stick cookware category. The company has a well diversified product profile, with ~60% of revenues from pressure cooker and non-stick cookware products and the remaining from gas stoves and kitchen electrical appliances. The company, being Indias first ISO 9001:2000 certified kitchenware company, has a market share of about 43-44% in the domestic pressure cooker segment in the organised space. The company has three manufacturing facilities located at Hosur, Coimbatore (in Tamil Nadu) and Roorkee (in Uttarakhand) and is planning to set-up a green field manufacturing facility primarily for non-stick cookware in Gujarat.

TTK, incorporated in 1955, is the leading kitchen appliance manufacturer of India

Key milestones
1955 1959 1984 1990 1994 1994 1995 1998 2000 2001 2003

Incorporated as a private limited company Commenced manufacturing of pressure cookers with technical collaboration from Prestige Group (UK)
Launched Prestige pressure pan Launched ready-to-eat snacks, fryums, in India Came out with an IPO Changed name from TT Limited to TTK Prestige Limited. Launched its products under the brand name Manttra in the US market Made an entry into the UK and Australian markets Company launched Prestige omega non-stick cookware Launched a new range of vacuum flasks with imported shells Recast its debt portfolio by converting majority of its borrowing into ECBs and FCNRB loans aggregating to US $9.5 mn Inaugurated the exclusive TTK Prestige showroom in Vijayawada Obtained license for Prestige brand for the use in USA, launched new product Prestige Nakshatra (Inner lid), pressure Handi, pressure kadai, duplex gas tables Introduced new range of Induction cook tops Launched Prestige Apple range of inner lid cookers, Prestige Micro chef microwave cookers, Inducted compatible base cookware Voted as Indias most trusted kitchen appliance brand by Brand Equity survey of Indias most trusted brands 2010 Envisaged capacity expansion of Rs 2,000 mn

2004 2005

2008-09 2009-10

2010 2011

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TTK Prestige Ltd


Annexure: Financials
Income statement (Rs mn) Operating income EBITDA EBITDA margin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT Ratios FY09 Growth Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoC E (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days C reditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) C urrent ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY09 Adj EPS (Rs) C EPS Book value Dividend (Rs) Actual o/s shares (mn) 19.7 22.8 74.7 5.0 11.3 FY10 42.6 45.8 109.6 10.0 11.3 FY11 74.2 77.9 168.9 12.5 11.3 FY12E 99.7 105.3 248.7 17.0 11.3 FY13E 129.4 139.0 352.2 22.1 11.3 69 60 43 40 5.8 12.3 7.0 1.6 0.2 0.1 5.0 71 77 43 21 6.6 13.8 8.4 1.5 0.0 (0.3) 19.9 80 81 35 12 9.1 18.9 9.9 1.5 0.0 (0.4) 27.9 78 80 38 10 7.6 11.5 6.5 1.3 0.2 (0.1) 27.1 80 80 38 11 5.8 7.5 6.0 1.5 0.0 (0.3) 35.5 Quarterly financials (Rs mn) Net Sales C hange (q-o-q) EBITDA C hange (q-o-q) EBITDA margin PAT Adj PAT C hange (q-o-q) Adj PAT margin Adj EPS Q2FY11 Q3FY11 Q4FY11 1,999 38% 327 43% 16% 218 224 40% 11% 20 2,365 18% 422 29% 18% 293 293 31% 12% 26 1,819 -23% 238 -44% 13% 166 166 -43% 9% 15 Q1FY12 Q2FY12 2,331 28% 371 56% 16% 253 253 52% 11% 22 3,035 30% 498 34% 16% 337 337 33% 11% 30 141.2 37.3 80.5 7.9 25.3 0.2 65.4 25.4 40.0 6.2 21.6 0.4 37.6 16.5 24.3 4.1 16.9 0.4 27.9 11.2 18.7 3.0 17.1 0.6 21.5 7.9 13.7 2.2 17.1 0.8 9.8 5.6 29.2 32.5 30.2 15.4 9.5 46.3 64.1 59.6 16.6 11.0 53.3 76.4 81.9 15.9 10.7 47.8 61.1 59.2 16.0 10.6 43.1 57.2 54.3 Cash flow (Rs mn) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investments C apital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing C hange in cash position C losing cash 0 (262) (66) (0) (328) 3 109 0 (179) (132) 44 (267) 331 440 0 (6) (164) (3) (173) 96 535 500 (226) 274 (28) 507 (500) (293) (793) 523 1,030 (64) (64) (80) (80) (317) (222) (539) (1,515) (1,515) (10) (10) FY09 290 (66) 35 136 395 FY10 713 (230) 36 159 678 FY11 1,207 (365) 43 (77) 808 FY12E 1,615 (484) 63 20 1,213 FY13E 2,095 (629) 108 (249) 1,326 23.4 19.6 29.5 29.5 26.3 98.3 115.9 115.9 50.5 62.4 74.1 74.0 38.1 32.3 34.4 34.4 31.4 31.9 29.7 29.7 FY10 FY11 FY12E FY13E 224 224 290 66 FY09 4,019 394 9.8% 35 359 72 286 4 FY10 5,077 780 15.4% 36 744 37 707 6 41 754 230 524 41 483 FY11 7,641 1,267 16.6% 43 1,225 44 1,181 26 (3) 1,204 366 838 (3) 841 1,615 484 1,130 1,130 FY12E 10,552 1,677 15.9% 63 1,614 60 1,554 61 FY13E 13,867 2,212 16.0% 108 2,103 59 2,044 51 2,095 629 1,467 1,467 Balance Sheet (Rs mn) Liabilities Equity share capital Reserves Minorities Net worth C onvertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net fixed assets C apital WIP Total fixed assets Investments Current assets Inventory Sundry debtors Loans and advances C ash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets 503 489 213 109 1,314 829 485 16 1,085 613 603 426 440 2,081 1,424 657 11 1,301 1,050 747 782 535 222 3,336 2,285 1,052 5 1,970 1,445 1,156 712 507 222 4,043 3,039 1,004 5 3,374 1,900 1,520 936 1,030 222 5,607 3,832 1,775 5 4,048 343 237 580 4 394 235 629 4 414 495 909 4 1,415 947 2,361 4 2,263 2,263 4 113 733 846 207 207 31 1,085 113 1,128 1,242 28 28 31 1,301 113 1,801 1,915 22 22 33 1,970 113 2,706 2,819 522 522 33 3,374 113 3,879 3,993 22 22 33 4,048 FY09 FY10 FY11 FY12E FY13E

Source: CRISIL Equities

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TTK Prestige Ltd


Focus Charts
FY11 Revenue break-up Well diversified
Kitchen Electricals 27% Others 3%

New gas connections in India growing at 6%


('000) 140,000 120,000 100,000 10% 9% 7% 5% 12% 10% 8% 6% 4%

Gas Stoves 11%

80,000 5% 60,000

6%

100,977

105,731

84,492

88,642

94,260

115,064

40,000 Pressure Cookers 39% Non-stick Cookware 20% 20,000 2005 2006 2007

2% 0%

2008

2009

2010

All India cummulative gas connections

Y-o-Y growth (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Revenue growth between FY96-03 and FY03-11


30% 25% 20% 15% 26% 10% 5% 1% 0% FY96-03 -5% Gandhimathi TTKP FY03-11 Hawkins -0.2% 2%

TTKs revenue is growing through its retail outlet


(Rs mn) 1,200 1,000 800 52% 34% 18% 400 10% 84% 100% 80% 60% 40% 20% 0% 239 0 FY06 FY07 FY08 FY09 FY10 FY11 440 468 553 741 1,125 -20%

28%

600 6%

17% 200

Smart kitchen outlets' revenue Contribution to total revenue (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

TTKs PE movement
(Rs) 3,500 3,000 2,500 2,000 1,500 1,000 500 0

Shareholding pattern over the quarters


100% 90% 80% 70% 60% 50% 40% 30% 20% 74.9% 74.9% 74.9% 74.9% 15.1% 2.0% 8.0% 13.8% 5.1% 6.3% 12.5% 5.8% 6.8% 12.4% 4.3% 8.4%

Feb-09

Feb-10

Feb-11

Dec-08

Dec-09

Dec-10

Aug-08

Aug-09

Aug-10

Dec-11

Jun-08

Jun-09

Jun-10

Jun-11

Apr-11

Aug-11

Apr-08

Apr-09

Apr-10

Oct-08

Oct-09

Oct-10

Oct-11

10% 0% Dec-10 Promoter Mar-11 FII Jun-11 DII Sep-11 Others

TTK Prestige

1x

8x

15x

22x

29x

Source: Company, CRISIL Research

Source: Company, CRISIL Research

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