India | Houseware

5 May 2011

Quarterly Update/Target price/Rating change

TTK Prestige
Positioning for higher growth
Topline slightly below expectation, margin dips The company reported a mixed quarter with growing topline but dipping margins. Revenues grew by 47% on YoY basis, slightly below our expectations. Product-wise, electrical appliance and cookware have been major growth contributors and our view that electrical appliance would be the key growth contributor was vindicated. EBITDA was reported at INR238mn, commanding margin of 13.1%, about 140bps lower on YoY. Enhanced marketing to the tune of ~INR40mn higher in Q4FY11 impacted margins. Capex on track, capacity to double The company is doubling its pressure cooker and cookware capacity to 8mn and 4.5mn respectively. The overall capex of INR2bn, will be funded internally, that will be completed by end of FY12E. Huge scope of growth Diversifying from pressure cooker to entire kitchenware has allowed TTK to widen its target market size from INR10-12bn to over INR80bn. Further, penetration levels of below 25% in pressure cookers and electrical appliances offers scope to grow. The company targets increasing franchisee stores to 500 by FY13E from the current 285, and further add about 30 odd SKUs over next six months across the category. We expect the company to grow topline by 31% to INR10bn in FY12E led by volume growth of about 25%. EBITDA margin is expected to be 16.1%, leading to a PAT of INR1.2bn. Valuation peaking TTK is currently trading at a P/E of 22x on FY12E earnings. Our target multiple of 24x on the FY12E EPS of INR103, is based on continuous growth momentum, upgrading our target price to INR2480 with an upside of 11%. This equates the CNX Midcap index PEG of 0.7x. Subsequently we change the rating to Accumulate from Buy.

Rating : Accumulate
Target Price : INR2,480 Upside : 11% CMP : INR2,239 (as on 4 May 2011) Key data*
Bloomberg /Reuters Code Current /Dil. Shares O/S (mn) Mkt Cap (INRbn/US$mn) Daily Vol. (3M NSE Avg.) Face Value (INR) 1 US$= INR44.5
Source: Bloomberg ; * As on 4 May 2011

Global Markets Research

TTKPT IN/TTKL.BO 11.3/11.3 25/570 174,017 10

Price & volume

3,000 2,500 2,000 1,500 1,000 500 0 May-10 Sep-10 Vol. in mn (RHS) Source: Bloomberg 4 3 2 1 0 Jan-11 May-11 TTK prestige (LHS)

Share holding (%)

Promoter Institutional Investors Other Investors General Public Source: BSE

Q1FY11 Q2FY11 Q3FY11 Q4FY11 74.9 8.5 3.1 13.5 74.9 8.5 3.7 12.9 74.9 10.0 2.8 12.3 74.9 11.3 2.4 11.4

Price performance (%)

Sensex TTK Prestige Hawkins Cooker Source: Bloomberg

3M 2.6 32.2 11.0

6M (12.1) 58.4 5.6

12M 8.1 262.9 4.8

Y/E March (INR mn) Net Sales Operating Expenses % of Sales EBITDA EBITDA Margins (%) Interest Depreciation PBT Tax Effective Tax Rate (%) Adjusted PAT NPM (%) Reported PAT EPS

Q4FY11 1,819 1,581 86.9 238 13.1 2 11 236 70 29.8 166 9.1 166 14.6

Q4FY10 1,235 1,056 85.5 179 14.5 3 10 173 55 31.5 118 9.6 118 10.5

YoY(%) 47.3 49.7 1.4 33.0 (1.4) (21.4) 7.7 36.4 29.2 (1.7) 39.8 (0.5) 39.8 39.8

Q3FY11 2,365 1,942 82.1 422 17.9 2 11 421 128 30.4 293 12.4 293 25.9

QoQ (%) (23.1) (18.6) 4.8 (43.6) (4.8) 22.2 (43.9) (44.9) (0.5) (43.5) (3.3) (43.5) (43.5)

Q4FY11E 1,933 1,618 83.7 315 16.3 1.40 9 314 91 29.0 223 11.5 223 19.72

Variance (%) (5.9) (2.3) 3.2 (24.5) (3.2) 29.3 (25.0) (22.8) 0.8 (25.8) (2.4) (25.8) (25.8)

Source: Company, Elara Securities Estimate

Key Financials
Y/E Mar (INR mn) FY09 FY10 FY11E FY12E FY13E Rev 4,016 5,079 7,636 10,031 12,482 YoY (%) 23.0 26.5 50.3 31.4 24.4 EBITDA 380 749 1,217 1,632 2,002 EBITDA (%) 9.5 14.7 15.9 16.3 16.0 Adj PAT 224 485 837 1,169 1,385 YoY (%) 13.5 116.7 72.5 39.7 18.5 Fully DEPS 19.8 42.9 73.9 103.3 122.4 RoE (%) 26.3 39.1 44.0 40.6 35.2 RoCE (%) 31.8 55.7 61.8 55.6 48.3 P/E (x) EV/EBITDA (x) 113.2 67.4 52.2 34.2 30.3 21.1 21.7 15.7 18.3 12.8

Source: Company, Elara Securities Estimate

Aliasgar Shakir aliasgar.shakir@elaracapital.com +91 22 4062 6816

Elara Securities (India) Private Limited

TTK Prestige

Financials (Y/E Mar)

Income Statement (INR mn) Net Revenues EBITDA Add:- Non operating Income OPBIDTA Less :- Depreciation & Amortization EBIT Less:- Interest Expenses PBT Less :- Taxes Adjusted PAT Add/Less: - Extra-ordinaries Reported PAT Balance Sheet (INR mn) Share Capital Reserves Borrowings Deferred Tax (Net) Total Liabilities Gross Block Less:- Accumulated Depreciation Net Block Add:- Capital work in progress Investments Net Working Capital Other Assets Total Assets Cash Flow Statement (INR mn) Cash profit adjusted for non cash items Add/Less : Working Capital Changes Operating Cash Flow Less:- Capex Free Cash Flow Financing Cash Flow Investing Cash Flow Net change in Cash Ratio Analysis Income Statement Ratios (%) Revenue Growth EBITDA Growth PAT Growth EBITDA Margin Net Margin Return & Liquidity Ratios Net Debt/Equity (x) ROE (%) ROCE (%) Per Share data & Valuation Ratios Diluted EPS (INR/Share) EPS Growth (%) DPS (INR/Share) P/E Ratio (x) EV/EBITDA (x) EV/Sales (x) Price/Book (x) Dividend Yield (%)
Source: Company, Elara Securities Estimate

FY10 5,079 749 11.40 760 36 724 11 713 228 485 485 FY10 113 1,128 28 31 1,301 835 432 403 237 4 657 1,301 FY10 532 93 626 (80) 545 (215) (80) 331 FY10 26.5 97.1 118.1 14.7 9.6 (0.3) 39.1 55.7 42.9 116.8 10.0 52.2 34.2 5.0 20.4 0.4

FY11 7,636 1,217 43.00 1,260 43 1,217 8 1,209 367 843 843 FY11 113 1,802 22 33 1,970 1,149 472 677 237 226 830 1,970 FY11E 887 (76) 811 (314) 496 (179) (536) 96 FY11 50.3 62.5 73.7 15.9 11.0 (0.3) 44.0 61.8 73.9 72.5 12.5 30.3 21.1 3.4 13.2 0.6

FY12E 10,031 1,632 43.00 1,675 55 1,620 8 1,612 443 1,169 1,169 FY12E 113 2,765 0 33 2,911 2,649 527 2,122 237 226 326 2,911 FY12E 1,232 (308) 924 (1,500) -576 (235) (1,500) (811) FY12E 31.4 34.1 38.8 16.3 11.7 0.1 40.6 55.6 103.3 39.7 15.5 21.7 15.7 2.6 8.8 0.7

FY13E 12,482 2,002 43.00 2,045 127 1,918 8 1,910 525 1,385 1,385 FY13E 113 3,826 0 33 3,972 3,149 654 2,495 237 226 1,014 3,972 FY13E 1,520 (206) 1,313 (500) 813 (332) (500) 481 FY13E 24.4 22.7 18.5 16.0 11.1 (0.1) 35.2 48.3 122.4 18.5 24.5 18.3 12.8 2.1 6.4 1.1

Revenue & margins growth trend

15,000 15.9 (INR mn) 10,000 5,000 0 FY10 FY11 Net Revenues (LHS) 14.7 16.3 16.0 17 16 15 14 13 FY12E FY13E EBITDA Margin (RHS) (%) (%)

Source: Company, Elara Securities Estimate

Adjusted profits growth trend

1,500 1,000 500 0 FY10 FY11 Adjusted PAT (LHS) FY12E 118.1 73.7 38.8 18.5 140 120 (INR mn) 100 80 60 40 20 0 FY13E PAT Growth (RHS)

Source: Company, Elara Securities Estimate

Return ratios
70 60 50 40 30 20 FY10 FY11 ROE (%) FY12E FY13E ROCE (%) 39.1 44.0 55.7 61.8 55.6 48.3

40.6 35.2

Source: Company, Elara Securities Estimate

Elara Securities (India) Private Limited

TTK Prestige
Topline slightly below expectation, margin dips
The company reported a mixed quarter with growing topline but dippingmargins. Revenues grew by 47% on YoY basis,slightly below our expectations. In terms of QoQ revenues were lower by 23%, since Q4FY11 is seasonally a silent quarter and records lower sales historically. Product-wise, electrical appliance, and cookware have been the major growth contributors led by companys marketing campaign on induction tops and cookwares. Our view that electrical appliances would be the key growth contributor led by a lower base and new product launches was vindicated. Exhibit 1: Sales mix
3,000

Exhibit 2: Capex to be funded internally

1,500 1,000 (INR mn) 500 0 (500) (1,000)

Source:

Huge scope of growth

TTKs diversification from a mere pressure cooker company to a complete kitchenware player has broadened the target market. From a mere INR10-12bn market size, the company now caters to a market size of over INR80bn including cookware, gas stoves, kitchen appliances and others. The penetration levels pressure cookers and electrical appliances are below 25% which allows further scope to grow.
Q3 2011 Q4 2011 Electrical Appliance

(INR mn)

2,000

1,000

0 Q1 2011 Q2 2011 Pressure Cooker Cookware Gas Stoves Others

Source: Company

The company reported EBITDA of INR238mn, commanding EBITDA margin of 13.1%, about 140bps lower on YoY, 480 bps lower on QoQ. Typically, due to a smaller quarter, Q4FY11 has lower operating leverage and thus commands lower EBITDA margin. In terms of YoY, EBITDA margins have tapered on account of higher marketing activities to the tune of ~INR40mn higher in the Q4FY11. The company has managed rising raw material prices well. During the quarter, raw material cost has come down by about 90bps QoQ.

TTK is adding huge capacities to support growth over the next five years. The company has a target to increase its franchiseestores from current 285 to about 500 by FY13, thus adding 100 franchise stores every year. Management guides about 60% of the new franchisee stores to come in southern market, where it already has a strong presence, with the northern market accounting for the balance. The focus on rural southern market is expected to fuel growth. TTK plans to add over 30-40 new SKUs over the next six months with new product launches in each category; this will boost topline. Exhibit 3: Kitchen appliances to be key driver
12,000 9,000 6,000 3,000 0 2009 Pressure Cookers Gas Stoves Others
Source:

TTKs expansion in pressure cooker and cookware is going on track and will be on board by July11 The company has incurred INR400mn of capex in FY11 and further INR600mn is estimated in the next 3 months. This will allow the company to double its pressure cooker and cookware capacity to 8mn and 4.5mn respectively in Uttarakhand and Coimbature. Additionally, the company has a capex outlay of INR1bn for new capacity in pressure cooker and cookware in Gujarat and Maharashtra that will come on board by end of FY12.

(INR mn)

Capex on track, capacity to double

2010

2011

2012E

2013E

Cookware Electrical Appliances

We expect the company to grow topline at 31% in FY12E led by an aggregate volume growth of about 25%. The company is expected to garner EBITDA margin of 16.1%, leading to an EBITDA of INR1.63bn and a PAT of INR1.2bn.
3

Elara Securities (India) Private Limited

Houseware

FY09 FY10 FY11 Operating Cash Flow

FY12E FY13E Free Cash Flow

TTK Prestige
Exhibit 4: Valuation Summary
Particulars Net Profits FY12E (INR mn) Diluted no of shares (mn) EPS FY12E (INR) Target Multiple (x) Fair Value per share (INR) CMP (INR) Upside (%)
Source: Elara Securities Estimates

Valuations peaking
TTK prestige has been rerated from about 10x-12x one year back to currently trading at a P/E of 22x on FY12E earnings. The CNX Midcap Index trades at a one year forward P/E of 12x with growth estimates of 17% for next two fiscals deriving a PEG of 0.7. Our target multiple of 24x on the FY12E EPS of INR103,is based on sustained growth momentum, upgrading our target price of INR2480. Thus in terms of PEG, it equates the midcap index multiple of 0.7x. Subsequently we change ratings to Accumulate from Buy.

Amount 1,169.1 11.3 103.3 24x 2,480 2,239 11

Elara Securities (India) Private Limited

TTK Prestige

Coverage History
3,000 2,500 2,000 1,500 2 1,000 1 500 0 Jun-09 Apr-09 Apr-10 Jun-10 Feb-09 Feb-10 Dec-08 Dec-09 Dec-10 Mar-09 Mar-10 Feb-11 May-09 Aug-08 Aug-09 May-10 Aug-10 Nov-08 Nov-09 Nov-10 Mar-11 Apr-11 Jul-08 Jul-09 Jan-09 Jan-10 Jul-10 Oct-08 Oct-09 Oct-10 Sep-08 Sep-09 Sep-10 Jan-11 3 4 5

Not Covered

Covered

Date 1 2 3 4 5 14-Jul-2010 1-Nov-2010 4-May-2011

Rating Sell Reduce Accumulate

Target Price INR672 INR933 INR1,377 INR2,076 INR2,480

Closing Price INR496 INR1,003 INR1,389 INR1,483 INR2,239

18-Mar-2010 Buy

19-Jan-2011 Buy

Guide to Research Rating

BUY ACCUMULATE REDUCE SELL Absolute Return >+20% Absolute Return +5% to +20% Absolute Return -5% to +5% Absolute Return < -5%

Elara Securities (India) Private Limited

Houseware
5

Elara Securities (India) Private Limited Disclosures & Confidentiality for non U.S. Investors
The Note is based on our estimates and is being provided to you (herein referred to as the Recipient) only for information purposes. The sole purpose of this Note is to provide preliminary information on the business activities of the company and the projected financial statements in order to assist the recipient in understanding / evaluating the Proposal. Nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved) and should consult its own advisors to determine the merits and risks of such an investment. Nevertheless, Elara or any of its affiliates is committed to provide independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Elara or any of its affiliates have not independently verified all the information given in this Note and expressly disclaim all liability for any errors and/or omissions, representations or warranties, expressed or implied as contained in this Note. The user assumes the entire risk of any use made of this information. Elara or any of its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for or solicit investment banking or other business from any company referred to in this Note. Each of these entities functions as a separate, distinct and independent of each other. This Note is strictly confidential and is being furnished to you solely for your information. This Note should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This Note is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Elara or any of its affiliates to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. Upon request, the Recipient will promptly return all material received from the company and/or the Advisors without retaining any copies thereof. The Information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This Information is subject to change without any prior notice. Elara or any of its affiliates reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Elara is under no obligation to update or keep the information current. Neither Elara nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. This Note should not be deemed an indication of the state of affairs of the company nor shall it constitute an indication that there has been no change in the business or state of affairs of the company since the date of publication of this Note. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Elara Securities (India) Private Limited generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed to Elara Securities (India) Private Limited / the company.

Disclaimer for non U.S. Investors

The information contained in this note is of a general nature and is not intended to address the circumstances particular individual or entity. Although we endeavor to provide accurate and timely information, there can guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the No one should act on such information without appropriate professional advice after a thorough examination particular situation. of any be no future. of the

Elara Securities (India) Private Limited Disclosures for U.S. Investors

The research analyst did not receive compensation from TTK Prestige Limited. Elara Capital Inc.s affiliate did not manage an offering for TTK Prestige Limited. Elara Capital Inc.s affiliate did not receive compensation from TTK Prestige Limited in the last 12 months.

Disclaimer for U.S. Investors

This material is based upon information that we consider to be reliable, but Elara Capital Inc. does not warrant its completeness, accuracy or adequacy and it should not be relied upon as such. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investors currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Certain statements in this report, including any financial projections, may constitute forward-looking statements. These forward-looking statements are not guarantees of future performance and are based on numerous current assumptions that are subject to significant uncertainties and contingencies. Actual future performance could differ materially from these forward-looking statements and financial information.

Global Markets Research

7

Elara Capital Inc.s affiliate does not expect to receive compensation from TTK Prestige Limited in the next 3 months.

Elara Securities (India) Private Limited

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