Stock Review: TTK Prestige

 

India's largest kitchen appliance company, TTK Prestige has had a very strong run on the bourses in the past three years, thanks to the supernormal growth in its earnings. Increasing production capacity, entry in other electrical appliances and addition of franchisee stores are likely to lend support to its continuing growth.

TTK Prestige's cooker business is growing at 20% CAGR, above the industry growth rate of 10-15%, as consumer preferences shift towards branded players. To cater to this growing demand, the company will almost double its cooker and cookware capacity to 80 lakh units by 2013 end, as it is currently running at 100% capacity. This will need a capex of around . 100 crore, out of which . 40 crore were already spent in FY11.

While, the cooker business remains a cash cow, diversifying in other kitchen appliances will also benefit the company, thanks to its brand and wide distribution network. The Indian electrical appliance market is growing at 30% per annum and TTK expects to grow its appliance segment above this rate. But the margins in this segment are a little lower due to higher competition. The company has its own kitchen appliance's store and is planning to increase the count to 500 by FY13 from a present 285 through franchisee model. Company's net sales have grown at 32% CAGR in the last three years to . 776 crore in FY11, while the profits grew at 60% to . 84 crore for FY11. The operating margin for the year was 16%. For the March 2011 quarter, the company posted a strong sales growth of 48%, but the operating margin dipped to 13% due to higher selling expenses of the new products. The return on equity for FY11 was 45%.

The only concern with this company is the high valuation of 34 P/E. Its peers, such as Hawkins and Gandhimathi Appliances, are trading at 25x and 23x respectively. The premium enjoyed by TTK over its peers is due to the higher operating margins, stronger growth and higher liquidity in its counter.