TTK Prestige post roll over...TTK Prestige Ltd Detailed Report CRISIL IERIndependentEquityResearch...

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Apollo Hospitals Enterprise Ltd

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Enhancing investment decisions

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TTK Prestige Ltd

Detailed Report


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 Assessment

CRISIL Valuation Grade Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (10-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-10% from CMP) 2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations. About CRISIL Research CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis on the Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and industry research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 4,500 primary sources, including industry experts, industry associations, and trade channels. We play a key role in India's fixed income markets. We are India's largest provider of valuations of fixed income securities, serving the mutual fund, insurance, and banking industries. We are the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today India's largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgments and forecasts with complete objectivity. We leverage our deep understanding of the macro economy and our extensive sector coverage to provide unique insights on micro-macro and cross-sectoral linkages. We deliver our research through an innovative web-based research platform. Our talent pool comprises economists, sector experts, company analysts, and information management specialists. CRISIL Privacy CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfill your request and service your account and to provide you with additional information from CRISIL and other parts of The McGraw-Hill Companies, Inc. you may find of interest. For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can view McGraw-Hill’s Customer Privacy Policy at http://www.mcgrawhill.com/site/tools/privacy/privacy_english. Last updated: April 30, 2012 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 CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is 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 subscriber / user assume the entire risk of any use made of this data / report. 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 authorised 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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YEARS TTK Prestige Ltd

The kitchen king- Positive on long term growth prospects

Fundamental Grade 5/5 (Excellent fundamentals)

Valuation Grade 2/5 (CMP has downside)

Industry Household Durables

1

December 12, 2012

Fair Value ₹3,250 CMP ₹3,827

For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

TTK Prestige Ltd

The kitchen king- positive on long term growth prospects

Fundamental Grade 5/5 (Excellent fundamentals)

Valuation Grade 2/5 (CMP has downside)

Industry Household Durables

TTK Prestige Ltd (TTK), a leading, organised kitchen appliances manufacturer, has further entrenched its position with the launch of innovative products and entry into allied product market segments. Though competition, due to low entry barriers, threatens to be a risk, TTK’s strong brand, wide distribution network, rich product portfolio and robust financials will hold it in good stead and enable it to tap the growth opportunity in the kitchenware market. We reiterate the fundamental grade of 5/5, indicating that its fundamentals are excellent relative to other listed securities in India.

Portfolio of new products expected to sustain the growth momentum TTK’s success lies in its ability to innovate and launch new products. In FY12, TTK clocked sales growth of 45% y-o-y, primarily driven by new products such as induction cooktop, cookware, the Apple line of inner-lid pressure cookers, and microware induction cookers launched in the past three years. TTK is planning to launch around 100 more product SKUs (stock keeping units) in FY13. We expect the new products to sustain the growth momentum going ahead.

Business tie-ups: A leg into new product segments with significant market potential TTK has entered into multiple business collaborations with branded global players such as World Kitchen, Meyers and Schott AG which will enable it to diversify into new categories of dinnerware and glassware, high-end cookware, and water filters, which have significant market potential. The potential of the dinnerware and glassware market is expected to be US$750 mn in India. The water purifier market is expected to grow at greater than 20% CAGR in the next few years. TTK can leverage its strong brand equity and distribution network to realise this potential.

Competition remains the foremost challenge TTK operates in a highly competitive and fragmented kitchenware segment; intensifying competition is a big risk to growth. We expect competition, particularly in induction cooktops, to increase with the entry of large players such as Havells and Bajaj and some unorganised players. However, TTK has strong brand equity and a distribution network catering specially to kitchenware and kitchen appliances that we believe will help it hold its ground.

Revenues expected to grow at a two-year CAGR of 25% We expect revenues to grow at a two-year CAGR of 25% from ₹11.0 bn to ₹17.3 bn driven by growth in all product segments. EBITDA margin is estimated to decline from 16.1% in FY12 to 15.1% in FY13 because of weaker rupee but is estimated to improve to 15.7% in FY14. We expect EPS to grow at 21% CAGR from ₹99.9 in FY12 to ₹146.4 in FY14.

Valuations: The current market price has downside We have used the discounted cash flow (DCF) method to value TTK and assign a fair value of ₹3,250 after rolling over our valuation to FY15E. The fair value implies P/E multiples of 22x FY14 EPS estimates, respectively. At the current market price, the valuation grade is 2/5.

KEY FORECAST

(₹ mn) FY10 FY11 FY12 FY13E FY14E Operating income 5,077 7,641 11,046 13,531 17,358 EBITDA 780 1,267 1,781 2,044 2,726 Adj Net income 483 841 1,133 1,282 1,659 Adj EPS-₹ 42.6 74.2 99.9 113.1 146.4 EPS growth (%) 115.9 74.0 34.7 13.2 29.4 Dividend Yield (%) 0.3 0.3 0.4 0.5 0.7 RoCE (%) 64.1 76.4 63.8 45.6 49.3 RoE (%) 46.3 53.3 47.5 38.1 36.5 PE (x) 89.5 51.4 38.2 33.7 26.1 P/BV (x) 34.8 22.6 15.2 11.2 8.3 EV/EBITDA (x) 54.9 33.5 24.5 21.6 15.6

NM: Not meaningful; CMP: Current market price

Source: Company, CRISIL Research estimates

CFV MATRIX

KEY STOCK STATISTICS NIFTY/SENSEX 5888/ 19355NSE/BSE ticker TTKPRESTIG/TTKPRSFace value (₹ per share) 10Shares outstanding (mn) 11.3Market cap (₹ mn)/(US$ mn) 40,148/743Enterprise value (₹ mn)/(US$ mn) 40,521/75052-week range (₹)/(H/L) 3,998/2,161Beta 0.8Free float (%) 25.1%Avg daily volumes (30-days) 47,178Avg daily value (30-days) (₹ mn) 165

SHAREHOLDING PATTERN

PERFORMANCE VIS-À-VIS MARKET

Returns

1-m 3-m 6-m 12-mTTK Prestige 14% 13% 26% 41%NIFTY 4% 9% 17% 21%

ANALYTICAL CONTACT Mohit Modi (Director) [email protected] Abhijeet Singh [email protected] Bhaskar Bukrediwala [email protected]

Client servicing desk +91 22 3342 3561 [email protected]

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Valuation Grade

Fund

amen

tal G

rade

Poor Fundamentals

ExcellentFundamentals

Stro

ngDo

wns

ide

Stro

ngUp

side

74.9% 74.9% 74.9% 74.9%

9.7% 8.9% 11.8% 13.3%4.7% 5.3% 3.4% 2.8%10.6% 10.9% 9.9% 9.0%

0%10%20%30%40%50%60%70%80%90%

100%

Dec-11 Mar-12 Jun-12 Sep-12

Promoter FII DII Others


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Table 1: TTK Prestige - Business environment Product / Segment Pressure cookers Non-stick cookware Gas stoves Kitchen electrical

appliances Others

Revenue contribution (FY12) 37% 20% 9% 30% 3%

Revenue contribution (FY14) 35% 20% 7% 33% 5%

Geographic presence ■ Dominant in South India with increasing presence in western, northern and eastern India

• South India: 62%

• North and East: 10%

• West: 15%

• Exports: 3%

Market position Leading player in the organised space with 40-45% market share, closely followed by Hawkins

Market leader in the organised space with 40% market share

Highly fragmented market with numerous unorganised players. In the branded electrical space, Bajaj Electricals is the largest player in the North and Preethi (Maya Appliances and now owned by Philips) in the South. TTK is the largest player in induction cooktops with a market share of ~26% in the organised market. In the gas stove category, Sunflame is the largest in the North and Butterfly the largest in the South

Industry growth expectations

■ The kitchen appliances industry: the non-electrical segment is growing at a steady pace of 10-11% and the electrical segment at 15%

■ Because of a rise in disposable income and urbanisation, as well as an increase in preference for lifestyle products by the younger population of India, branded products are expected to eat into the market share of unbranded products and grow at a relatively faster rate

■ We expect the South India market to grow in a similar manner as other regions since the demand drivers are the same

■ Increase in the number of gas connections to boost demand for gas stoves and pressure cookers. Only 50% of the estimated 225 mn households in India have a gas connection and the government has a target to give new gas connections to 55 mn households by 2015

■ An increasing number of nuclear families with subsequent increase in the number of kitchens to drive the growth of the kitchen appliances industry

Sales growth (FY10-FY12 –2-yr CAGR)

31% 60% 29% 80% 23%

Sales forecast (FY12-FY14) –2-yr CAGR)

23% 26% 14% 30% 104%

Key competitors Hawkins, Butterfly Hawkins, Butterfly Butterfly, Sunflame

Bajaj, Philips (including Preethi), Kenstar,

Butterfly

Competition varies depending on product

segment

Key risks ■ Competition from new players, including foreign players, entering the market

■ Persisting high inflationary environment

■ High raw material prices (aluminium, stainless steel motors, ABS Plastics); weaker rupee against the US$

Source: Company, CRISIL Research

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Grading Rationale

New products expected to sustain TTK’s growth momentum Innovation and launch of new products are the vanguard of TTK’s growth path, keeping it

ahead of its peers. During FY09-12, TTK’s sales were up by 40% CAGR largely due to the

introduction of new products such as induction cooktops, induction cookers/ cookware,

microwave pressure cookers and the Apple range of inner-lid pressure cookers launched in

the past two-three years. TTK has identified new product launch as a key growth strategy,

which becomes apparent from it consistently launching new product SKUs – 50-60 in FY12

and another 100 planned in FY13. Going ahead, new products will likely continue to drive

growth momentum. Table 2: TTK has consistently launched new products

Year New product launches FY04 50 new product variants

New deluxe range of pressure cookers in aluminium

Hard anodised, stainless steel pressure cookers

FY05 Omega select range of non-stick cookware

FY06 50 new product variants

Non-stick coated pressure cookers in both handi and kadai shapes

FY07 89 new product variants across seven categories

Selective modular kitchens

FY08 86 SKUs and five new categories

Two Prestige Kitchen Boutiques offering a wide range of modular kitchens

FY09 Induction cooktops

FY10 Microwave pressure cookers

Apple range of inner-lid pressure cookers

Induction compatible pressure cookers and cookware

Fresh range of induction cooktops

FY11 Introduced 67 SKUs

FY12 Launched 50-60 SKUs across various categories

Induction cooktops likely to drive long-term growth The induction-based kitchenware (cooktops, cookware and cookers) launched in FY09-10

contributed around 50% of TTK’s FY12 revenues. The sale of induction cooktops rose

significantly by 120% y-o-y to ₹1,550 mn in FY12; it now constitutes ~45% of overall

appliances sales. Sales of induction-based cookware and cookers, which are linked to

induction cooktop sales, have grown from ₹620 mn and ₹320 mn in FY11 to ₹1,600 mn and

₹2,100 mn in FY12 respectively. Induction cooktop sales have witnessed robust growth in the

near past, but we believe that the market is significantly underpenetrated at 1.4% per

household (at current market size of 3.5 mn); it implies that there is a significant market

opportunity for induction based products lying untapped. On the back of strong brand equity,

wide distribution network and portfolio of allied induction-based products such as induction

Induction cooktops – an

untapped market

Planning to launch 100 SKUs in

FY13 compared to 50-60 SKUs in

FY12


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cookware and pressure cooker, we believe TTK (~26% market share) is relatively well

positioned to benefit from the growth opportunity in this segment, but entry of large players

such as Havells and unorganised players could pose a challenge.

Factors in favour of induction cooktops - cost savings, operational ease Some of the factors responsible for robust adoption of induction cooktops:

1. A better energy efficient substitute to LPG cylinders: As per industry sources,

conventional LPG cooktops are just 40% energy efficient while induction cooktops are

80-85%.

2. Operational ease in use and better lifestyle value: With growing urbanisation and working

population, we believe that operational ease in use and improved lifestyle value also play

a significant role in consumer adoption.

Additionally, the recent cap on the availability of subsidised LPG cylinder to six by the

government could result in incremental cost savings in using induction cooktops and will

potentially shore up consumer adoption of induction cooktops. Our analysis suggests that

induction cooktops could result in an annual cost savings of 10-20% over unsubsidised

cylinders (refer to Table 3). Our analysis is based on the following assumptions: ■ An average household of four members requires 12 LPG cylinders

■ The cost of a subsidised is ₹400 and that of an unsubsidised cylinder is ₹800

■ The average power of an induction cooker is 1,500 watt and the average cooking time is

three hours per day.

Table 3: Cost saving from usage of induction cooktops over that of LPG cylinders

Assumptions Annual cost savings in using induction cooktops

Induction cooktops

Average household cooking time (hrs) 3.0

Average power of induction cooktop (Watt) 1,500 Number of subsidised cylinders allowed 6

Average electricity tariff (per unit) in TN 4.0 Annual savings in using induction cooker (₹) 1,560

Monthly usage cost of induction cookers (₹) 540 % of cost saving over LPG (12 cylinders) cost 22%

LPG cylinders

Average household (HH) usage per year 12.0 Number of subsidised cylinders allowed 9

Cost of subsidised cylinder 400 Annual saving in using induction cooker (₹) 780

Cost of unsubsidised cylinder 800 % of cost saving over LPG (12 cylinders) cost 13%

Source: CRISIL Research

In addition, we have run the following sensitivity tests on key variables to gauge the

percentage of annual savings that can result in substituting unsubsidised LPG cylinders with

induction cooktops.

Key factors expected to drive

adoption of induction cooktops:

■ Cost saving ■ Operational ease and better

lifestyle value

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Figure 1: Sensitivity test – annual usage of cylinders and number of subsidised cylinders

Figure 2: Sensitivity test - cost and number of unsubsidised cylinders

Annual usage of a cylinder per household

Num

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ised

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22% 9 10 11 12 13

6 33% 28% 24% 22% 20%

7 30% 25% 22% 19% 17%

8 26% 22% 19% 16% 14%

9 22% 18% 15% 13% 11%

10 16% 13% 11% 9% 8%

Cost of unsubsidised cylinder

Num

ber o

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bsid

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22% 600 700 800 900 1000

6 6% 15% 22% 28% 33%

7 5% 13% 19% 25% 29%

8 4% 11% 16% 21% 26%

9 3% 8% 13% 17% 21%

10 2% 6% 9% 12% 15%

Source: Company, CRISIL Research Source: Company, CRISIL Research Power deficit is expected to be a near-term challenge TTK generates around 60% of its overall sales from South India and 40% of induction cooktop

sales from Tamil Nadu. The power supply deficit in South India has increased from 10% in

August 2011 to 15% in August 2012 during peak time. Most of the tier II-III cities in Tamil

Nadu have witnessed power cuts in the range of 12-13 hours while it has been around 2 hours

in Chennai. In Q2FY13, the volume sales of induction cooktops declined by 15% y-o-y

because consumers deferred purchase of cooktops due to severe power cuts in Tamil Nadu.

As a result, we believe that power deficit issue can be a potential challenge to growth;

however, we expect it to be short term in nature as CRISIL Research expects the power deficit

to ease gradually. Table 4: Domestic power deficit situation can push back the expected growth in induction cooktops

Region Power supply situation (%) Power supply situation (peak demand) (%)

April 2012- Sep 2012 April 2011- Sep 2011 April 2012- Sep 2012 April 2011- Sep 2011 South

Andhra Pradesh 16.3 3.0 18.8 10.0 Tamil Nadu 15.2 5.5 12.2 11.4 Karnataka 13.6 8.1 18.4 11.3 Kerala 3.1 1.7 8.8 8.0

North 9.5 4.7 8.9 7.8 West 3.2 9.2 4.7 15.0 East 5.0 4.2 7.4 3.7

Source: CEA, CRISIL Research

Expect demand for microwave pressure cookers to improve In FY10, TTK launched microwave pressure cookers in the domestic and export markets

(Japan, the US, the UK, Germany, France, China, Korea and the Middle-East). TTK has

indigenously designed and built the product, and has received US product patent. It sells the

product under the OE’s brand except in the Middle-East where it is sold under the Prestige

brand. Currently, Japan accounts for majority of the revenues; TTK expects volume sales in

Japan to grow from 0.12 mn in FY12 to 0.8 mn in FY13. While the traction in demand in the

US and the UK has been relatively slow, we expect it to improve going ahead given the high

penetration (85-90%) of microwaves in the US and the UK. We estimate sales contribution of

₹0.8-1.0 bn in FY13.

Power deficit expected to be a

near-term challenge to growth


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Business tie-ups: Entry into new product categories + premiumisation of product portfolio TTK has entered into multiple business collaborations with branded global players which will

enable it to not only diversify its product base (new categories) but also result in

premiumisation of its product portfolio. Through tie-ups, TTK will enter new categories such as

dinnerware and glassware, high-end cookware and gas stoves, and water filters. Tie-up with World Kitchen opens doors to dinnerware, glassware

TTK has inked a joint venture with World Kitchen (India), a wholly owned subsidiary of US-

based houseware company World Kitchen. Its brands include Corelle (glass dinnerware),

Corningware (glass ceramic), Vision (glass cookware), Pyrex (glass bakeware) and Snapware

(storage ware). As per the agreement, TTK will sell Corelle products in the South and will

distribute non-Corelle products across India. World Kitchen (India) reported sales of US$10

mn in 2011. As per industry sources, Indian dinnerware market is showing double-digit growth

driven by increasing urbanisation, disposal income and growing preference for better style,

design and material. La Opala, which is an established brand in dinnerware and houseware,

registered 17% CAGR over the past five years. Given the large growth opportunity in the

segment, we expect TTK to record a similar growth trajectory given a wide distribution network

and the strong branding of TTK and World Kitchen in the kitchenware segment. US partner in high-end cookware; German partner in gas stoves

TTK has entered into a joint venture with the US-based cookware company Meyer to market

its high-end cookware (both aluminium and stainless steel-based) in India. Meyer’s product

portfolio includes known brands such as Anolon, Circulon, Farberware, KitchenAid,

SilverStone and Bonjour. Further, TTK has partnered with Germany’s Schott to launch high

end flat glass gas stoves and induction cooktop with glass ceramic cooktop. Unlike Butterfly

and Sunflame, which are market leaders in gas stoves and are present in almost all consumer

segments, TTK aims to cater to the premium-end gas stove market segment.

We view these business tie-ups as incrementally positive for TTK as they will give the

company access to new product segments through association with established brands. We

expect to see incremental sales of ₹200-250 mn in FY13 from these tie-ups.

Stepping into the lucrative but competitive water purifier market through tie-up with Vestergaard Frandsen…

TTK has entered into a business collaboration with Swiss firm Vestergaard Frandsen to

diversify and tap the lucrative Indian water purifier market. The product diversification move is

encouraging as it represents a natural extension to the existing product portfolio where TTK

can leverage its strong brand equity in the kitchenware market and wide distribution network.

The collaboration will allow TTK to licence the Swiss firm’s Lifestraw family of water purifiers,

manufacture them in-house and market the products (co-branded). The manufacturing plant in

Gujarat is expected to be ready by the end of FY13 followed by a product launch through its

chain of Prestige Smart Kitchen outlets. The Lifestraw family water purifier is a single point-of-

use non-electrical water treatment system providing instant access to purified water and

Business tie-up with World

Kitchen gives TTK a leg into

US$ 750 mn domestic dinnerware

and glassware market

Entering into the highly lucrative

water purifier market but will likely face intense competition

from existing large players

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complies with US Environmental Protection Agency 1987 guide and protocol for testing

microbiological water purifiers. According to industry sources, the organised water purifier

market is valued at ₹12-15 bn and is expected to grow at a CAGR of greater than 20% till

2016. The non-electric water purifier segment constitutes just 20% of the market; however, it

is expected to increase to about 38% driven by the requirement for water purification device at

an affordable rate. … but will face intense competition from existing players

While the product has significant growth opportunities, the market is marked by intense

competition from large players such as Hindustan Unilever Ltd (HUL), Tata Chemicals, Eureka

Forbes and unorganised players. HUL dominates the non-electric water purifiers market

through its Pureit brand followed by Tata Chemical’s Tata Swatch line of water purifiers. While

other players such as Eureka Forbes, Kent RO, LG and Panasonic are focused on RO/UV-

based purifiers, they are slowly entering the non-electric purifier category through resin/filter-

based products. TTK’s existing strong brand in kitchenware and its wide distribution network

(through wide dealer network and Prestige Smart Kitchens or PSKs) are its key strengths.

Success in gaining market share will depend not only on how TTK prices its product but also

on how it leverages its distribution network for greater reach in rural and tier II/III cities. In

contrast to TTK, most of the large players such as HUL, Tata already have a tailor-made sales

team for pushing their products direct to home in rural and tier II/III cities. Table 5: Pricing of non-electric water filters of competitive products

Purifier brand Model Price range (₹)

HUL Pureit Pureit Advance 2,750 Pureit Advance 888 Pureit Compact 950

Tata Swatch Swatch Lavita 1,915-2,050 Swatch Crystal 1,110-1,119 Swatch Smart 780-899

Kent Kent Gold Optima 1,150 Usha Brita Brita Watergaurd 1,888 Zero B Suraksha Plus 1,985-2,090

Source: Mysmartprice, compareindia.in, CRISIL Research

Ramping up retail outlets to build brand, distribution network TTK is ramping up its exclusive retail outlet - Prestige Smart Kitchen - across the country with

an aim to strengthen its brand. It has opened 370 retail outlets in 180-200 cities across

21 states. The company plans to add another 110 stores in FY13. TTK’s direct marketing

strategy has paid it significantly well as sales have grown at a five-year CAGR of 32% and

60% y-o-y in FY12. We believe that increase in PSK bodes well for overall growth and brand

building as it provides an important marketing and distribution platform for new products such

as water filter and World Kitchen cookware products. In addition, the company has also

ramped up its dealer distribution network from 25,000 a year ago to 30,000 currently and

simultaneously plans to bolster its distribution network in non-South India markets through

increased dealer touch points.

Ramping up PSK outlets from 370

in FY12 to 480 in FY13 bodes well

for new products


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Figure 3: Increase in PSK outlets… Figure 4: … bodes well for growth; will abet product launch

Source: Company, CRISIL Research Source: Company, CRISIL Research

Growing competition poses a challenge to growth TTK operates in a highly competitive and fragmented kitchenware industry. Given the low

entry barriers, large players such as Bajaj Electricals and Hawkins, and small unorganised

players with a variety of products have entered the market. For example, Havells has entered

the kitchen electrical appliances market and a number of unorganised players have flooded

the market with their products at lower price points in various categories. The entry of new

players, specially the large ones, presents a risk to TTK’s growth. We have discussed it in

greater detail in the in subsequent section (competition in kitchen appliances too but TTK to

maintain the edge)

Table 6: Competitive product portfolio of various organised players

TTK Hawkins Gandhimathi Appliances

Bajaj Electricals Panasonic Home Appliances

Havells

Pressure cooker, non-stick cookware, gas stoves, mixer grinder, juicer grinder, toaster, induction cooktop, rice cookers, microwave oven, microwave cooker

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, cooktops, coffee makers, hand blenders

Microwave oven, oven toaster, automatic cooker, mixer grinder, juicer grinder, food processor

Juicer, mixer grinder, blender, chopper, juicer mixer grinder, toasters, induction cooktops, electrical rice cooker

Source: CRISIL Research Competition from Hawkins may limit incremental market share gain in pressure cookers

In the recent past, TTK has steadily gained market share against both organised and

unorganised players. This is demonstrated by around 30% sales growth of TTK, significantly

higher than around 8% of Hawkins and 20% average industry growth in FY12. While we

attribute this to the launch of new variants such as the Apple line of inner-lid pressure cookers

and induction cookers, heightened marketing and distribution efforts, and growing preference

for branded products, we believe that supply constraint at Hawkins’ manufacturing facility due

to labour and environmental issues has also contributed to the increase in TTK’s market

174195

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FY08 FY09 FY10 FY11 FY12

Smart Kitchen outlets

Smart Kitchen outlets

468 553 741 1125 1800

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FY08 FY09 FY10 FY11 FY12

(₹ mn)

Sales growth y-o-y (RHS)

Increasing competition in the

induction cooktop category is a

major hurdle to growth

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share. However, Hawkins is likely to normalise its supply as it has resolved the labour issue

and received the environmental clearance from the Punjab Pollution Control Board. Hawkins

has also introduced a full range of induction-based stainless pressure cookers and new

models of hard anodised pressure cookers. As a result, we believe that competition from

Hawkins will likely increase and may limit further market share gains for TTK.

Figure 5: TTK’s cooker sales growth outstrips that of… Figure 6: … Hawkins indicating market share gains for TTK

Source: Company, CRISIL Research Source: Company, CRISIL Research Competition in kitchen appliances too but TTK to maintain the edge

Competition in the kitchen electrical appliances segment appears to be intensifying with the

entry of large players such as Havells and Bajaj and small unorganised players. For example,

Havells has recently entered the kitchen electrical market with the launch of various products

including induction cooktops, juicers, mixer grinders and others. The induction cooktop section

has particularly seen a significant influx of product launches. Higher competition in induction

cooktops space has greater implications for TTK as it represents around 45% of TTK’s kitchen

appliance sales. Most of the regional and unorganised players import induction cooktops from

China and sell at slightly lower price points to branded ones. Though competition will be high,

we don’t see much scope for a competitive price war in the organised market as it may impact

the profitability of the entire industry. Hence, we expect brand recall, strong distribution

network in kitchen related products, portfolio of induction-based products and high

advertisement spend will likely hold TTK in good stead.

163 186 220 241 317 413

14%

18%

9%

32%30%

0%

5%

10%

15%

20%

25%

30%

35%

-

50

100

150

200

250

300

350

400

450

FY07 FY08 FY09 FY10 FY11 FY12

(₹ mn)

Pressure cooker sales y-o-y growth (RHS)

149 175 205 240 283 304

18% 17% 17% 18%

8%

0%

4%

8%

12%

16%

20%

-

50

100

150

200

250

300

350

FY07 FY08 FY09 FY10 FY11 FY12

(₹ mn)

Pressure cooker sales y-o-y growth (RHS)


10

Table 7: Competitive price points of induction cookers from competitive players

Brand Price points (₹) Promotional discounts/offerings Source of data points

TTK Prestige ₹2,845- ₹4,795 @ ₹2,845- 1 frying pan + Induction tawa @ < ₹4,000- 3l pressure cooker + induction tawa @ > ₹4,000- 5l pressure cooker + induction tawa

Dealer survey/ E-commerce websites

Murphy Richards 1900 W- ₹3,595 2000 W- ₹4,795

Cash discounted and available at ₹3,490 Cash discounted and available at ₹4,095


Bajaj Electricals ₹2,249- ₹3,596 Cash discount ranging from 10-30% Dealer survey/ E-commerce websites

Havells ST Model- ₹4,195 FT Model- ₹4,798

Cash discounted and available at ₹3,775 Cash discounted and available at ₹4,315


Philips ₹2,669- ₹4,228 Available cash discount: 5-10% E-commerce websites Inalsa ₹3,495-₹4,195 Available cash discount: 5-20% E-commerce websites Electrotech ₹4,000 Available cash discount of 25% + 2-year warrantee E-commerce website


Execution of planned capacity expansion is on schedule TTK planned to expand the capacity of pressure cookers and cookware from 4.8 mn and 2 mn

in FY11 to 8 mn and 12 mn, respectively, primarily to support its growth plans and reduce its

dependence on imports. It has currently expanded the manufacturing capacity of pressure

cookers to 8 mn pieces/pa and that of non-stick cookware to 6 mn pieces/pa; the rest is

expected to get commissioned by end-FY13. TTK also plans to add production capacity of 1

mn units for induction cooktops by end-FY13. Till FY12, it has spent around ₹2 bn in capex

and plans to spend another ₹1.3 bn in FY13. The funding requirement will be supported by

internal accruals and TTK’s existing credit line (expect peak debt of ₹1,300 mn, similar to

FY12).

TTK imports around 50% of its overall cookware and around 60% of kitchen electrical

appliance requirement from China. Imports from China constitute 25-30% of overall product

sales. With the expected commissioning of the 12 mn cookware manufacturing plant and 1 mn

of induction cooktops, TTK will be able to significantly scale down its dependence on imports

from China. The company aims to reduce the imports to 12-15% of overall sales by FY14. The

management believes that it will help them to better manage working capital requirements.

Pricing power guards margins from raw material price volatility Raw material costs represent 55-60% of TTK’s sales; bulk of raw material constitutes of

aluminium and stainless steel. Historically, TTK’s margins have been impacted by volatility in

raw material prices. However, strong consumer preference for its brand has allowed the

company to hike prices to partially offset the impact of the increase in raw material prices. Last

year, TTK announced two price hikes - 4% in prices of all imported appliances in January

2012 and 6% in prices of all goods in April 2012 to offset the increase in cost of purchased

goods due to decline in the rupee. With continued focus on branding, increasing

premiumisation of its products, launch of new product variants ahead of peers, TTK will

continue to enjoy the pricing power although to a lesser extent in some product categories

where competition from larger players is increasing.

Execution of capacity expansion

of cookware and induction cookers to reduce dependence

on imports

Strong brand equity and product portfolio gives TTK relative

pricing power

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Figure 7: Impact of volatility in raw material prices… Figure 8: … was partially offset by pricing power


Development of real estate project on track As per recent interaction with the management, the retail estate project outsourced to Rajmata

Realtors (Salarpuria group company) is on track; however, TTK continues to focus on the

kitchen appliances segment and does want to enter the real estate business. As part of the

project, the company has handed over the development of 6.5-acre of surplus land at

Dooravaninagar (near Whitefield), Bengaluru to Rajmata Realtors for developing an office-

cum-residential complex (60% commercial and 40% residential). TTK is expected to yield a

one-time cash flow of ₹650 mn in FY15 while the leasing of commercial space will lead to

annual rental cash flows of ₹70 mn from FY15.

-4.2%

-15.8%

17.2%

8.0%

-5.1%-10.1%

12.2%

7.7%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

FY09 FY10 FY11 FY12

(%) change y-o-y

Aluminum domestic prices Stainless steel domestic prices

44.3%47.5% 46.2%

43.8%

9.8%

15.4% 16.6% 16.1%

0%

10%

20%

30%

40%

50%

FY09 FY10 FY11 FY12Gross margins EBITDA margins


12

Key Risks High inflation may impact consumer spending power Persistently high inflation adversely impacts the purchasing power of consumers. The recent

hike in diesel price by ₹5/litre is likely to reduce consumers’ disposal income and directly

impact discretionary spending. Though kitchen appliances are relatively more affordable than

other brown and white consumer goods given their affordability and utility, thus less immune

to a slowing consumer spending, inflation can slow TTK’s growth momentum.

Volatility in raw material prices and forex can impact margins Aluminium and stainless steel are the major raw materials (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 coupled with its inability to pass on the rise can exert

pressure on operating margins. In addition, TTK is exposed to volatility in foreign exchange

fluctuation as it imports 25-30% of its overall product sales from China. The company plans to

mitigate the risk of foreign exchange fluctuation by employing hedging and simultaneously

reducing its dependence on imports by expanding cookware manufacturing capacity in the

long term.

Competition and consumer

slowdown are major risks to

growth

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Financial Outlook Revenues expected to grow at a two-year CAGR of 25% Revenues are estimated to grow at a two-year CAGR of 25% from ₹11 bn in FY12 to ₹17.3 bn

in FY14 primarily driven by growth in all product categories. We expect growth to moderate in

FY13 to 22% from 45% in FY12 due to the slowing economy and severe power cuts in South

India impacting the sales of induction cooktops and cookware. However, we continue to

believe in the long-term value proposition of induction-based appliances given the cost benefit

and expect adoption of induction-based appliances to continue in the long term. This, an

increase in consumer demand for innovative kitchenware products and the expected launch of

new products are expected to boost growth in FY14.

Figure 9: Revenues expected to grow at a two-year CAGR of 25%


EBITDA margin estimated to improve in FY14 We expect EBITDA margin to decline to 15.1% in FY13 from 16.1% in FY12 driven by cost

pressure from a weaker rupee vs. US$ at ₹55 and lower sales of induction cooktops and

cookware that are relatively higher-margin products. This is despite two price hikes taken by

the company during CY12 - January 2012 and August 2012. However, we expect margin to

improve in FY14 as we expect the rupee to strengthen to ₹51 vs US$ since TTK currently

imports 25-30% of its overall product sales from China. In addition, sales contribution of high-

margin products such as induction-based cookware, cookers, induction cooktops and

microwave pressure cookers will increase and improve the profitability of TTK’s product mix.

Microwave pressure cooker is expected to have EBITDA margin of around 40%.

5,077 7,641 11,046 13,531 17,358

26.3%

50.5%

44.5%

22.5%

28.3%

0%

10%

20%

30%

40%

50%

60%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

FY10 FY11 FY12 FY13E FY14E

(₹ mn)

Revenue growth y-o-y (RHS)


14

Figure 10: EBITDA margins expected to improve in FY14 to 60 bps


EPS to grow at two-year CAGR of 21% driven by sales growth We expect PAT to grow at a two-year CAGR of 21% from ₹1.1 bn in FY12 to ₹1.7 bn in FY14

primarily driven by growth in sales. PAT margin is expected to decline by 70 bps to 9.6% in

FY14 from 10.3% in FY12 because of contraction in EBITDA margin and higher interest costs

and depreciation charges. EPS is expected to grow from ₹99.9 in FY12 to ₹146.4 in FY14.

Figure 11: EPS to grow at two-year CAGR of 21% to ₹146 in FY14


Return ratios expected to moderate but remain strong TTK’s RoE and RoCE increased significantly from 46% and 64% in FY10 to 53% and 76%,

respectively, in FY11 driven by substantial improvement in margins and an increase in asset

turnover. However, because of the contraction in EBITDA margin and decline in asset

turnover due to capex of ₹1.8 bn, RoE and RoCE declined to 47% and 64%, respectively, in

FY12. With the company expected to incur an incremental capex of ₹1.3 bn in FY13 along

with the expected decline in EBITDA margin, we expect RoE and RoCE to respectively

780 1,267 1,781 2,044 2,726

15.4%

16.6%

16.1%

15.1%

15.7%

14%

15%

15%

16%

16%

17%

17%

-

500

1,000

1,500

2,000

2,500

3,000


(₹ mn)

EBITDA EBITDA margin (RHS)

42.6 74.2 99.9 113.1 146.4

10.3%

11.0%

10.3%

9.5% 9.6%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

0

20

40

60

80

100

120

140

160


(₹ mn)

EPS PAT margin (RHS)

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decline to 38% and 46% in FY13. However, they should incrementally improve in FY14 driven

by improvement in EBITDA margin and asset turnover. Figure 12: Return ratios to decline but expected to remain strong


46.3 53.3

47.5

38.1 36.5

64.1

76.4

63.8

45.6 49.3

0

10

20

30

40

50

60

70

80

90


(%)

Return on Equity Return on capital employed


16

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 is led by an experienced management team with strong professional background, deep

industry knowledge and experience. Mr T.T. Jagannathan, Promoter and Executive Chairman,

has been with the company for the past 36 years. He, Mr S. Ravichandran, MD (did his

engineering from IIT, Chennai and MBA from IIM, Ahmedabad and Mr. K. Shankaran, Director

– Corporate Affairs, have led the company on a robust growth track.

Demonstrated ability to forge new growth strategies and execute them Our interaction with the management and the strategic moves taken by the company over last

year have increased our confidence in the management’s ability to forge new growth

strategies and execute them. Over the years, TTK has executed multiple growth strategies -

launching new and innovative products, entering new product segments and forging new

business tie-ups. It has been ahead of its peers in new product launches. In addition, TTK has

forged business tie-ups with global kitchenware brands to enter new product segments that

not only have significant market opprtunity but will also improve premiumisation of TTK’s

product portfolio.

Professional set-up and strong second line Our recent interaction with the management indicates that the top management remains

focused on creating a strong second line with 10-15 years of experience in the respective

domains. Our earlier interaction had indicated that the second line personnel are not only well-

versed with their respective departments but also have hands-on experience in the overall

business of the company.

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 manage the other group companies, we do not consider succession a

major issue since Mr Jagannathan has built a strong team over the years and is ready to hand

over the charge to professionals.

Strong management with deep industry knowledge and business

acumen

Increased confidence in

management to identify growth opportunities and build a strong

second line

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Corporate Governance CRISIL’s 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 company’s 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 meet minimum criteria The board comprises 10 members, of whom five are independent directors, which meets the

requirements under Clause 49 of SEBI’s listing guidelines. The board brings industry expertise

as well as diversified technical and business experience.

All the processes are in place 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 and remuneration committees

are chaired by an independent director speaks well of the governance practices. The

committees meet 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 Based on our interaction with the management over the past one year, and judging by the

level of information and details furnished in the annual report, websites and other publicly

available data, the quality of disclosure is good and meets minimum criteria. The company is

transparent and consistent in sharing business data that does not have competitive

implications. It has strong internal control systems and has engaged management audit firms

who focus on risk management processes, operational efficiencies and improved utilisation of

SAP processes.

Corporate governance

practices are good


18

Valuation Grade: 2/5 We continue to use DCF methodology to arrive at our fair value estimate. After rolling forward

our valuation by one year forward to FY15, our fair value estimate has changed to ₹3,250 per

share. Our fair value implies a PE multiple of 28x and 22x FY13 and FY14 EPS estimate. At

the current market price of ₹3,827, the valuation grade is 2/5, implying that the valuation has

downside at current levels.

Key DCF assumptions We have discounted the free cash flows of TTK from FY14 to FY24, 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% and post-tax cost of debt at 7.7%.

Sensitivity to WACC and terminal growth rate Terminal growth rate

Term

inal

WA

CC

3.0% 4.0% 5.0% 6.0% 7.0% 13.5% 3,338 3,509 3,721 3,989 4,340 14.5% 3,096 3,227 3,385 3,581 3,829 15.0% 2,996 3,112 3,250 3,419 3,631 15.5% 2,903 3,004 3,125 3,272 3,453 16.0% 2,820 2,910 3,017 3,144 3,301

Sensitivity to EBITDA margin% and growth rate Terminal growth rate

Term

inal

EB

ITD

A

mar

gin

%

3.0% 4.0% 5.0% 6.0% 7.0% 12.4% 2,967 3,082 3,220 3,389 3,600 13.4% 2,980 3,095 3,234 3,402 3,613 14.4% 2,994 3,109 3,250 3,416 3,626 15.4% 3,007 3,122 3,260 3,429 3,640 16.4% 3,020 3,135 3,273 3,442 3,653

Valuation comparison

Company M.Cap (₹ mn)

P/E (x) EV/EBITDA (x) RoE (%) P/BV (x) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

TTK Prestige Ltd 43,338 38.2 33.7 26.1 24.5 21.6 15.6 47.5 38.1 36.6 15.2 11.2 8.3 Direct competitors Hawkins 12,199 40.5 NA NA 25.8 NA NA 61.5 NA NA 23.6 NA NA Gandhimathi Appliances Ltd 5,655 24.1 11.0 9.5 8.8 6.4 5.3 32.6 33.0 23.3 6.1 2.5 2.0 Bajaj Electricals Ltd 21,446 18.1 17.2 12.0 9.9 9.6 7.0 18.0 16.6 20.2 3.0 2.7 2.3 Average 24.1 14.1 10.8 9.9 8.0 6.2 32.6 24.8 21.8 6.1 2.6 2.2 Consumption based other peers Havells India Ltd 75,988 24.8 19.8 16.1 16.7 15.9 13.5 21.0 28.0 27.0 4.7 3.9 3.3 Lovable Lingerie Ltd 6,291 29.0 27.0 22.6 17.9 17.6 14.0 14.4 13.7 14.4 3.9 3.5 3.1 Page Industries Ltd 38,473 42.7 33.2 26.1 27.0 22.4 17.6 62.1 58.5 57.1 23.2 17.6 13.3 Kewal Kiran Clothing Ltd 8,400 16.1 15.7 13.1 5.0 5.0 4.1 24.6 21.9 23.1 3.7 3.3 2.9 Average 26.9 23.4 19.4 17.3 16.8 13.8 22.8 25.0 25.1 4.3 3.7 3.2 Overall peer group Average 24.5 18.5 14.6 13.3 12.8 10.3 22.8 25.0 23.2 4.3 3.4 3.0


We roll forward our valuation by

one year and assign a fair value

of ₹ 3,250 implying a one-year forward P/E multiple of 22x FY14

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One-year forward P/E band One-year forward EV/EBITDA band

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

P/E – premium / discount to Nifty P/E movement

Source: NSE, CRISIL Research Source: NSE, CRISIL Research CRISIL IER reports released on TTK Prestige Ltd

Date Nature of report Fundamental

grade Fair value Valuation

grade CMP

(on the date of report)

07-Dec-11 Initiating coverage 5/5 ₹2,392 2/5 ₹2,787

24-Jan-12 Q3FY12 result update 5/5 ₹2,392 3/5 ₹2,401

15-May-12 Q4FY12 result update 5/5 ₹2,950 3/5 ₹3,098

11-July-12 Q1FY13 result update 5/5 ₹2,950 2/5 ₹3,297

16-Oct-12 Q2FY13 result update 5/5 ₹2,800 2/5 ₹3,203

12-Dec-12 Detailed report 5/5 ₹3,250 2/5 ₹3,827

0

1,000

2,000

3,000

4,000

5,000

6,000

Mar

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12F

eb-1

2M

ar-1

2A

pr-1

2M

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Jul-1

2A

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2S

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2

(₹)

TTK Prestige 10x 15x 20x 25x 32x

0

10,000

20,000

30,000

40,000

50,000

60,000

Mar

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12F

eb-1

2M

ar-1

2A

pr-1

2M

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2Ju

n-12

Jul-1

2A

ug-1

2S

ep-1

2O

ct-1

2N

ov-1

2D

ec-1

2

(₹ mn)

EV 10x 15x 20x 25x

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Apr-

11M

ay-1

1Ju

n-11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-12

Feb

-12

Mar

-12

Apr-

12M

ay-1

2Ju

n-12

Jul-1

2A

ug-1

2S

ep-1

2O

ct-1

2N

ov-1

2D

ec-1

2

Premium/Discount to NIFTY Median premium/discount to NIFTY

16

18

20

22

24

26

28

30

Mar

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12F

eb-1

2M

ar-1

2A

pr-1

2M

ay-1

2Ju

n-12

Jul-1

2A

ug-1

2S

ep-1

2O

ct-1

2N

ov-1

2D

ec-1

2

(Times)

1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev


20

Company Overview TTK is the flagship company of the TT Krishnamachari group of companies, which has

interests in healthcare and consumer products. TTK Prestige Ltd was set up in 1955 as a

private limited company; it went public in 1994. 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 categories. It has a well diversified product profile, with 60% of

revenues from pressure cookers and non-stick cookware products and the remaining from gas

stoves and kitchen electrical appliances. TTK has a market share of about 43-44% in the

domestic pressure cooker segment in the organised space. It is India’s first ISO 9001:2000

certified kitchenware company.

Two of its manufacturing facilities are in Hosur, Coimbatore (in Tamil Nadu) and one in

Roorkee (in Uttarakhand). It is planning to set up a greenfield manufacturing facility, primarily

for non-stick cookware, in Gujarat. Key milestones

1955 Incorporated as a private limited company

1959 Commenced manufacturing of pressure cookers with technical collaboration from Prestige Group (UK)

1984 Launched Prestige pressure pan

1990 Launched ready-to-eat snacks, Fryums, in India

1994 Came out with an IPO

1994 Changed name from TT Ltd to TTK Prestige Ltd

1995 Launched its products under the brand name Manttra in the US market

1998 Entered the UK and Australian markets

2000 Launched Prestige omega non-stick cookware

2001 Launched a new range of vacuum flasks with imported shells

2003 Recast its debt portfolio by converting majority of its borrowing into ECBs and FCNRB loans aggregating to US $9.5 mn

2003 Inaugurated the exclusive TTK Prestige showroom in Coimbatore

2005 Obtained licence for Prestige brand for use in the US; launched new product Prestige Nakshatra (inner lid), pressure handi, pressure kadai, duplex gas tables

2008-09 Introduced new range of induction cooktops

2009-10 Launched Prestige Apple range of inner-lid cookers, Prestige Micro Chef microwave cookers, inducted compatible base cookware

2010 Voted as India’s most trusted kitchen appliance brand by the Brand Equity Survey of India’s most trusted brands 2010

2011 Envisaged capacity expansion of ₹2,000 mn

2012 Entered into business tie-ups with World Kitchen, Vastergaard Frandenson, Meyer and Schott AG

Expanded the pressure cooker capacity from 4.8 mn units to 8 mn and cookware capacity from 2 mn to 6 mn

TTK, incorporated in 1955, is the

leading kitchen appliances manufacturer of India

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Annexure: Financials


Income statement Balance Sheet(₹ mn) FY10 FY11 FY12 FY13E FY14E (₹ mn) FY10 FY11 FY12 FY13E FY14EOperating income 5,077 7,641 11,046 13,531 17,358 LiabilitiesEBITDA 780 1,267 1,781 2,044 2,726 Equity share capital 113 113 113 113 113 EBITDA margin 15.4% 16.6% 16.1% 15.1% 15.7% Reserves 1,128 1,801 2,738 3,763 5,090 Depreciation 36 43 62 126 177 Minorities - - - - - EBIT 744 1,225 1,718 1,919 2,550 Net w orth 1,242 1,915 2,851 3,876 5,204 Interest 37 44 103 126 100 Convertible debt - - - - - Operating PBT 707 1,181 1,615 1,793 2,450 Other debt 28 22 597 1,097 173 Other income 6 26 17 37 26 Total debt 28 22 597 1,097 173 Exceptional inc/(exp) 41 (3) 1 - - Deferred tax liability (net) 31 33 68 68 68 PBT 754 1,204 1,632 1,830 2,476 Total liabilities 1,301 1,970 3,516 5,041 5,444 Tax provision 230 366 499 548 817 AssetsMinority interest - - - - - Net fixed assets 394 414 1,507 3,159 3,372 PAT (Reported) 524 838 1,134 1,282 1,659 Capital WIP 235 495 868 390 - Less: Exceptionals 41 (3) 1 - - Total fixed assets 629 909 2,375 3,549 3,372 Adjusted PAT 483 841 1,133 1,282 1,659 Investm ents 4 4 4 4 4

Current assetsRatios Inventory 613 1,050 1,749 2,224 2,616

FY10 FY11 FY12 FY13E FY14E Sundry debtors 603 747 1,060 1,299 1,666 Grow th Loans and advances 426 782 1,424 1,488 1,823 Operating income (%) 26.3 50.5 44.5 22.5 28.3 Cash & bank balance 440 535 223 252 773 EBITDA (%) 98.3 62.4 40.5 14.8 33.4 Marketable securities - 222 - - - Adj PAT (%) 115.9 74.1 34.7 13.2 29.4 Total current assets 2,081 3,336 4,457 5,264 6,878 Adj EPS (%) 115.9 74.0 34.7 13.2 29.4 Total current liabilities 1,424 2,285 3,320 3,776 4,810

Net current assets 657 1,052 1,137 1,488 2,068 Profitability Intangibles/Misc. expenditure 11 5 - - - EBITDA margin (%) 15.4 16.6 16.1 15.1 15.7 Total assets 1,301 1,970 3,516 5,041 5,444 Adj PAT Margin (%) 9.5 11.0 10.3 9.5 9.6 RoE (%) 46.3 53.3 47.5 38.1 36.5 Cash flowRoCE (%) 64.1 76.4 63.8 45.6 49.3 (₹ mn) FY10 FY11 FY12 FY13E FY14ERoIC (%) 59.6 81.9 54.2 36.4 38.3 Pre-tax profit 713 1,207 1,631 1,830 2,476

Total tax paid (230) (365) (463) (549) (817) Valuations Depreciation 36 43 62 126 177 Price-earnings (x) 89.5 51.4 38.2 33.7 26.1 Working capital changes 159 (77) (619) (322) (59) Price-book (x) 34.8 22.6 15.2 11.2 8.3 Net cash from operations 678 808 611 1,085 1,777 EV/EBITDA (x) 54.9 33.5 24.5 21.6 15.6 Cash from investmentsEV/Sales (x) 8.5 5.6 4.0 3.3 2.5 Capital expenditure (80) (317) (1,523) (1,300) (0) Dividend payout ratio (%) 21.6 16.9 15.0 17.1 17.1 Investments and others - (222) 222 - - Dividend yield (%) 0.3 0.3 0.4 0.5 0.7 Net cash from investments (80) (539) (1,301) (1,300) (0)

Cash from financingB/S ratios Equity raised/(repaid) 0 0 - - - Inventory days 44 50 58 60 55 Debt raised/(repaid) (179) (6) 574 500 (924) Creditors days 77 81 57 55 55 Dividend (incl. tax) (132) (164) (197) (256) (332) Debtor days 43 36 35 35 35 Others (incl extraordinaries) 44 (3) 1 - (0) Working capital days 21 12 20 29 27 Net cash from financing (267) (173) 378 244 (1,256) Gross asset turnover (x) 6.6 9.1 7.7 4.7 4.4 Change in cash position 331 96 (312) 29 521 Net asset turnover (x) 13.8 18.9 11.5 5.8 5.3 Closing cash 440 535 223 252 773 Sales/operating assets (x) 8.4 9.9 6.7 4.6 5.0 Current ratio (x) 1.5 1.5 1.3 1.4 1.4 Quarterly financialsDebt-equity (x) 0.0 0.0 0.2 0.3 0.0 (₹ mn) Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13Net debt/equity (x) (0.3) (0.4) 0.1 0.2 (0.1) Net Sales 3,035 3,343 2,325 3,025 3,356 Interest coverage 19.9 27.9 16.6 15.3 25.5 Change (q-o-q) 30% 10% -30% 30% 11%

EBITDA 498 528 316 478 497 Per share Change (q-o-q) 34% 6% -40% 51% 4%

FY10 FY11 FY12 FY13E FY14E EBITDA margin 16.4% 15.8% 13.6% 15.8% 14.8%Adj EPS (₹) 42.6 74.2 99.9 113.1 146.4 PAT 337 346 197 307 303 CEPS 45.8 77.9 105.4 124.2 162.0 Adj PAT 337 346 197 307 303 Book value 109.6 168.9 251.5 342.0 459.1 Change (q-o-q) 33% 3% -43% 55% -1%Dividend (₹) 10.0 12.5 15.0 19.3 25.0 Adj PAT margin 11.1% 10.3% 8.5% 10.1% 9.0%Actual o/s shares (mn) 11.3 11.3 11.3 11.3 11.3 Adj EPS 30 31 17 27 27


22

Focus Charts Revenues expected to grow at a two year CAGR of 25% EBITDA margins expected to improve in FY14 to 60 bps


EPS to grow at two year CAGR of 21% to ₹146 in FY14 Return ratios expected to decline but remain healthy


One year forward PE band Stock price movement

-Indexed to 100


5,077 7,641 11,046 13,531 17,358

26.3%

50.5%

44.5%

22.5%

28.3%

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Revenue growth y-o-y (RHS)

780 1,267 1,781 2,044 2,726

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16.6%

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15.1%

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EBITDA EBITDA margin (RHS)

42.6 74.2 99.9 113.1 146.4

10.3%

11.0%

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EPS PAT margin (RHS)

46.3 53.3

47.5

38.1 36.5

64.1

76.4

63.8

45.6 49.3

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CRISIL Research Team

President

Mukesh Agarwal CRISIL Research +91 22 3342 3035 [email protected]

Analytical Contacts

Prasad Koparkar Senior Director, Industry & Customised Research +91 22 3342 3137 [email protected]

Binaifer Jehani Director, Customised Research +91 22 3342 4091 [email protected]

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Ajay Srinivasan Director, Industry Research +91 22 3342 3530 [email protected]

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Business Development

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Sagar Sawarkar Associate Director, Equity Research +91 22 3342 8012 [email protected]

Deepak Mittal Associate Director, Funds & Fixed Income Research +91 22 3342 8031 [email protected]

Prosenjit Ghosh Associate Director, Industry & Customised Research +91 22 3342 8008 [email protected]

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