CRISIL assigns valuation grade of 3/5 to TTK Prestige

CRISIL Research has come out with its report on TTK Prestige. The research firm has assigned a valuation grade of 3/5 to the company. However, maintained the fundamental grade of 5/5.

October 21, 2014 / 07:33 PM IST

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CRISIL Research's report on TTK Prestige

TTK Prestige’s (TTK’s) Q2FY15 revenues were in line but earnings were below CRISIL Research’s expectations. Revenues grew 10.5% y-o-y to .3,820 mn driven by healthy growth in cookware and cooker segments. Owing to higher contribution from premium products and lower import cost, material cost as a percentage of sales declined by 295 bps to 56.3% from 59.2% in Q2FY14, which led to gross margin expansion. Despite this, EBITDA margin contracted by 76 bps y-o-y to 12.1% as low utilisation in the newly commissioned Gujarat plant resulted in higher overheads. Lower EBITDA margin coupled with higher depreciation and tax outflow pulled down PAT by 7.7% y-o-y to .280 mn. We expect TTK to post higher revenue growth in H2FY15 compared with the first half owing to a gradual revival in consumer demand, new product launches and easing regional concerns in the key southern markets. Subsequently, operating leverage arising out of higher top line is expected to aid EBITDA margin expansion. We maintain our fundamental grade of 5/5.

Despite raw material cost as a percentage of sales going down by 295 bps y-o-y owing to change in the product mix, EBITDA margin contracted by 76 bps y-o-y to 12.1% as lower utilisation in the newly commissioned cooker and cookware facility in Gujarat resulted in under-absorption of fixed overheads. Earnings growth continues to disappoint (EPS growth has not been higher than 1% in the past six quarters); PAT declined 7.7% y-o-y to Rs 280 mn. Going forward, we expect EBITDA margin to improve in H2FY15 as increase in top line is likely to result in positive operating leverage, which is expected to boost earnings growth.

We have lowered our earnings estimates by 2% each for FY15 and FY16. However, the impact of lowered earnings estimates on valuation is negligible as we maintain our estimates for the explicit forecast period post FY16. Thus, we reiterate our discounted cash flow (DCF)- based fair value of Rs 3,690. At the current market price of Rs 3,857, our valuation grade is 3/5.

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