TTKPrestige CRISIL Initiating Coverage

–––––––

TTK Prestige Ltd

Enhancing investment decisions

Initiating Coverage

© CRISIL Limited. All Rights Reserved.

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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)

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.

© CRISIL Limited. All Rights Reserved. CRISIL EQUITIES | 1

December 07, 2011 Fair Value Rs 2,392 CMP Rs 2,787

Fundamental Grade 4/5 (Strong fundamentals)

Valuation Grade 5/5 (CMP has strong upside)

Industry Information technology

Polaris Software Limited

Business momentum remains intact

Fundamental Grade 5/5 (Excellent fundamentals)

Valuation Grade 2/5 (CMP has downside)

Industry Household durables

TTK Prestige Ltd An unabated growth story

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 TTK’s 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 TTK’s 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.

KEY FORECAST

(Rs mn) FY09 FY10 FY11 FY12E FY13E

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

NM: Not meaningful; CMP: Current Market Price

Source: Company, CRISIL Equities estimate

CFV MATRIX

KEY STOCK STATISTICS NIFTY/SENSEX 5039/16805

NSE/BSE ticker TTKPRESTIG/TT

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

PERFORMANCE VIS-À-VIS MARKET

Returns

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

ANALYTICAL CONTACT Chetan Majithia (Head) [email protected]

Bhaskar Bukrediwala [email protected]

Yash Taneja [email protected]

Client servicing desk

+91 22 3342 3561 [email protected]

1 2 3 4 5

1

2

3

4

5

Valuation Grade

Fu

nd

am

en

tal G

rad

e

Poor Fundamentals

ExcellentFundamentals

Str

on

gD

ow

nsi

de

Str

on

gU

psi

de

74.9% 74.9% 74.9% 74.9%

8.0% 6.3% 6.8% 8.4%2.0% 5.1% 5.8% 4.3%15.1% 13.8% 12.5% 12.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec-10 Mar-11 Jun-11 Sep-11

Promoter FII DII Others


TTK Prestige Ltd

Table: 1 TTK: Business Environment

Product / Segment Pressure Cooker Non-stick

Cookware

Kitchen Electrical

Appliances Gas Stoves

Revenue contribution

(FY11)*

39% 20% 27% 11%

Revenue contribution

(FY13)*

37% 25% 27% 8%

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 Dominant in south India with increasing presence in western, northern and eastern India

Market position Leading player in the

organised space with

43-44% 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 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.

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) 19% 42% 60% 32%

Sales forecast

(FY11-FY13 – 2-yr CAGR) 31% 54% 43% 16%

Demand drivers • 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


TTK Prestige Ltd

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 non-

stick 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

Appliances, and Bajaj Electricals.

Figure 1: FY06 - Pressure cooker sales dominate Figure 2: FY11 – A diversified portfolio

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

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

TTK Hawkins Gandhimathi

Appliances

Bajaj Electricals IFB

Industries

Panasonic

Home

Appliances

Pressure cooker, non-

stick cookware, gas

stoves, mixer grinder,

juicer grinder, toaster,

induction cook top, 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,

cook tops, coffee makers,

hand blenders

Microwave

oven, gas

stoves, hobs,

chimneys

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.

Pressure Cookers

60%

Non-stick Cookware

16%

Gas Stoves10%

Kitchen Electricals

9%

Others5%

Pressure Cookers

39%

Non-stick Cookware

20%

Gas Stoves11%

Kitchen Electricals

27%

Others3%

TTK transformed itself from

a mere outer-lid pressure

cooker maker to a complete

kitchen solution provider


TTK Prestige Ltd

Figure 3: Market wise revenue break-up - FY11


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.

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 India’s most Trusted Kitchen Appliances Brand by

a consumer survey conducted by the Economic Times in

2010


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.

Southern India67%

Western India13%

Eastern India8%

Northern India9%

Exports3%

TTK has been able to pass on

rise in raw material cost due

to strong consumer

preference for its brand

Able to create a strong

brand in a highly fragmented

and unorganised industry

Focus on newer market has

led to pan-India presence


TTK Prestige Ltd

Figure 4: Brand has ability to pass on costs


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 company’s 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 Figure 6: Volume growth across all products


54.2%

55.0%

55.4%55.7%

52.5%

53.8%

50%

51%

52%

53%

54%

55%

56%

FY06 FY07 FY08 FY09 FY10 FY11

Raw material cost as a % of net sales

1.8% 1.6% 1.5% 1.3% 1.5% 1.3%

5.4% 5.1%

6.1%

7.1%

8.6%7.8%

4.4%3.9% 4.1% 3.8% 3.9%

3.3%

8.3%7.7%

7.1%8.0%

6.9% 6.8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%


(as % of sales)

Bajaj Electricals Gandhimathi Appliances

Hawkins Cookers T T K Prestige

9%

13%

17%

11%

19%

32%

26%

5%

1%

28%

27%

83%

9%

22%

3%

17%

12%

12%

172%

7%

7%

22%

187%

103%

0% 50% 100% 150% 200% 250%

FY06

FY07

FY08

FY09

FY10

FY11

Pressure Cookers Non-stick Cookware Gas Stoves Kitchen Electricals

TTK spends ~7% of sales on

advertisements in order to

create brand awareness in

non-traditional market


TTK Prestige Ltd

Growing kitchen appliances industry Complements TTK’s 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 TTK’s positioning

Product /

Segment

Market

Size

(Rs mn)

Marker characteristics

TTK’s

Market

Share

Competitors Market position & strength

Pressure

Cookers

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

~30% Hawkins and

Butterfly

• Leading player with 44% market

share in the branded segment

• Wide range of cookers

• Regular product innovations

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

~22% Hawkins,

Butterfly, Jaipan

and Nirlep

• Commands 40% market share in

the organised space

Gas

Stoves

16,000 • Highly fragmented market

• Characterised by high price

competitiveness

~5% Sunflame and

Butterfly

• Relatively small player

Kitchen

electrical

appliances

38,500 • Highly fragmented market

• Intense competition on price front

• Branded players command

premium

~5% Bajaj Electricals,

Maya Appliances

(Preethi),

Butterfly,

Panasonic Home

Appliances &

Philips

• Has been able to penetrate the

market despite being a new

entrant

• Regular product introduction and

rapidly expanding product

portfolio

• Leveraging the brand Prestige

Source: Company, CRISIL Research estimates

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


TTK Prestige Ltd

Figure 7: Rising urban population in India… Figure 8: ... contributing more to GDP

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

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 India’s (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.

220290

340

590

0

100

200

300

400

500

600

1991 2001 2008 2030

(mn)

Total population (mn) 856 1,040 1,155 1,470

Total urban population (%) 26 28 30 40

+250

46 54 5869

54 46 4231

0%

20%

40%

60%

80%

100%

1991 2001 2008 2030

Sh

are

of In

dia

's G

DP

(%

)

Rural Urban

Rs bn, real 2008

100% = 15,903 9,100 49,043 238,041

CAGR (2008-30)

%)

Share of Growth

(%)

5.9 28.0

8.3 72.0

7.4 100.0

18% 13%

52%

26%

46%

25%

72%

13%16% 0% 0%0%

10%

20%

30%

40%

50%

60%

70%

80%

Cookers Stoves Kitchen Electricals

Cookware

(Volume CAGR)

TTK Prestige Gandhimathi Hawkins

GoI target to provide new 55

mn gas connections by 2015

to boost demand for

pressure cooker and gas

stoves


TTK Prestige Ltd

Figure 11: New gas connections in India growing at 6%


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.

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 GoI’s agenda of new gas connections.

Further, the GoI’s 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 women’s self help groups as its

distributors and has test marketed this model in Andhra Pradesh. TTK’s strong

brand, rising rural income, increasing brand awareness and higher aspiration of

rural consumers towards branded products will help the company to penetrate

faster.

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

84,4

92

88,6

42

94,2

60

100

,977

105

,731

115

,064

10%

5%

6%7%

5%

9%

0%

2%

4%

6%

8%

10%

12%

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2005 2006 2007 2008 2009 2010

('000)

All India cummulative gas connections Y-o-Y growth (RHS)

Young demographic profile

of India is leading to higher

demand for branded and

lifestyle products

1.5 – 2% of joint families in

India are giving rise to

nuclear families annually,

which is subsequently

increasing the number of

family kitchens

Rising farm income is

leading to higher demand for

branded kitchen appliance

product


TTK Prestige Ltd

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: TTK’s growth in non-stick cookware... Figure 13: ... and in 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.

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


357 435 540 636 873 1,540

45%

22% 24%18%

37%

76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800


(Rs mn)

Revenue - non-stick cookware Y-o-Y growth (RHS)

216 389 471 726 1,037 1,929

90%

80%

21%

54%

43%

86%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500

1,000

1,500

2,000

2,500


(Rs mn)

Revenue - kitchen electrical appliances Y-o-Y growth (RHS)

1%

26%

-0.2%

28%

2%

17%

-5%

0%

5%

10%

15%

20%

25%

30%

FY96-03 FY03-11

Gandhimathi TTK Pretige Hawkins

Reduction in excise duty on

pressure cooker levelled the

field between organised and

unorganised players


TTK Prestige Ltd

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.

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


Retail foray – marketing tool turned into a distribution model

TTK’s exclusive retail outlets ‘Prestige Smart Kitchen’ was launched in early

2003 as part of its marketing strategy. The company’s foray into the non-

traditional 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 TTK’s 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 TTK’s new products.

TTK’s 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 five-

year 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

Authorised redistributors

39%

Direct dealers22%

Prestige smart kitchen15%

Large format stores12%

Institutions9%

Multilevel marketing

3%

TTK strategy to sell through

multiple distribution channel

eliminate the risk of

dependency on any one

particular channel

TTK’s revenue through its

exclusive retail outlet

growing at a 5-year CAGR of

36%


TTK Prestige Ltd

preference of consumers for TTK’s new products besides the non-traditional one

is also prompting dealers to stock TTK’s products.

Figure 16: More Smart Kitchen outlets... Figure 17: ... leading to better sales

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 TTK’s 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.

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 north-

eastern 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 non-

availability 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.

84

180 174195

229

279

0

50

100

150

200

250

300


Smart Kitchen Outlets

239 440 468 553 741 1,125

10%

84%

6%

18%

34%

52%

-20%

0%

20%

40%

60%

80%

100%

0

200

400

600

800

1,000

1,200


(Rs mn)

Smart kitchen outlets' revenue

Contribution to total revenue (RHS)

Meeting changing

demands of the consumer

through continuous focus

on launching of new

products / variants


TTK Prestige Ltd

Figure 18: Continuous launches in the past few years

2005-06 2006-07 2007-08 2008-09 2009-10

Prestige

Nakshatra and

pressure handi

range of

inner-lid

cooker,

pressure

kadai, duplex

gas tables

85 new

products

launched

across

various

categories

45 products

launched

across five

categories in

80+

variants

New range

of induction

cook tops

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.

Figure 19: Promotional and discounts cost as % of sales


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

(Uttarakhand) plants, is also putting up greenfield capacities in Gujarat and

Maharashtra for manufacturing non-stick cookware including hard anodised

146 223 188 241 296 461

6.6%

7.9%

5.8% 6.0% 5.8% 6.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

50

100

150

200

250

300

350

400

450

500


(Rs mn)

Discounts and schemes % of sales (RHS)

TTK’s exchanges and

promotional schemes are

creating substantial

replacement demand for

its products

Strong cash generation

from the operation enables

TTK to fund majority of its

expansion plan through

internal accruals


TTK Prestige Ltd

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 Figure 21: Cash generating business


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 TTK’s 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.

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

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

54%57%

58%

81%

29%

36%

77%

85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

FY08 FY09 FY10 FY11

Pressure Cookers Non-stick Cookware

200 29 511 463 751 821

9%

1%

16%

12%

15%

11%

-5%

0%

5%

10%

15%

20%

-

100

200

300

400

500

600

700

800

900


(Rs mn)

Cash from operation Cash from operation as % of sales (RHS)

Outsourcing model for

kitchen electrical

appliances and gas stoves

to maintain high asset

turnover


TTK Prestige Ltd

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

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 TTK Hawkins Gandhimathi

Products offering Only company in India offering a

product portfolio across entire

range of kitchen appliances.

It is only into pressure cooker

and non-stick cookware

Pressure cookers, mixer grinders,

table-top wet grinders and gas

stoves. The product basket and

variants are not as wide as TTK.

Market Position Market leader in pressure cooker

and non-stick cookware. Rapidly

capturing the market in other

product categories

Second largest player in the

pressure cooker category after

TTK

Market leader in gas stove in South

India. Limited presence outside

southern markets

Dominant market South India North and East India Tamil Nadu

Other market North and West India NA Karnatka, Andhra Pradesh,

Maharasta and Gujarat

Brand Prestige Hawkins, Miss Mary and Futura Butterfly

Brand recall Strong in South and is known in

the North and West market

Strong in North and East India Strong in Tamil Nadu especially in

gas stove category

Distribution

Network

Has a wide distribution network

and markets its products through

distributors, dealers, exclusive

retail outlets and big format stores

Wide distribution network;

markets products through

distributors, and big format

stores. Has no exclusive retail

outlets

Wide distribution network; However

it very limited retail presence and

also limited sales in big format

stores

Target segment Catering to all income class ; but

does not have products into utlra

premium category

Catering to all income class;

Have a range of products for

utlra premium high income

class

More concentrated towards mid-

mid and mid-lower income; also

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.

14-15% 11-12%. Since they do not have

too many premium products their

margins is lower

Balance sheet Debt free, efficiently managed

working capital, high asset

turnover and high RoE

Low gearing, highest RoE,

efficiently managed working

capital, low asset turnover

High debt, comparatively higher

working capital and relatively low

asset turnover


Strong brand and

extensive distribution

network of TTK help to

mitigate the rising

competition


TTK Prestige Ltd

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.

Volatility in raw material prices

Aluminium and stainless steel are the major raw materials in case of non-

electrical 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 company’s

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.

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, TTK’s 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.

Rising inflation may

impact consumer

spending power thereby

impacting demand for

consumer durables

Kitchen appliance is a

fragmented industry with

low entry barriers


TTK Prestige Ltd

Financial Outlook

Revenues to grow at two-year CAGR of 35%

TTK’s 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%, non-

stick cookware, kitchen electrical appliances and gas stoves category is

expected to register 54%, 43% and 16% growth respectively.

Figure 22: Strong growth in revenue to continue Figure 23: Contribution from each of the segments


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 company’s 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.

4,019 5,077 7,641 10,552 13,867

23.4%26.3%

50.5%

38.1%

31.4%

0%

10%

20%

30%

40%

50%

60%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

FY09 FY10 FY11 FY12E FY13E

(Rs mn)

Revenue Y-o-Y growth (RHS)

53% 47% 41% 38% 37%

15%17%

20% 25% 25%

18%20% 25% 25% 27%

10% 12% 10% 8% 7%

5% 4% 3% 3% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Pressure cooker Non-stick cookware

Kitchen electrical appliances Gas stoves

Others

Revenue growth is driven

by strong volume growth

across the product

category

Increasing contribution

from better margins

products to maintain

stable and higher margins


TTK Prestige Ltd

Figure 24: EBITDA margin to remain stable Figure 25: Operating cost as % of sales


Well managed overheads; enjoys economies of scale

Over the years, TTK’s 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 TTK’s efficiency – FY11


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.

394 780 1,267 1,677 2,212

9.8%

15.4%16.6%

15.9% 16.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

500

1,000

1,500

2,000

2,500


(Rs mn)

EBIDTA EBIDTA margins (RHS)

55.7% 52.5% 53.8%

7.8%7.7% 6.9%

20.9%19.1% 18.4%

5.8%5.3% 4.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

FY09 FY10 FY11

(as % of sales)

Raw material cost Employee cost SGA cost Other cost

53.8%

41.7%

60.3%

6.9%

11.4%

5.5%

18.4%

19.5%

14.3%

4.3%12.9% 9.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TTK Prestige Hawkins Cookers Gandhimathi Appliances

(as % of sales)

Raw Material cost Employee cost Selling & Administrative expenses Other costs

TTK’s margins among the

best in the industry


TTK Prestige Ltd

Figure 27: EPS and PAT margin


RoE to decline due to capex; however, will remain strong above 40%

TTK’s 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 Figure 29: Asset turnover ratio to decline


Efficient working capital management low gearing significant cash generation

TTK’s 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

19.7 42.6 74.2 99.7 129.4

5.6%

9.5%

11.0% 10.7% 10.6%

0%

2%

4%

6%

8%

10%

12%

0

20

40

60

80

100

120

140


(Rs / share)

EPS (LHS) PAT margins

32.5%

64.1%

76.4%

61.1%57.2%

29.2%

46.3%

53.3%47.8%

43.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%


RoCE RoE

12.313.8

18.9

11.5

7.5

5.86.6

9.1

7.6

5.8

0

2

4

6

8

10

12

14

16

18

20


(x)

Net asset turnover Gross asset turnover

Working capital days

decline to 12 days in FY11

from 90 days in FY06

RoE to remain healthy

above 40% in FY13


TTK Prestige Ltd

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... Figure 31: ... led to surplus cash generation


90 80 68 40 21 12

1.2 1.3

0.7

0.2

0.0 0.0

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0

10

20

30

40

50

60

70

80

90

100


(Days) (X)

Working capital days Gearing (RHS)

89 142 154 133 543 799

70% 59%

8%-14%

307%

47%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

0

100

200

300

400

500

600

700

800

900


(Rs mn)

Cash generation before any investment Y-o-Y growth (RHS)


TTK Prestige Ltd

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.

Successful in establishing a strong brand

TTK’s 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

TTK’s 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

TTK’s 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.

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.

TTK has an experienced

management with strong

business acumen

Strong and experienced

second line of management


TTK Prestige Ltd

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

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.

Board’s 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 company’s 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.

Corporate governance

practices are good


TTK Prestige Ltd

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.

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%.

Sensitivity to valuation

We tested our valuation sensitivity on various key assumptions:

Table 6: Sensitivity to WACC and terminal growth rate

Terminal growth rate

WA

CC

3.0% 4.0% 5.0% 6.0% 7.0%

13.5% 2,472 2,627 2,819 3,063 3,381

14.5% 2,252 2,371 2,515 2,692 2,917

15.0% 2,161 2,266 2,392 2,545 2,738

16.0% 2,002 2,083 2,180 2,296 2,438

17.0% 1,873 1,938 2,013 2,103 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%.

We initiate coverage on

TTK with a fair value of

Rs 2,392 per share and

valuation grade of 2/5


TTK Prestige Ltd

Valuation comparison

Company M.Cap

(Rs mn)

P/E EV/EBITDA RoE (%) P/BV

FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E

TTK Prestige Ltd 31,593 37.6 27.9 21.5 24.3 18.7 13.7 53 48 43 16.5 11.2 7.9

Direct competitors

Hawkins Cookers Ltd 8,016 25.2 NA NA 16.5 NA NA 75 NA NA 17.4 NA NA

Gandhimathi Appliances Ltd 2,918 22.8 12.2 12.3 11.9 8.9 7.6 37 63 40 4.3 5.9 4.2

Bajaj Electricals Ltd 17,652 12.1 10.5 8.4 8.0 6.6 5.4 26 24 25 2.9 2.3 1.9

Median 22.8 11.4 10.3 11.9 7.7 6.5 37 43 32 4.3 4.1 3.0

Weighted average 20.0 11.4 10.3 12.1 7.7 6.5 46 43 32 8.2 4.1 3.0

Consumption based other peers

IFB Industries Ltd 2,875 5.2 NA NA 4.1 2.6 NA 28 NA NA 1.3 NA NA

Lovable Lingerie Ltd 6,532 31.8 27.6 23.1 32.4 24.0 18.4 17 16 16 4.6 4.0 3.5

Page Industries Ltd 28,203 48.2 33.7 25.8 29.8 21.3 16.5 53 58 57 22.8 15.9 11.1

Kewal Kiran Clothing Ltd 8,823 19.1 15.3 12.6 11.8 9.4 7.7 24 26 27 5.1 4.3 3.7

Jubilant Foodworks Ltd 55,547 76.4 52.5 35.6 45.8 29.2 20.7 47 43 42 28.8 19.3 13.2

Median 31.8 30.6 24.5 29.8 21.3 17.4 28 34 35 5.1 10.1 7.4


Overall peer group

Median 24.0 21.4 17.9 14.2 9.4 12.1 32 34 33 4.9 5.1 3.9


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 TTK’s valuation has limited scope for any further

discount beyond this given the company’s strong positioning kitchen appliance

segment, its historical performance and positive business outlook.


TTK Prestige Ltd

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

Source: NSE, BSE, Company, CRISIL Research Source: NSE, BSE, Company, CRISIL Research

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

Source: NSE, BSE, Company, CRISIL Research Source: NSE, BSE, Company, CRISIL Research

0

500

1,000

1,500

2,000

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(Rs)

TTK Prestige 1x 8x 15x 22x 29x

0

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(Rs mn)

EV 3x 10x 17x 24x

-100%

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0%

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120%

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1

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Premium/Discount to NIFTY Median premium/discount to NIFTY

-5

0

5

10

15

20

25

30

35

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8

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(Times)

1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev


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 India’s 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.

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 Limited to TTK Prestige Limited.

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

1998 Made an entry into the UK and Australian markets

2000 Company 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

2004 Inaugurated the exclusive TTK Prestige showroom in Vijayawada

2005 Obtained license for Prestige brand for the use in USA, launched new product Prestige Nakshatra (Inner lid), pressure Handi, pressure kadai, duplex gas tables

2008-09 Introduced new range of Induction cook tops

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 Brand Equity survey of India’s most trusted brands 2010

2011 Envisaged capacity expansion of Rs 2,000 mn

TTK, incorporated in 1955,

is the leading kitchen

appliance manufacturer of

India


TTK Prestige Ltd

Annexure: Financials

Source: CRISIL Equities

Income statement Balance Sheet

(Rs mn) FY09 FY10 FY11 FY12E FY13E (Rs mn) FY09 FY10 FY11 FY12E FY13E

Operating income 4,019 5,077 7,641 10,552 13,867 Liabilities

EBITDA 394 780 1,267 1,677 2,212 Equity share capital 113 113 113 113 113

EBITDA margin 9.8% 15.4% 16.6% 15.9% 16.0% Reserves 733 1,128 1,801 2,706 3,879

Depreciation 35 36 43 63 108 Minorities - - - - -

EBIT 359 744 1,225 1,614 2,103 Net worth 846 1,242 1,915 2,819 3,993

Interest 72 37 44 60 59 Convertible debt - - - - -

Operating PBT 286 707 1,181 1,554 2,044 Other debt 207 28 22 522 22

Other income 4 6 26 61 51 Total debt 207 28 22 522 22

Exceptional inc/(exp) - 41 (3) - - Deferred tax liability (net) 31 31 33 33 33

PBT 290 754 1,204 1,615 2,095 Total liabilities 1,085 1,301 1,970 3,374 4,048

Tax provision 66 230 366 484 629 Assets

Minority interest - - - - - Net fixed assets 343 394 414 1,415 2,263

PAT (Reported) 224 524 838 1,130 1,467 Capital WIP 237 235 495 947 -

Less: Exceptionals - 41 (3) - - Total fixed assets 580 629 909 2,361 2,263

Adjusted PAT 224 483 841 1,130 1,467 Investments 4 4 4 4 4

Current assets

Ratios Inventory 503 613 1,050 1,445 1,900

FY09 FY10 FY11 FY12E FY13E Sundry debtors 489 603 747 1,156 1,520

Growth Loans and advances 213 426 782 712 936

Operating income (%) 23.4 26.3 50.5 38.1 31.4 Cash & bank balance 109 440 535 507 1,030

EBITDA (%) 19.6 98.3 62.4 32.3 31.9 Marketable securities - - 222 222 222

Adj PAT (%) 29.5 115.9 74.1 34.4 29.7 Total current assets 1,314 2,081 3,336 4,043 5,607

Adj EPS (%) 29.5 115.9 74.0 34.4 29.7 Total current liabilities 829 1,424 2,285 3,039 3,832

Net current assets 485 657 1,052 1,004 1,775

Profitability Intangibles/Misc. expenditure 16 11 5 5 5

EBITDA margin (%) 9.8 15.4 16.6 15.9 16.0 Total assets 1,085 1,301 1,970 3,374 4,048

Adj PAT Margin (%) 5.6 9.5 11.0 10.7 10.6

RoE (%) 29.2 46.3 53.3 47.8 43.1 Cash flow

RoCE (%) 32.5 64.1 76.4 61.1 57.2 (Rs mn) FY09 FY10 FY11 FY12E FY13E

RoIC (%) 30.2 59.6 81.9 59.2 54.3 Pre-tax profit 290 713 1,207 1,615 2,095

Total tax paid (66) (230) (365) (484) (629)

Valuations Depreciation 35 36 43 63 108

Price-earnings (x) 141.2 65.4 37.6 27.9 21.5 Working capital changes 136 159 (77) 20 (249)

Price-book (x) 37.3 25.4 16.5 11.2 7.9 Net cash from operations 395 678 808 1,213 1,326

EV/EBITDA (x) 80.5 40.0 24.3 18.7 13.7 Cash from investments

EV/Sales (x) 7.9 6.2 4.1 3.0 2.2 Capital expenditure (64) (80) (317) (1,515) (10)

Dividend payout ratio (%) 25.3 21.6 16.9 17.1 17.1 Investments and others - - (222) - -

Dividend yield (%) 0.2 0.4 0.4 0.6 0.8 Net cash from investments (64) (80) (539) (1,515) (10)

Cash from financing

B/S ratios Equity raised/(repaid) 0 0 0 - -

Inventory days 69 71 80 78 80 Debt raised/(repaid) (262) (179) (6) 500 (500)

Creditors days 60 77 81 80 80 Dividend (incl. tax) (66) (132) (164) (226) (293)

Debtor days 43 43 35 38 38 Others (incl extraordinaries) (0) 44 (3) - -

Working capital days 40 21 12 10 11 Net cash from financing (328) (267) (173) 274 (793)

Gross asset turnover (x) 5.8 6.6 9.1 7.6 5.8 Change in cash position 3 331 96 (28) 523

Net asset turnover (x) 12.3 13.8 18.9 11.5 7.5 Closing cash 109 440 535 507 1,030

Sales/operating assets (x) 7.0 8.4 9.9 6.5 6.0

Current ratio (x) 1.6 1.5 1.5 1.3 1.5 Quarterly financials

Debt-equity (x) 0.2 0.0 0.0 0.2 0.0 (Rs mn) Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12

Net debt/equity (x) 0.1 (0.3) (0.4) (0.1) (0.3) Net Sales 1,999 2,365 1,819 2,331 3,035

Interest coverage 5.0 19.9 27.9 27.1 35.5 Change (q-o-q) 38% 18% -23% 28% 30%

EBITDA 327 422 238 371 498

Per share Change (q-o-q) 43% 29% -44% 56% 34%

FY09 FY10 FY11 FY12E FY13E EBITDA margin 16% 18% 13% 16% 16%

Adj EPS (Rs) 19.7 42.6 74.2 99.7 129.4 PAT 218 293 166 253 337

CEPS 22.8 45.8 77.9 105.3 139.0 Adj PAT 224 293 166 253 337

Book value 74.7 109.6 168.9 248.7 352.2 Change (q-o-q) 40% 31% -43% 52% 33%

Dividend (Rs) 5.0 10.0 12.5 17.0 22.1 Adj PAT margin 11% 12% 9% 11% 11%

Actual o/s shares (mn) 11.3 11.3 11.3 11.3 11.3 Adj EPS 20 26 15 22 30


TTK Prestige Ltd

Focus Charts

FY11 – Revenue break-up – Well diversified New gas connections in India growing at 6%


Revenue growth between FY96-03 and FY03-11 TTK’s revenue is growing through its retail outlet


TTK’s PE movement Shareholding pattern over the quarters


Pressure Cookers

39%

Non-stick Cookware

20%

Gas Stoves11%

Kitchen Electricals

27%

Others3%

84,

492

88,

642

94,

260

100,

977

105,

731

115,

064

10%

5%

6%7%

5%

9%

0%

2%

4%

6%

8%

10%

12%

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2005 2006 2007 2008 2009 2010

('000)

All India cummulative gas connections Y-o-Y growth (RHS)

1%

26%

-0.2%

28%

2%

17%

-5%

0%

5%

10%

15%

20%

25%

30%

FY96-03 FY03-11

Gandhimathi TTKP Hawkins

239 440 468 553 741 1,125

10%

84%

6%

18%

34%

52%

-20%

0%

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0

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1,200


(Rs mn)

Smart kitchen outlets' revenue

Contribution to total revenue (RHS)

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(Rs)

TTK Prestige 1x 8x 15x 22x 29x

74.9% 74.9% 74.9% 74.9%

8.0% 6.3% 6.8% 8.4%2.0% 5.1% 5.8% 4.3%

15.1% 13.8% 12.5% 12.4%

0%

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50%

60%

70%

80%

90%

100%

Dec-10 Mar-11 Jun-11 Sep-11

Promoter FII DII Others


CRISIL Research Team

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Ahmedabad / Mumbai Vishal Shah - Manager, Business Development Email : [email protected] I Phone : 9820598908 Bengaluru Gayathri Ananth – Senior Manager, Business Development Email : [email protected] I Phone : 9886498175 Chennai / Hyderabad Kaliprasad Ponnuru - Manager, Business Development Email : [email protected] I Phone : 9642004668

Delhi Arjun Gopalkrishnan - Manager, Business Development Email :[email protected] I Phone : 9833364422 Kolkata Priyanka Agarwal - Manager, Business Development Email : [email protected] I Phone : 9903060685 Mumbai / Pune Vivek Tandon - Manager, Business Development Email : [email protected] I Phone : 9903060685

Ashish Sethi – Head, Business Development Email : [email protected] I Phone : 9920807575

Regional Contacts:

To know more about CRISIL IER, please contact our team members:

Sagar Sawarkar – Senior Manager, Business Development Email : [email protected] I Phone : 9821638322
