TTK Prestige

Demand for pressure cookers in growing consumer markets never runs out of steam. This augurs well for TTK Prestige, the company which owns the single largest pressure cooker brand in the country. Against the 8 per cent growth reported by the industry last year, TTK Prestige reported a 17 per cent growth in its sales volumes. With the company roping in new customers through its retail chain — ‘Prestige Smart Kitchen’ — its auxiliary products (kitchen electrical appliances, cookware) are also doing well in the market with a growth of over 25 per cent in the last five years. The stock trades at 14 times its trailing one-year earnings. Investors can add this small-cap stock to their portfolio.
The industry

Pressure cookers are a fast growing segment in the Indian consumer durables market. The demographic shift in favour of the young, an expanding working population and a higher floating population in urban areas are trends that translate into higher demand for pressure cookers in India. Makers of branded cookers are also benefiting from a shift from unbranded to branded products, as safety issues prompt consumers to opt for tried and tested products.

After starting out as a manufacturer of pressure cookers, TTK Prestige now offers complete kitchen solutions with a product range comprising non-stick cookware, rice cookers, gas stoves, kitchen hoods, kettles, sandwich toasters and many other small electrical appliances. The company is also into the modular kitchen segment.
The single largest brand

The average annual production of pressure cookers over the last five years was 40 lakh units. In 2008-09, TTK Prestige, which sold 23.7 lakh units of pressure cookers, accounted for over half this number. The company has been seeing a sharp increase in sales year after year, suggesting that it has managed to gain market share.

TTK Prestige’s sales have grown at an average 21 per cent in the last five years, while industry growth rates were in single-digits.

Hawkins Cookers, the only other listed player, is the company’s major rival with a presence mainly in North India. However, Hawkins is much smaller, with just about half TTK Prestige’s revenues. Apart from TTK Prestige, several smaller regional players such as Premier, Pigeon, Butterfly also compete in the Southern market.

However, the safety aspect does lead to strong brand preferences in the pressure cooker market, giving an edge to established players such as TTK Prestige. TTK Prestige pressure cookers are certified for safety under the Indian (ISI), German and US standards.

TTK Prestige’s cookware and kitchen electrical appliances are also making headway. Their contributions to revenue rose to 15 per cent and 18 per cent in the last year from a little over 12 per cent five years ago.

The company sees considerable opportunity for expansion in these segments, with revenues set to increase sharply once these products are marketed more aggressively.

Unlike the pressure cooker market, competition in the kitchen electrical appliances segment is tough with a number of branded and large regional players in the fray as well. TTK Prestige’s export sales have also been on the rise. Though the last year was challenging due to recession, exports grew over 10 per cent in 2008-09.

Expansion plans

The company’s current installed capacity in pressure cookers is 40 lakh units. But as it is running only at 50 per cent of its capacity, there is room for scaling up production with demand expected to rise in the coming years. The company will enjoy higher revenues as the market grows in size with no additional capex/interest.

The company’s new gas stove and kitchen electrical appliances manufacturing unit in Uttarakhand, which is to begin production by March 2010, may lift margins due to excise duty and tax savings. The company has been importing a few kitchen electrical appliances for selling in the domestic market, the initiative of producing those appliances domestically now will be an advantage for the company.

Further, the company will see almost nil interest outgo from the current year (last year’s interest outgo Rs 5.65 crore) as it has repaid all outstanding loans. In 2008-09, the company repaid Rs 26 crore of outstanding loans and another Rs 20.7 crore since April this year.

Supplementing its core business, TTK Prestige has 6.5 acres of surplus land in Bangalore, having shifted its pressure cooker unit from this location. This area is now being developed into a residential and office space, rentals from which will start flowing from 2012. Cash flows could be furthered strengthened from these rental incomes in the coming years.
Margins strong

In the last five years TTK Prestige has reported a solid 56 per cent growth in profits after tax (as revenues rose 21 per cent). Operating margins too have improved from 6 per cent to 9 per cent in this period. Net profit margins grew from 2 per cent in 2005 to 5 per cent in the last year. There was an increase in tax outgo in the last year as the company moved to normal tax regime from MAT (minimum alternative tax).

The company enjoys pricing power to pass on raw material (aluminium and stainless steel) price increases to consumers, given its strong market position. So any steep price rise in inputs from here on may not dent profit margins. As the demand for pressure cookers is price in-elastic, price hikes will not impact off-take.

TTK Prestige has also been quite generous in declaring dividends. A minimum of 30 per cent dividend has been declared every year in the last three years.

via BL