Buy This Small-Cap Consumer Durable Stock For Target Price Of Rs 1,150, Gained 75.09% In 3 Years

ICICI Securities has recently published a report on TTK Prestige Limited and has given 'buy' call to the stock of the company for a target price of Rs 1,150 apiece. Considering the estimated target price, the stock is likely to gain 18% in 12 months. TTK Prestige is a small-cap Consumer Durable company having a market cap of Rs 13,589.03 crore.

Stock Outlook

The current market price of the stock is Rs 983.45 apiece, it was opened at Rs 992 apiece. The stock hit the 52-week low at Rs 744.70 apiece on 17 June 2022 and the 52 week high at Rs 1,264.65 apiece on 14 December 2021, respectively.

Returns on investment

The stock of the company in the past 1 week surged 2.46%. In the past 1 month, the stock gave a positive return of 12.28%. In the past 3 months, it gave 18.1%. Over the year, it gave a return of 12.6%. In the past 3 years, it gave a 75.09% positive return. In the past 5 years, it gave a positive return of 87.78%.

According to the brokerage's interaction with management of TTK Prestige

(1) Entry level products are facing demand slowdown; however, premium products continue to do well.
(2) The company remains focused on growing its EBO network and reach of Ultrafresh outlets.
(3) The share of online sales has declined to less than 20% as customers return to offline channels.
(4) While input material prices have corrected, we note the complete impact will reflect Q3FY23 onwards, as TTK carries high cost inventory.
(5) Adverse economic environment continues to dent the recovery in Horwood Homewares.
(6) The company has now de-risked itself from geographical dependence on south India, as north India now contributes 50% of its revenue.

Demand trends indicate mixed performance

High inflation has impacted the consumption of entry level products in the kitchen appliances segment. However, premium products' market continues to depict strong demand pull (which is margin accretive at the company level). Early Diwali may also result in higher sales in Sep'22.

Expect margin recovery Q3FY23 onwards

While TTK has not taken any price hike since Mar'22, correction in commodity prices from their all-time highs is likely to benefit the company's margin trajectory. As the company holds high-priced raw materials (likely to be liquidated by the end of Q2FY23), we believe the net benefit in the profitability may flow from Q3FY23.

Steady investment in EBOs continue

Expansion of EBO network (franchisee based) and the range of SKUs being sold through these stores are the key focus areas in TTK's distribution strategy. The company currently has 60% of its total EBOs located in south India.

Offline channel doing well

E-commerce has been a relevant channel for all consumer companies since covid-induced lockdowns. However, unlike food and staples, the share of e-commerce has sharply declined for durables and electricals post covid. According to management, Online sales are less than 20% of total sales for TTK now (down from 27% level during the pandemic).

Horwood Homewares going through challenging times

Fears of recession and high inflation in the UK are taking a toll on the revenues of TTK's subsidiary. We expect recovery in the business only if economic issues settle down by FY24.

Penetration of pressure cookers

While pressure cooker is well penetrated in urban markets, penetration levels remain low in rural markets. Also, many consumers have three pressure cookers in their homes. One for regular use, one for larger family and one new/premium cooker when they have guests. Higher number of cookers per family is leading to growth in cooker segment.

Recent trends in cooker market

Revival in construction / real estate activities is also leading to higher demand for pressure cookers. (2) Stainless steel cookers are doing extremely well now. Current breakup of aluminum : steel cookers is 70:30. There is healthy demand for Swacch products too.

Cleaning products offer healthy growth opportunity

In FY22, cleaning products reached a turnover of ~Rs500mn. We note the segment has the potential to reach Rs3bn in revenue by the end of FY27.

Distribution expansion for Ultrafresh

The acquisition of Ultrafresh offers the company an opportunity to expand reach and provide more kitchen services / solutions. It will also help cross sell other kitchen products. As of now, there are 80 outlets and the company plans to reach 300 outlets.

Geographically de-risked

Despite primarily being a South Indian brand, TTK Prestige has grown from 20% of its revenues in North India in FY03 to 50% in FY22. It expects the growth to remain strong across markets in medium-long term.

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Maintain BUY

The brokerage said, "We model TTK Prestige to report PAT CAGR of 10.7% over FY22- FY24E and RoE>16% over FY22-24. We remain positive on the company's business model due to its market leadership in key business segments and competitive advantages. We maintain BUY on the stock with revised DCF-based target price of Rs1,150 (implied P/E 43x FY24E)."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.