ICRA EQUITY RESEARCH SERVICE

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Fundamental Grade
ICRA Online has assigned the Fundamental Grade 4 to TTK Prestige Limited
(TTKP). The Fundamental Grade 4 assigned to TTKP implies that the
company has strong fundamentals.
TTKP has posted strong growth over the past fve years, outperforming the
underlying industry growth. Favourable industry prospects, product introductions
at regular intervals, foray in new product segments and markets have been the
key growth drivers for the company. TTKP has followed a single brand strategy
and has successfully leveraged it to expand its presence in segments other than
pressure cookers. This strategy has allowed TTKP to emerge as a complete
Kitchen appliances company with presence in pressure cookers, non-stick
cookware, kitchen electrical appliances and gas stoves. In addition to strong brand
franchise, TTKP also benefts from its wide distribution network, particularly in
the Southern and Western markets and increasing presence through exclusive
Prestige Smart Kitchen stores.
We expect the company to remain on the growth trajectory as it continues to
beneft from Indias favourable consumption story, high growth expectation
from smaller towns and rural markets, where penetration levels for most
kitchen appliances are still low and more importantly the companys focus on
introducing new products and increasing reach in newer markets. Though the
core business would remain its key value driver, the company has some surplus
land in Bangalore where it has entered into a joint development agreement with
real estate developer, which can provide some additional upside to earnings in
the long-run.
Grading Positives
TTKPs key strengths includes (a) its leadership position in the organised pressure
cooker market, (b) strong brand equity and distribution network, allowing it to
expand its business across product segments in the kitchen appliances market,
(c) strong growth prospects driven by favourable demographics. Key upside to
our estimates include higher than estimated growth of branded segment of the
industry on shift to quality by consumers. Apart from its strong business position,
TTKP has demonstrated robust fnancial performance over the past fve years
characterised by high RoCE, strong operating cash fows and debt-free status.
Grading Sensitivities
Notwithstanding the growth prospects, the company continues to face stiff
competition and pricing pressure from unorganised segment for majority of its
business. Competition from other branded players is also signifcant as they have
been expanding their product profle and beneft from their extensive distribution
reach. Increasing input material prices also pose a threat to companys margins.
TTK PRESTIGE LIMITED
May 18, 2011 Industry: Home Appliances
ICRA Online Grading
Fundamental Grading of 4 indi
cates strong fundamentals
Key Stock Statistics
Bloomberg Code TTKPT IN
Current Market Price* (Rs.) 2,357
Shares Outstanding (crore) 1.13
Market Cap (Rs. crore) 2,668
52-Week High (Rs.) 2,609
52-Week Low (Rs.) 575
Free Float (%) 25.1%
Beta 0.85
P/E on 2011-12 EPS Estimate (x) 25.0
*As on 13th May 2011
Shareholding Pattern (31st March, 2011)
Source: Bloomberg
Source: BSE Website
Share Price Movement (24 months)
FY10A FY11A FY12E FY13E
Operating Income (Rs. crore) 505.2 763.6 1,006.2 1,248.3
EBITDA Margin (%) 15.3% 15.9% 15.9% 16.1%
PAT Margin (%) 10.3% 11.0% 10.5% 10.6%
Fully Diluted EPS (Rs.) 46.3 74.0 94.2 117.7
EPS Growth (%) 134.3% 59.7% 27.4% 24.8%
P/E* (x) 50.8 31.9 25.0 20.0
P/BV* (x) 21.9 13.9 9.6 6.8
RoE 51.3% 53.4% 45.4% 39.8%
RoCE 84.3% 80.4% 57.5% 50.3%
EV/EBITDA* 33.7 21.5 16.9 13.2
Source: Company, ICRA Online estimates *on fully diluted basis
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ICRA Equity Research Service TTK Prestige Limited
SUMMARY
A well-known kitchen appliances company with leading position in pressure cookers and non-stick
cookware
TTK Prestige Limited (TTKP) is positioned as the largest organized player in the fast-growing domestic kitchen
appliances industry with a market share in access of 35-40% in the organized segment of the pressure cooker
and non-stick cookware market. TTKP is a well-known name in the kitchen appliances segment and has over
the years evolved into a total kitchen solutions company from predominantly being an outer-lid pressure cooker
maker with presence concentrated in the Southern region. TTKP is one of the few consumer durable companies
which have effectively been able to implement a strategy in expanding a single brand across product segments
and build a sizeable business across segments. The company benefts from its strong brand, its wide spread
distribution reach in Southern India, its expanding trade model comprising of exclusive retail stores besides
strengths in product innovation.
Strong brand recognition and extensive distribution set up
Over the years, TTKP has built strong brand recognition as a leading kitchen appliances company. Besides
product innovation in line with changing consumer needs; effective product promotion and positioning have
helped the company develop a strong brand which is being associated with trust, safety and reliability. The
company has also built an extensive pan India distribution network reaching about 25,000 dealers which is
one of the critical factors for a consumer driven industry like kitchen appliances. Apart from the traditional
distribution channels such as dealers, authorised redistributors and institutional sales, TTKP has also ventured
into the company branded Prestige Smart Kitchens (PSK) exclusive outlets. Besides enhancing visibility of the
brand, these exclusive retail outlets with modern ambience offer entire range of TTKPs products under one
roof thereby providing convenience and unique shopping experience to the customers.
Favourable demographics + enhanced reach + expansion in product range to sustain growth
momentum
Over the past fve years, TTKP has posted a strong growth of 28% CAGR in operating income driven by a confuence
of growth drivers. Favourable industry dynamics, strong brand recognition, expansion in product profle, and
foray in newer markets have been the key factors. We expect the company to continue to ride on this growth
momentum driven by favourable industry dynamics rising disposable income levels, rising consumerism and
its strategy to augment its geographical presence especially in newer markets and semi-urban areas while
also maintaining its focus on enhancing its product offerings. Overall, we expect this to translate into revenue
growth of ~26% CAGR between FY11 and FY14 to Rs. 1,518 crore.
We expect TTKPs EBITDA to grow at CAGR of 26% between FY11-FY14e from Rs. 122 crore to Rs. 246 crore
and net earnings to also post a similar growth during the same period. Given the strong operating cash fows,
sizeable cash reserves, we dont expect any equity dilution to fund the Rs. 210 crore planned capital expenditure
programme.
Asset light model + strong brand equity supports high return indicators
At present, TTKP manufactures its traditional products pressure cookers and non-stick cookware in-house,
while it outsources manufacturing of kitchen electric appliances and gas stoves to dedicated vendors and
suppliers in India and China. The outsourcing model offers several operational advantages to the company as it
allows it to focus on its key strengths in marketing, distribution and product development. Additionally, strong
acceptance for companys products also results in lower working capital engagement (i.e. NWC/OI - 7% in FY10).
With strong brand equity (proving pricing fexibility), strong distribution network, low engagement in capital (in
capacities and working capital), improving operating leverage, low interest burden and tax incentives (at one
of its site), TTKP has been able to post very high RoCEs, ranging between 40-80% in the past. We expect the
company to continue to generate high return indicators in the future although some moderation is likely in the
ICRA Equity Research Service TTK Prestige Limited
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With current high levels of capacity utilizations, TTKP has outlined a large capital expenditure towards capacity
expansion with a view to cater to increased demand. The company plans to double its capacity of pressure
cookers from 4.8 million units to 9.6 million over the next two years. In the non-stick cookware segment, the
company also plans to set up a Greenfeld manufacturing facility in Gujarat with a capacity of 6 million units per
annum.
Competition from unorganised segment and other branded players
Notwithstanding the favourable growth prospects, TTKP continues to face intense competition from unorganized
players in most of its business segments. Other branded players are also expanding their product range and
with their extensive distribution reach continue to be a signifcant competition to TTKP. Further, with the
company expanding its presence in not so strong markets in North & East and rural markets, it is likely to face
pricing pressure from cheaper unorganized players given the high price elasticity in these markets. Although the
companys operating margins have improved considerably over the past two years on back of improving operating
leverage, fscal benefts at its Uttarakhand plans and lower input prices (in FY10), sharp fuctuation in metal
prices could exert pressure on companys margins. That said, strong brand recognition allows the company to
pass on the cost increase to end-customers.
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ICRA Equity Research Service TTK Prestige Limited
Market Position And Business Outlook
TTK Prestige (TTKP), part of the Bangalore-based Rs. 1,100 crore TTK group is a branded player in the kitchen
appliances segment and enjoys strong market position with over 35-40% market share in the organised pressure
cooker and non-stick cookware segment in India. From predominantly being a branded pressure cooker player,
TTKP has evolved its business model to emerge as a total kitchen solutions company with presence spread
across pressure cookers, non-stick cookware, kitchen electric appliances and gas stoves. With a strategy to have
presence across the entire range of kitchen appliances, the company has effectively diversifed its revenue mix
with pressure cookers now accounting for less than 50% of turnover. Strong growth across segments, regular
product innovations and launches and foray in newer markets have helped the company post a healthy growth of
28% CAGR over the past fve years (i.e. FY07-11). The high growth momentum is likely to continue in the medium
term fuelled by favourable business dynamics, multiple product launches, increasing presence in fast growing
kitchen electric appliances segment and increasing distribution reach in not so strong markets in North and East.
TTKP has a pan India presence through ~25,000 direct dealers apart from the company branded exclusive retail
outlets. The company is particularly strong in Southern and Western parts of the country and has been making
in-roads in North & East as well.
Positioned as a leading player in the domestic pressure cooker market with strong brand equity
With over 50 years of presence in manufacturing pressure cookers in India, TTKP is positioned as the leading player
in the domestic pressure cooker market with an estimated 35-40% market share of the organised segment. The
pressure cooker market in India is estimated at 20 million units p.a. and has been growing at around 8-9% p.a. The
market is characterised by low entry barriers and high competitive intensity with 50% of the market dominated
by organised players with rest distributed between regional and un-organised players. Among organised players,
TTKP and Hawkins are the leading players, collectively accounting for over 80% of the organised segment.
TTKP currently dominates the organised segment with 35-40% market share and its pressure cooker business has
grown at a CAGR of 15.1% during the last fve years (i.e. FY06-FY10) with majority of this growth being volume
driven. Regular product innovations, strong brand and shift towards the organised segment have helped the
companys pressure cooker business in consistently outperforming the market growth over the past fve years.
The market for pressure cookers is bifurcated between outer lid and inner lid. Largely infuenced by cooking
styles and needs, the Southern market is dominated by outer lid pressure cookers, while the Northern market
usually prefers the compact inner lid cookers. In volume terms, both TTKP and Hawkins have been posting strong
growth over the past fve years and enjoy fairly similar scale (in terms volumes) and market share. In terms of
geographic mix, TTKP, owing to its presence in outer-lid pressure cooker market is a stronger player in the Southern
market with over 60% market share, while Hawkins is much larger player in the Northern & Eastern markets.
With increasing disposable income levels and increasing demand from urban middle class young population, the
demand for branded products is gaining preference over unbranded products. Further, the shift towards branded
Source: CMIE, Company, ICRA Online Estimates; Graph 1 captures data for a sample of organised players
ICRA Equity Research Service TTK Prestige Limited
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products has also been enabled through various promotional offers/exchange schemes resulting in signifcant
replacement demand in an otherwise durable product with low replacement market. TTKP derives ~25% of its
revenues through replacement demand (exchange schemes); 50% of which pertain to exchange towards pressure
cookers. As a result, the organised players such as TTKP and Hawkins have been outperforming the industry
growth by a healthy margin.
TTKP with its relatively stronger presence in the
Southern market has also now made considerable in-
roads in the Northern and Eastern market. In order
to gain presence in these markets, the company
developed and launched the inner-lid pressure
cookers in 2005-06 and now has approximately
5% share of the market. From initial volumes of
50,000 units a year, TTKP expects to achieve sales
of 750,000 inner lid cookers in FY11e, majority of
which are sold in the Northern and Eastern markets.
The market for pressure cookers appears to be fairly
well penetrated in urban markets with over 90%
penetration levels; however, the penetration levels
in rural markets appear to be low at ~220 for every
1,000 households. This offers strong potential for growth in rural markets. In this regard, TTKP has put in place a
strategy to tap demand in rural markets by involving NGOs and self-help groups. The company has test marketed
the new distribution model in certain markets in Andhra Pradesh.
In India, the total number of gas connections
stood at 115 million and with estimated 220
million households, the penetration level for gas
connected household stands at ~50%. We believe
the target to add ~55 million new gas connections
by 2015 set by OMCs is likely to be the key growth
driver for pressure cooker sales in rural India.
On the other hand, demand from urban areas is
expected to come largely from upgradation to
products with better features and replacement
(although pressure cookers have very high
durability). Further, considering the changing
consumer mindset, increasing brand awareness
and safety consciousness, continued shift to branded products is being witnessed.
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ICRA Equity Research Service TTK Prestige Limited
Emerged as a total kitchen appliances company with presence across a range of products
TTKP over a period of time has transformed its business
model from being a pure pressure cooker maker to
a company offering a complete range of kitchen
appliances as it has been able to effectively extend
its Prestige brand to cookwares, kitchen electric
appliances and modular kitchens thereby rebranding
itself as a Total Kitchen Solutions company. Although,
pressure cookers continue to remain the mainstay for
the company with over 47% contribution to turnover,
the company has successfully scaled-up its business
in other segments that include non-stick cookware,
kitchen electric appliances and gas stoves. In FY10,
sales from segments other than pressure cookers
accounted for 53% of total turnover as compared to 41%
in FY06. In the non-stick cookware segment, the company manufactures and markets entire range of cookwares
under its Omega Deluxe, Omega Die-Cast and Omega Select Plus brands. In the kitchen electric appliances
segment, the company markets a range of mixer grinders, hand blenders, induction cook tops, toasters, kettles,
juicers, coffee makers etc.
In line with the industry trend, TTKP also follows the outsourcing model for manufacturing kitchen electric
appliances and gas stoves and has dedicated vendors in India and suppliers in China. At present, the company
sources nearly 60% of its requirement from China and balance is met domestically. The outsourcing model offers
several operational advantages to the company as it allows the company to focus on its key strengths in marketing,
distribution and product development. It further ensures lower capital engagement as vendors invest their own
capital for capacity creation besides providing fexibility with respect to managing production in line with trends
in demand. Outsourcing to small players also provides tax incentives available to small scale industries.
In line with its strong market position in the pressure cooker segment, TTKP has managed to establish a fairly
strong presence (i.e. ~35% market share) in the fast-growing non-stick cookware segment where it has effectively
extended its strong brand franchise to offer a complete range of products. The companys revenues from this
segment have grown at a healthy CAGR of 25% over the past fve years, contributing ~17% to total turnover in
FY10. The company faces competition from whole host of branded players as well non-branded ones with Hawkins,
Nirlep, Butterfy and Pigeon being among the other established brands available in the market. We expect this
segment to continue to grow at healthy pace driven by growing health consciousness among increasing young
middle class population, rising disposable income levels and advent of modern trade.
With a view to transform itself as a complete kitchen solutions provider, TTKP has also marked its presence in
the kitchen electric segment of small appliance markets. The small appliances or commonly referred as the
brown goods market in India is estimated at ~Rs. 5,900 crore, growing at over 15% over the past fve years. Rising
income levels, increasing urban households and increasing growth in penetration in rural markets are some of the
prominent factors driving demand for small appliances. The major differentiating factor in favour of the kitchen
appliances vertical is that these products have a much shorter replacement cycle of 2-3 years, regular product
/ technology introductions and lower price range in comparison to higher prices consumer durable such as white
goods. These factors result in higher volume growth and quicker penetration possibilities.
ICRA Equity Research Service TTK Prestige Limited
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In the initial phase, the demand for electric appliances has been driven by urban markets. But it is now reaching
out to the semi-urban and rural markets beneftting from changing lifestyles, rising disposable income levels and
improving electricity availability. We expect growth momentum to continue driven by:
Key Growth Drivers Small Electrical Appliances
Improving electricity penetration in rural areas to support demand for electrical appliances
Rising disposable income levels and housing demand among growing urban middle class population
Shift from unorganised to organised segment with rising disposable income levels
Relatively low penetration in rural areas for most electrical appliances
Unlike TTKPs traditional product segment pressure cookers, the market for brown goods has large number of
branded players (both local and foreign brands) with no single player commanding more than 15-20% market
share. TTKP ventured in to the kitchen electric appliances segment in 2002-03 and has managed built a Rs.100
crore business over the past 5 years. Bajaj Electrical is the largest player in the small appliances segment; its
market share across product categories ranges between 15-30%.
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ICRA Equity Research Service TTK Prestige Limited
Segment-wise key snapshot & TTKPs market position & strengths
Gas Stoves (12%)
Kitchen Electric Appliances - (20%)
Trend in TTKPs Non Stick Cookware Business
Pressusre Cookers - (47%)
TTKs Market Position & Strengths
- Leading player in the organised, branded pressure cooker market
- Enjoys strong brand equity, benefts from wide distribution reach
Key growth drivers
- Untapped rural market; increasing gas connectivity to 55 mn households
- Rising disposable income levels and urbanisation levels
Challenges
- Stiff competition from highly price competitive unorganised segment
- Vulnerable to input material price movements
TTKPs Market Position & Strengths
- Enjoys strong market position with ~35-40% market share
- Successfully leveraged on Prestige brand to expand its presence
Key growth drivers
- Increasing acceptance among health conscious consumers
- Relatively lower product life also results in replacement demand
- Favourable demographics; rising consumerism and urbanisation levels
Challenges
- Stiff competition from both organised/branded & unorganised players
TTKPs Market Position & Strengths
- Relatively new entrant & small player; market share ~8-9%
- Bajaj Elec. holds strong market position across categories
- Regular introductions and brand extension helping the Company
- Launched induction tops, gaining traction
Key growth drivers
- Favourable demographics; rising consumerism and urbanisation levels
- Relatively lower product life also results in replacement demand
- New product introduction with advanced features
Challenges
- Stiff competition cheaper imports, limited scope for differentiation
- Establishing wide spread service network is imperative
TTKPs Market Position & Strengths
- Relatively small player; other players enjoy strong brand re-call
Key growth drivers
- Increasing gas connectivity target 55 mn households by 2015 (50%+)
- Increasing urbanisation and rising trend of nuclear families
- New product introduction with advanced features
Challenges
- Stiff competition cheaper unorganised segment
- Limited scope for differentiation
ICRA Equity Research Service TTK Prestige Limited
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Focus on innovation & regular product launches has strengthened TTKPs business profle &
brand equity
TTKP has traditionally been a manufacturer of outer-lid pressure cookers which are predominantly used in the
South India. However, with a view to expand its presence to the Northern and North-Eastern markets (where
inner-lid pressure cookers are popular), the company initially entered the inner-lid segment through the launch
of Nakshatra range of inner-lid pressure cookers in the regular and handi varieties. It further extended its
portfolio of inner-lid pressure cookers during 2009-10 through the launch of Apple range of pressure cookers
targeted at small urban families (which are currently available only in 3 litre capacities). Apart from being
available in the aluminium and the superior hard anodized varieties, these models are also offered in various
vibrant colours giving a contemporary look to suit modern kitchens and appeal aesthetic requirements of the
new-age home makers.
Business Segment Market Size TTKPs Competitors Product
(Rs. Crore) Market Share
Pressure Cookers 900 `20% Hawkins,Kanchan Outer lid, Inner lid, Pressure Handls
35% (organised United, Bajaj, Havells
Omega Deluxe (Induction base, non
Non Stick Cook 618 14% Hawkins, Nirlep stick cookware), Omega Die-Cast (dle-
ware 30% (organised) Pigeon, Butterfy, cast cookware, durable, heat retention)
Jaipan Omega Select Plus (Residue free, metal
spoon friendly)
Home Appliances 2,500 ~4% Bajaj, Butterfy, Preethi, Mixer grinders, Hand Blenders, Rice
Philips, Kenstar, Inalsa Cookers, Induction Cook Tops, Electric
Kettles, Sandwich Toasters, Ovens,
Juicers, Irons, etc.
~5% Sun fame, Bajaj Gas tables, Glass top gas tables, LP Gas
Gas Stoves 1,200 12% (organised) Butterfy stoves
Segment Market Characteristics TTKs Market Position & Strengths

Growing at modest - 8-9% p.a. Market leader with 34-40% share
Low entry barriers Wide product portfolio
Pressure Cookers High competitive intensity as refected by presence Enjoys strong brand, widespread distribution
of large unorganised players (~50%) reach
Non-Stick Cook Growing at relatively higher pace EBITDA margins in excess of 20%
Low entry barriers TTKs market share -35% (organised)
Branded players command premium Enjoys strong brand equity; has managed to
Highly competitive market leverage the Prestige brand well
Home Appliance Fragmented market TTKPs market share -low
No single large player Other players - Philips, Bajaj, Preethi enjoy
Branding players a major role higher brand re-call
Gas Stoves Large number of players Wide range of products; presence in both high-
No single large player end and basic categories
Source: ICRA Online Research
Table : Market Characteristics
Table : TTKPs Competitive Grid
Source: ICRA Online Research
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ICRA Equity Research Service TTK Prestige Limited
Table: Major product launches by TTKP
Similarly, on the cookware front, the company has constantly upgraded its Omega range of cookwares with
innovative features such as metal spoon friendly and residue-free kitchenware while also maintaining its
focus on the aesthetic appeal. However, the companys portfolio lacks products in the ultra premium category as
against Hawkins Futura (hard anodized and stainless steel) range of pressure cookers (4 litre pressure cookers
priced at ~Rs.3,000). Though, currently the market size for the same is small, increasing incomes and changing
lifestyle with growing importance to functionality and visual appeal are likely to drive demand for these products
especially in the urban markets.
Extensive distribution reach is imperative for consumer goods; helps differentiate between players
With increasing urbanisation, Tier-II and -III towns
are expected to be the key growth drivers over the
next few years, which makes extensive distribution
network and brand presence critical for consumer
goods companies. TTKP has a pan India strong network
of 25,000 direct dealers as on date. Given its product
profle, its network compares fairly well with its closest
peers like Hawkins, Bajaj Electrical, and Havells etc.
Company Distributors Direct Dealers
TTKP* Direct dealers 25,000
Hawkins 5,000
Bajaj Elec. 5,000 50,000
Havells 4,300 35,000
In terms of market position, TTKP is particularly strong in Southern and Western parts of the country and has
been making in-roads in North & East as well. With deep distribution reach and strong brand awareness being
the key success factors for a consumer driven industry like kitchen appliances, TTKP has taken suitable measures
by foraying into the retail space early in 2003. Apart from the traditional distribution channels such as dealers,
authorised redistributors and institutional sales, TTKP ventured into the company branded Prestige Smart
Kitchens (PSK) outlets. Besides enhancing visibility of the brand, these exclusive retail outlets with modern
ambience offer entire range of TTKPs products under one roof thereby providing convenience and unique
shopping experience to the customers. These outlets have been well received by the customers as can be noticed
from the increasing trend in the share of revenues being derived from PSK outlets. In line with growing popularity
of these outlets, while the company has stepped up the expansion of the PSK outlets across the country, the
distribution continues to be heavily skewed towards the south. The number of PSK outlets has increased from
80 in 2005-06 to the current 270 outlets covering over 135 towns in almost 20 states. With the success of PSK
outlets, TTKPL has also rolled out Prestige Lifestyle and Prestige Kitchen Boutique each catering to the high
value products (such as chimneys and hobs) and modular kitchens respectively. This has helped TTKPL reposition
itself as a lifestyle company from a mere commodity manufacturer.
2005-06
Prestige Nakshatra
(Inner lid), Pressure
Handi, Pressure Kadai,
Duplex gas tables
2006-07
89 new
products
launched in 7
categories
2007-08
45 new products
launched in 5
categories; in all
86 variants
2008-09
New range
of Induction
cook tops
2009-10
Apple inner lid cookers,
Microchef microwave
cookers, Induction com-
patible base
cookware
Source: Company
ICRA Equity Research Service TTK Prestige Limited
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Expanding presence in the niche modular kitchen segment
With a view to tap the robust growth prospects in this largely under-penetrated (less than 1% households in
India have modular kitchens) segment, the company entered the modular kitchen market through specialized
modular kitchen boutiques under its Prestige Kitchen Boutique retail outlets. Although TTKP has been present
in this segment for over fve years, the company renewed its focus on this division only during the past two
years. At present, TTKP has nine such stores displaying three to four different varieties of modular kitchens for
customers to experience and choose a suitable style of modular kitchen.
The residential kitchens market in India is highly unorganized with kitchens mostly being self-designed and
accordingly custom fabricated by local carpenters. With growing urbanization and shrinking kitchen space,
increasing need is being witnessed for effective utilization of available space so as to make the kitchen more
effcient while also maintaining its aesthetic appeal. Further, favourable demographics coupled with rise in
housing projects are likely sustain the growth potential in this segment. Notwithstanding the growth prospects,
the company faces signifcant competition in this segment from a large number of players - both domestic as well
as international. Apart from domestic players such as Godrej & Boyce (through Godrej Interio), Kitchen Masters,
Sleek, Akruti Kitchens & Furniture among others, several international players with strong domain expertise
have entered Indian market attracted by the strong growth prospects. Some of the leading foreign brands that
have entered India include: Hettich International, Hfele Kitchen Fittings and Poggenpohl Mbelwerke. While
TTKP enjoys certain advantage on account of its strong brand recognition and lower pricing compared to the
international players; stiff competition from the signifcantly cheaper unbranded market continues to remain a
challenge. However, low-penetration level augurs favourable prospects for all players.
Real estate foray to provide an upside in the long-run
Subsequent to the closure of the pressure cooker manufacturing facility at Bangalore, TTKP has a 6.5 acre surplus
parcel of land at Dooravani Nagar, Bangalore. The company has entered into a joint development agreement
with Salarpurias, a Kolkata-based real estate developer to develop a residential-cum-commercial space at this
location. In terms of contract with the developer, TTKP will have rights for 43% of estimated 680,000 sq. ft. of
developable, 60% of which will comprise of commercial space. As per the company, the developer has recently
secured all necessary government approvals and expects the construction to be spread over a period of 30-36
months. With the project expected to be a combination of housing and commercial space, the company is likely
to generate sizeable one-time gain on sale of residential apartments and rental income (for commercial space)
from FY15 onwards. The estimated lump sum is expected to be around Rs. 100 crore upon completion of the
project in FY15 while the steady rental income would be around Rs. 6-7 crore on an annual basis.
With close proximity to the outer-ring road, national highway (connecting Chennai) and an upcoming metro station
(at 1 km from the site), the company expects favourable prospects for both residential as well as commercial
offce space at the location. In terms of execution, while some comfort may be arrived from the experience
of the developer in real estate business, delays and execution risk associated with such projects could a be
sensitivity to our estimates. As per the management, TTKP would however not be sharing the development cost
with the developer
Expanding capacities to support future growth
The company plans to double its capacity of pressure cookers from 4.8 million units to 9.6 million over the next
two years. The company plans to invest around Rs.210 crore over FY11-12 in order to augment capacity. At
present, the companys manufacturing facilities are operating ~70%; capacity addition and expansion plans would
ensure adequate capacities for next 3-4 years. In addition to the capacity expansion plans, the company also
aims at setting up a Greenfeld manufacturing facility in Gujarat for manufacturing non-stick cookware including
hard anodized cookers. Given the sizeable cash reserves and strong operating cash fows, we expect the company
should be able to fund the capacity expansion largely through internal cash fows, thereby refraining from equity
dilution or signifcant reliance of debt-funding. In FY07, the company had set-up a manufacturing facility at
Roorkee (Uttarakhand) for manufacturing inner-lid pressure cookers. The facility at Uttarakhand enjoys fscal
benefts (in form of excise duty and income-tax exemption).
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ICRA Equity Research Service TTK Prestige Limited
Key Concerns
Large pricing differential exists between branded and unorganised players
Among the branded players, owing to the nature of
products which offers limited scope for differentiation
(in comparable price categories), value perception
and brand recognition play a signifcant role in
customer acquisition and retention. Therefore,
despite high price competition from the unorganized
sector (substantial discount to branded players), aided
by strong brand recognition and safety perception,
TTKP has been able to maintain its dominance in the
pressure cooker industry. Going forward, we expect
the company to continue to enhance its market
presence through regular product launches, improving
brand awareness and enhanced reach.
In addition to competitive prices, local brands also
offer better margins to dealers as compared to organised branded players such as TTKP or Hawkins. The branded
players however have better pricing power and if required can potentially match the dealer margin. Currently,
the local brands are able to achieve lean cost structure due to instance of tax evasion, lower spend on advertising
and brand building and cheaper raw materials (as they used pre-used aluminium). However, with the expected
introduction of GST, the gap between cost structures of branded and non-branded players is likely to reduce and
is likely accelerate the shift in consumers preference for branded products vis-a-vis non-branded ones.
Given the high penetration levels for pressure cookers in the urban markets, growth in these markets is likely to
be primarily driven by the replacement demand, upgradation to branded products/products with better features.
However, signifcant growth is also expected from the Tier II/III towns and rural households considering lower
penetration levels in these markets. This is especially so with the growing interest for branded pressure cookers
in the semi-urban/rural markets (owing to better quality and safety perception) and increasing availability of
LP gas apart from boost in the rural income driving demand. However, expanding the distribution reach with
infrastructural constraints in rural areas remains a challenge. Furthermore, TTKPs products are likely to face
severe competition from the signifcantly cheaper regional brands/unbranded products especially considering the
high price elasticity in the rural markets.
ICRA Equity Research Service TTK Prestige Limited
13
Raw material prices
For TTKP, raw material cost is the major cost component, forming ~52-55% of its operating income. Aluminium,
stainless steel and other traded products is the major constituent of the total material cost. Thus, increase in
material prices particularly of aluminium and stainless steel can exert pressure on companys operating margins.
However, the impact is limited to an extent given the companys strong brand equity, which allows it to pass on
the increase in material prices to end customers.
Source: Prowess, Company data
TTKPs operating margins have also beneftted from its improving operating leverage, lower outsourcing of
traded good and fscal incentives available at Uttarakhand plant, which has helped the company gradually shift
manufacturing of kitchen electric appliances in-house and reduce dependence on outside vendors. That said, the
company is likely to see some pricing erosion and subsequently pressure on margins as it expands in smaller towns
and rural markets where price elasticity is likely to be higher.
Source: CMIE, Company annual report
Increasing operating Leverage, fscal benefts & Lower outsourcing
have helped improve margins
14
ICRA Equity Research Service TTK Prestige Limited
Enhanced penetration together with new launches across product categories to sustain growth
momentum
Over the years the companys revenues have posted steady growth primarily driven by volume expansion across
product categories. During the fve year period between FY07 and FY11, TTKPs revenues grew at a CAGR of
~28%. Apart from demand side drivers such as rise in disposable incomes, favourable demographics and growing
health consciousness; several company-specifc factors such as strong brand presence, foray into newer product
categories, product enhancements and improved distribution reach have resulted in accelerated revenue growth
for TTKP especially during the past three years. Besides achieving consistent growth in pressure cookers and
non stick cookware, the company has been successful in establishing its presence in kitchen electric appliances
segment; a product category which is expected to continue the strong growth momentum aided by rising con-
sumerism and replacement demand. We expect the company to continue to augment its geographical presence
especially in newer markets and semi-urban areas while also maintaining its focus on enhancing its product offer-
ings which are likely to aid TTKP in sustaining the growth trend. Overall, we expect this to translate into revenue
growth of ~26% CAGR between FY11 and FY14 to Rs. 1,518 crore.
While TTKPs operating margins have historically been in the range of 9-10%, the company witnessed signifcant
expansion in margins during FY10. Benign raw material prices during most part of the year resulted in healthy
operating margin growth to ~15%. Further, despite change in product mix with increased proportion of relatively
Operating margins to stabilise going forward; however, high base effect to moderate EPS growth
Source: ICRA Online estimates
FINANCIAL OUTLOOK
ICRA Equity Research Service TTK Prestige Limited
15
low-margin kitchen electric appliances, the company has been able to post steep rise in operating margin aided
by improved effciencies attributed to enhanced scale. In line with the improvement in operating margin; the
companys net margin also improved to 10.3% in FY10 from the 5.6% in FY09 aided by low depreciation and re-
duced interest outgo. The company retired most of its debt during FY09 and FY10 resulting in reduced interest
burden. During FY11, the companys margins have further improved primarily owing to large economies of scale
apart from stable raw material prices.
Though raw material prices are expected to rise going forward, we expect the companys operating margins to
remain stable cushioned to a certain extent by the improvement in margins in the kitchen electric appliances
segment with the commencement of in-house production under this category (which was otherwise outsourced
/ imported until FY10) from the current fscal. Further, TTKP is also expected to continue to beneft from scale
economics with increased volumes and the companys strong brand equity, which allows it to pass on the increase
in material prices to end customers.
Addition of signifcant capacities, both in newer product categories and traditional products with a view to cater
to increased demand is likely to result in higher depreciation charge in the initial years. However, this is expected
to be off-set by the lower tax charge on the Uttarakhand plant thereby maintaining the net margins at similar
levels.
Higher base effect coupled with aggressive capital expenditure plans likely to impact proftability
indicators
With current high levels of capacity utilizations, the
company has outlined a large capital expenditure
towards capacity expansion with a view to cater to
increased demand. The company plans to double
its capacity of pressure cookers from 4.8 million
units to 9.6 million over the next two years. In the
non-stick cookware segment, the company also
plans to set up a Greenfeld manufacturing facility
in Gujarat with a capacity of 6 million units per
annum. The said capacity expansion requiring an
estimated capital expenditure of Rs.210 crores is
expected to be incurred over a period of three
years. Given the sizeable cash reserves and strong
operating cash fows, we expect that the company
should be able to fund the requirement largely
through internal cash fows, thereby refraining from equity dilution or signifcant reliance of debt-funding.
Though some moderation in proftability indicators is likely owing higher base (on account of increased networth
through accumulated earnings and partial debt-funding for the capital expenditure), the same are expected to
remain sound supported by corresponding growth in operating accruals.
COMPANY PROFILE
Incorporated in 1955, TTK Prestige Limited (TTKP) is the fagship company of the Bangalore-based Rs. 1,100 crore
TTK Group, positioned as one of the leading kitchen appliances company in India. TTKP, commenced operations
as a traditional pressure cooker manufacturer, and has since evolved into a Total Kitchen Solutions company
offering wide range of products spanning pressure cookers, non-stick cookware, kitchen hoods (chimneys), hobs,
gas stoves, and several other kitchen electrical appliances. While the companys traditional product segments
(pressure cookers and cookware) continue to contribute to majority of TTKPs revenues, over the years, non-
traditional product segments such as kitchen electrical appliances and gas stoves have displayed a strong growth
momentum. Recently, TTKP has also forayed into modular kitchens, wherein the company offers kitchen designs
and fttings based on customer requirements. Currently, the company is also jointly developing a residential-cum-
offce space in Bangalore which is expected to generate recurring revenues upon completion.
16
ICRA Equity Research Service TTK Prestige Limited
Company Name TTK Prestige Limited
Constitution Public Limited Company, went public in 1994
Sector/Industry Consumer goods Kitchen appliances
Year of Incorporation 1955
Registered Offce Plot No. 38, SIPCOT Industrial Complex
Hosur, Tamil Nadu - 635 126
Plant Location Hosur, Coimbatore (in Tamil Nadu), Roorkee (in Uttarakhand)
Shareholding Pattern Promoters 74.91%
(as on March 2011) Foreign Institutional Investors 6.27%
Domestic Institutional Investors 5.05%
Others 13.77%
Auditors M/s. S. Viswanathan
Bankers Canara Bank and Bank of Baroda
Board of Directors Mr. T.T. Jagannathan Executive Chairman
Mr. T.T. Raghunathan Vice Chairman
Mr. S. Ravi Chandran Managing Director
Mr. K. Shankaran Director & Whole-time Sectretary
Dr. (Mrs.) Latha Jagannathan Non Executive Director
Mr. Ajay I. Thakore Independent Director
Mr. R. Srinivasan Independent Director
Dr. (Mrs.) Vandana Walvekar Independent Director
Mr. D.K. Krishnaswamy Independent Director
Mr. Arun K. Thiagarajan Independent Director
Subsidiaries Prestige Housewares (India) Limited
Associates TTK Healthcare
The company markets and sells its products through direct dealers, authorised re-sellers (in small towns), modern
retail stores and institutional clients such as CSDs. It has a wide distribution network comprising of over 25,000
direct dealers further supported by 270+ Prestige Smart Kitchen network outlets spread across 20 states. The
company also has launched large format stores Prestige Kitchen Boutique and Prestige Life Style to market
its modular kitchen range and high-value products respectively. 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 feld
manufacturing facility primarily for non-stick cookware in Gujarat.
The company is run by third-generation entrepreneur, Mr. T.T. Jagannathan who is presently the chairman of
the company and is supported by Mr. T.T. Raghunathan (Vice Chairman) and Mr. Ravi Chandran as the Managing
Director. TTK group also has presence in businesses like consumer durables, pharmaceuticals, health care, and
biomedical devices. The company is listed on both BSE and NSE with promoters currently holding 75% equity.
GOVERNANCE AND MANAGEMENT STRUCTURE
TTKP has a 10 member Board consisting of fve independent directors, of which three directors are on the audit
committee of the company. The promoters own 75% stake in the company and are closely involved in the running
the business supported by a professional management team. There have been no material qualifcations by
auditors in recent periods. The disclosure levels in TTKPs annual report are adequate and are broadly in line
with those followed by the industry.
Annexure I: Company Factsheet
ICRA Equity Research Service TTK Prestige Limited
17
Rs. Crore FY09A FY10A FY11A FY12e FY13e FY14e
Net sales 398.3 505.2 763.6 1,006.2 1,248.3 1,508.0
Other related income 3.0 3.4 - 6.7 8.3 10.0
Total net revenue 401.3 508.6 763.6 1,012.9 1,256.6 1,518.0
EBITDA 39.3 78.1 121.7 161.1 202.2 245.8
Depreciation 3.5 3.6 4.3 6.4 7.3 8.1
EBIT 35.8 74.5 117.4 154.7 194.9 237.7
Interest expenses 7.3 3.5 0.8 8.0 8.8 5.4
Other income 0.5 0.4 4.3 3.7 3.9 7.0
PBT 29.0 71.4 120.9 150.4 189.9 239.3
PAT 22.4 52.4 83.8 106.7 133.2 167.3
Minority interest - - - -
PAT (concern share) 22.4 52.4 83.8 106.7 133.2 167.3
No of shares (in Crore) 1.13 1.13 1.13 1.13 1.13 1.13
DPS 5.8 11.7 14.6 17.5 17.5 23.3
EPS 19.8 46.3 74.0 94.2 117.7 147.8
CEPS 22.8 49.5 77.7 99.9 124.1 155.0
Annexure II: P&L Estimates
Annexure III: Balance Sheet Estimates
Assets (Rs. Crore) FY09A FY10A FY11A FY12e FY13e FY14e
Net fxed assets 33.7 38.3 91.4 232.8 266.2 274.1
Capital Work in Progress 23.7 23.5 - 20.0 21.0 23.0
Total net fxed assets 57.4 61.9 91.4 252.8 287.2 297.1
Total Long-Term Investments 0.4 0.4 22.6 22.6 22.6 25.0
Cash and Bank Balances 10.9 44.0 53.5 31.8 60.6 143.2
Receivables 48.9 60.3 74.7 119.1 147.7 178.4
Inventories 50.3 61.3 105.0 145.1 178.3 216.9
Loans & Advances 6.1 4.4 20.8 27.6 34.3 41.4
Other Current Assets 15.2 38.2 57.4 76.1 94.4 114.1
Total Assets 189.2 270.3 425.5 675.2 825.1 1,016.1
Liabilities (Rs. Crore) FY09A FY10A FY11p FY12e FY13e FY14e
Net worth 82.5 122.0 191.5 278.4 391.8 532.7
Minority interest - - - - - -
Total Debt 20.7 2.8 2.2 92.2 62.2 32.2
Deferred Tax Liability 3.1 3.1 3.3 3.3 3.3 3.3
Trade Creditors 31.1 49.3 76.9 102.4 125.8 153.1
Other Current Liabilities and Prov. 31.6 43.3 80.1 106.3 131.8 159.3
Total liabilities 189.2 270.3 425.5 675.2 825.1 1,016.1
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ICRA Equity Research Service TTK Prestige Limited
Annexure IV: Cash Flow Estimates
Annexure V: Key Financial Ratios
Cash fows (Rs. Crore) FY09A FY10A FY11A FY12e FY13e FY14e
PBT 29.0 75.4 120.4 150.4 189.9 239.3
Taxes paid 6.6 23.0 36.6 43.7 56.7 72.0
Depreciation 3.5 3.6 4.3 6.4 7.3 8.1
Change in net working capital 11.7 9.3 (11.0) (40.5) (20.2) (22.6)
Cash fow from operating activities 37.6 65.3 77.0 72.6 120.3 152.8
Investments 0.0 0.0 (22.2) 0.0 0.0 (2.4)
Capital expenditures (6.4) (8.0) (33.8) (167.8) (41.7) (18.0)
Cash fow from investing activities (6.4) (8.0) (56.0) (167.8) (41.7) (20.5)
Equity Raised / (Buyback) 0.0 0.0 0.0 0.0 0.0 0.0
Loans Raised / (Repaid) (3.2) (17.9) (0.6) 90.0 (30.0) (30.0)
Others (Including Extra-ordinaries) 0.0 4.0 (0.6) 0.0 0.0 0.0
Dividend (4.6) (6.6) (13.2) (16.5) (19.8) (19.8)
Cash Flow from Financing activities (7.8) (20.5) (14.3) 73.5 (49.8) (49.8)
Cumulative cash fow 23.3 36.7 6.6 (21.7) 28.8 82.6
Opening Cash Balance 10.6 10.9 44.0 53.5 31.8 60.6
Closing Cash Balance 10.9 44.0 53.5 31.8 60.6 143.2
Key Financial Ratios FY09A FY10A FY11A FY12e FY13e FY14e
Growth indicators
Sales Growth 23.4% 26.9% 51.1% 31.8% 24.1% 20.8%
EBITDA Growth 19.6% 98.8% 55.9% 32.4% 25.5% 21.6%
EPS Growth 41.7% 134.3% 59.7% 27.4% 24.8% 25.6%
Cash EPS Growth 12.7% 116.7% 57.1% 28.5% 24.3% 24.8%
Proftability indicators
EBITDA Margin 9.8% 15.3% 15.9% 15.9% 16.1% 16.2%
EBIT Margin 8.9% 14.6% 15.4% 15.3% 15.5% 15.7%
PAT Margin 5.6% 10.3% 11.0% 10.5% 10.6% 11.0%
RoE 30.0% 51.3% 53.4% 45.4% 39.8% 36.2%
ROCE 41.7% 84.3% 80.4% 57.5% 50.3% 49.9%
Liquidity ratios
Debtor (days) 43 43 35 43 43 43
Inventory (days) 70 71 82 85 85 85
Net working Capital/Sales 11.0% 6.9% 6.0% 8.5% 8.5% 8.5%
Capitalization Ratios
Total Debt/ Equity 0.3 0.0 0.0 0.3 0.2 0.1
Interest coverage 5.4 22.5 160.1 20.2 22.9 45.5
Total Debt/EBITDA 0.5 0.0 0.0 0.6 0.3 0.1
Valuation Ratios
Price/Sales 6.65 5.25 3.49 2.63 2.12 1.76
Price/Earnings 119.22 50.88 31.86 25.01 20.03 15.95
Price/Book Value 32.34 21.87 13.93 9.59 6.81 5.01
EV/EBITDA 68.20 33.66 21.51 16.94 13.20 10.40
ICRA Equity Research Service TTK Prestige Limited
19
MUMBAI
Mr. L. Shivakumar
Mobile: 9821086490
3rd Floor, Electric Mansion,
Appasaheb Marathe Marg, Prabhadevi,
Mumbai - 400 025
Ph : +91-22-30470000,
24331046/53/62/74/86/87
Fax : +91-22-2433 1390
E-mail: shivakumar@icraindia.com
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Mobile: 9871221122
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Fax; +91-124-4545350
E-mail: vivek@icraindia.com
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KOLKATA
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Mobile: 9831086462
A-10 & 11, 3rd Floor, FMC Fortuna,
234/ 3A, A.J.C. Bose Road,
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CHENNAI
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Mobile: 9940648006
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498 Anna Salai, Nandanam,
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PUNE
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BANGALORE
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Tel: +91-40-23735061, 23737251
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E-mail: adityamsk@icraindia.com
20
ICRA Equity Research Service TTK Prestige Limited
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