Emkay Research is bullish on TTK Prestige and has maintained buy rating on the stock with a target price of Rs 201.

Emkay Research report on TTK Prestige:

Q4FY07 EBITDA margins increase by 360 bps

Net sales for the 4th quarter of FY07 increased by 6.2% to Rs 510.5 million driven by increased domestic demand. Growth in exports was flat on account of strike in the Company’s Hosur plant. EBIDTA for the quarter increased by 77% to Rs 45.3 million while EBITDA margins increased YoY by 360 bps to 8.9% driven by increased domestic demand & improved realisations. Staff cost declined by 32.8% to Rs 34.4 million (down 390 bps to 6.7%) on account of strike in the company’s Hosur plant while the company made alternate arrangements for meeting up the demand for its products. Raw material cost as a percentage of sales declined by 320 bps to 49%. Interest cost for the quarter increased by 61.3% to Rs 20 million due to increased debt on capacity expansion. Depreciation cost was up by 23.3%YoY to Rs 5.3 million. This resulted in 72.1% increase in Profit after tax to Rs 24.1 million.

FY07 records healthy growth

FY07 results were in line with our expectations. Net sales for FY07 increased by 26.6% to Rs 2810.2 million while EBITDA margins increased marginally by 10 bps to 8.9% on account of increased domestic demand. Interest cost for the period increased by 25.1% to Rs 68.8 million on account of increased debt in the fiscal. Depreciation increased by 16.4% to Rs 22 million on increased capex during the period. PAT for the full year period increased by 65.5% to Rs 117.7 million.

New capacity expansion to cater to the growing Northern India market

In April’06 TTK commenced commercial production of pressure cooker in the new facility created at Myleripapayam village near Coimbatore. The capacity has been developed by adding new machinery as well as transferring machinery from Bangalore facility. The company has also planned a new facility near Roorkee in the state of Uttaranchal with an investment of Rs 100 million. This unit will manufacture all types of pressure cookers, cookware and facility for assembling other domestic kitchen appliances. Uttaranchal facility will cater to demand for Northen India market and this facility will give the company logistical advantages and incidental cost savings. This unit (with a total capacity of 6 lakh units) commenced commercial production from June’07 and looking at the demand in the northern market Uttranchal Unit is expected to generate sales of approx 2 lakh units from Uttranchal Plant is expected. Further, TTK will get exemption and income tax concession for a period of 10 years.

Unlocking of Land Value could provide additional gains to TTKPL

The company has phased out Bangalore unit and has transferred the plant & machinery in its new facility in Coimbatore. TTKPL plans to unlock this land holding in Bangalore. This land holding is at old madras road in Bangalore with a total area of 2.85 lakh sq.ft. The company plans to develop it and then rent out the whole property. The development of the plot is expected to begin in FY08 and revenue from the same is expected in FY09. This would be EPS accretive.

Financials & Valuation

TTK Prestige Limited, the flagship company of the Chennai based TTK group is a domestic market leader in pressure cooker within the consumer durable space. The company in last 2-3 years has restructured its product mix by adding new products like microwaves, electric chimneys, mixer grinders, kettles and blenders etc along with its main product pressure cooker. TTKP is now making aggressive efforts to become a total kitchen solution provider by outsourcing products requirement from other players. At CMP of Rs 124, TTK prestige trades at 8.2x and 6.2x FY08E & FY09E earnings respectively on its core domestic appliances business. We have not taken into consideration rental valuation of the Bangalore land and we believe that the rental realization is likely to be EPS accretive. We recommend a BUY and maintain our target price at Rs 201