March 13, 2023
analysis123 analysis123
TTK PRESTIGE, Erasing the tag of a slow growth company; earnings CAGR higher than most peers over FY17-22
Call & Research Report by ICICI Securities
Sector: Domestic Appliances
CMP Rs. 756, Target Rs. 1000 (32% upside potential)
Target Period: 12 Months
The investors (we spoke to on TTK Prestige) believe that TTK is a slow growth company. TTK reported EBITDA CAGR of just 4.3% over FY12-17, materially lower than its peers. However, we note there is stark improvement in EBITDA CAGR over FY17-22. TTK’s EBITDA CAGR was 14.3% over FY17-22, higher than its historical performance as well as its most peers. Chief reasons driving the improvement in EBITDA growth are (1) steady expansion of distribution, (2) expansion in Non-south India markets and (3) investments in new product launches. Considering the growth rates are largely similar to peers but TTK has superior return ratios, we believe its valuation multiples deserve rerating.
We model TTK to report revenue and earnings CAGRs of 13.3% and 24.4% over FY23-FY25E with (1) mid single digit volume growth, (2) distribution expansion and (3) market share gains. Maintain BUY with DCF based TP of Rs1,000 (implied P/E 35x FY25E EPS).
● EBITDA CAGR weaker than peers over FY12-17…: TTK’s EBITDA CAGR of 4.3% over FY12-17 was lower than Havells (12.4%), Bajaj Ele (0.5%), V Guard (17.4%), Hawkins (10%) and Voltas (28%). We believe chief reasons were higher investments in employees and brand building.
● … However, EBITDA CAGR higher than most peers over FY17-22: TTK’s EBITDA CAGR of 14.3% over FY17 22 was higher than most peers Havells (16.6%), Crompton (9.7%), Bajaj Ele (0.6%), Polycab (21.4%), V Guard (10.1%), Hawkins (10.2%) and Voltas (3.8%). TTK was able to report strong growth due to steady expansion of distribution network and launches of multiple new products/ variants.
● Model earnings growth similar to peers: We model TTK to report EBITDA CAGR of 23%, over FY23E-25E, largely similar to Havells (31.2%), Bajaj Ele (19.2%), Crompton (23.8%), and V Guard (26.6%). Chief reasons are (1) distribution expansion, (2) new launches and (3) likely market share gains in North India. We also model it to gain market shares in E-commerce.
● Maintain BUY: We model TTK Prestige to report PAT CAGR of 24.4% over FY23E- FY25E and RoE higher than cost of capital over FY23-25E. 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 DCF- based target price of Rs1,000 (implied P/E 35x FY25E). Key risks are steep competitive pressures and increase in raw material prices.
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