Brokerage Geojit Financial Services Ltd has upgraded TTK Prestige Ltd's rating to 'buy', with an expectation of a 23% potential upside over the next 12 months from the current market price of ₹695 per share.
However, the brokerage has reduced the target price by over 16% to ₹857 from ₹1,025 due to lower volumes and margins.
Demand suffered as a result of inflation and a change in festival season, which led to a 9% year-on-year (YoY) drop in revenues for Q3FY23. Global market inflationary pressure caused a 37% year-over-year decline in export business to ₹15.5 crore.
"We believe the easing of inflationary pressure will support demand going forward, and we expect revenue compound annual growth rate (CAGR) of nearly 10% over FY23E-FY24E (estimates)," said the brokerage.
Additionally, due to the inflation of component prices, the earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin decreased by 550 basis points year over year to 11.4%.
According to the brokerage, the company increased the prices of cookers and cookware by nearly 5 to 6%, and in appliances segments it hiked prices by 8%-10% for FY22. The company took this price hike to compensate for sharp surge in input costs. So, far there are no price hikes taken in FY23.
"Input prices have fallen sharply in recent quarters, which is expected to benefit from 4QFY23 onwards," added the brokerage.
According to the brokerage report, the company launched 27 new stock keeping units (SKUs) in the third quarter and has planned to launch about 47 new SKUs in the fourth quarter of fiscal year 23. By FY27, the firm hopes to generate ₹50 billion in revenue.
Along with a major increase of its distribution network in regions with rapid economic growth, the company has nearly doubled its capacity in the cooker market. In the following three years, the company plans to add close to 100 stores annually. The brokerage thinks that by doing this, market share gains will be supported by all of these efforts.
Valuation & Outlook
"Barring short-term pressure on demand and margins due to high inflation, the long term outlook is positive given rising middle-income households, improvement in the real estate sector, and easing input prices, along with TTK’s strong brand recall. The stock currently trades at nearly 28 times 1Year Forward price-to-earnings (P/E). We value TTK at 33 times FY25E earnings per share (EPS) to arrive at a revised target of ₹857, upgrade to ‘buy’ rating due to the correction in valuation," said the brokerage.