Shares of TTK Prestige, a consumer durable firm, have underperformed this year by falling 19 percent, dropping from ₹986.7 apiece to the current market price of ₹798.85.
However, despite such weak performance in the year so far, domestic brokerage firm ICICI Securities in its latest equity research report maintained its optimistic view on the stock and retained its "buy" rating with a DCF-based target price of ₹1,078 per share, which reflects an upside of 34.94 percent from the stock's previous closing price.
In the last decade, there have been four major M&A transactions in the kitchen appliance industry: Philips (Preeti), Whirlpool (Elica), Crompton (Butterfly), and V Guard (Sunflame). Thus, the brokerage believes that with larger players acquiring smaller players, competitive intensity in kitchen appliances will likely intensify.
"With larger players acquiring smaller players, we model the investments in distribution, innovation, ad spend, and marketing to move upwards sharply. We believe the organised market is likely to expand at a faster pace than the growth rate in the past decade."
"The unorganised sector accounts for 25–35% of the overall market and is likely to be impacted the most," said ICICI securities.
The brokerage expects most players' distribution to grow over the next five years, with brands and innovation serving as differentiators. In the new product category, TTK prestige has the upper hand as the company is launching 15-20 new variants or products every quarter across segments; this will be a net beneficiary for the company, the brokerage highlighted.
ICICI sees no impact on the company's margins or market share due to an increase in competitive pressures because the company has been steadily investing in distribution expansion, innovation, and the company's 50+ year strong brand "Prestige."
According to ICICI Securities, TTK Prestige would report a PAT CAGR of 9 percent over FY22-FY24E and RoE of 17.1 percent over FY22-24. The brokerage remains positive about the company’s business model due to its market leadership in key business segments and competitive advantages.
Historically, the stock has traded at an average P/E of 41x. Considering the strong earnings growth now and improving return ratios, the brokerage expects the company to trade at a premium to historical multiples.
On the other hand, ICICI listed some of the potential risks that it claims may lead to a downside in its estimates for the stock. The risks include a major increase in input prices and an increase in competitive pressures. Adding to that, any delays in the launch of new products or plants may result in lower earnings than estimated, it added.
For the September-ending quarter, the company posted a 19 percent drop in its consolidated net profit to ₹83.8 crore, compared to a net profit of ₹103.5 crore in the year-ago quarter. Sequentially, the net profit was up by 57.22 percent.
The revenue from operations during the quarter came in flat at ₹850.9 crore as against a ₹866.5 crore in the year-ago quarter.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.