TTK Prestige

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   Here is my quick analysis of the TTK Prstige's Annual Report for Fy10!

Business:

1)  From the Directors report there seems to have been a slew of new product launches but the key aspect to check out would be the kind of difference these products make to the topline. Sometimes there are minor improvements in existing products that make their way into their Annual Report but do not impact the topline as much as it appears at first glance.

2)    The company indicates that the share of organized brands is slightly more then 50% but that has been the case for a few years now. I wonder why the share of Hawkins and TTK as part of the industry exposure is constant if they are collectively growing at more then the industry. Or is it that the industry size is totally unknown and is an offshoot of mere conjecture. I am more in favor of the latter then the former. Whenever there is a big unorganized element present the total market size become that much more difficult to construct.

3)    The company writes that the threat to the domestic market continues from the unorganized markets and the regional brands because of their low unviable pricing strategy. But unviable pricing strategies are short term events in the long run companies that follow them will go bankrupt so that is not something to worry about but I would have liked the company to comment on what they feel would be the impact of GST. They should have provided their version of competitiveness of the organized players in the post single GST environment.

4) Sales Mix 
                               Fy09    Fy10
Pressure Cooker      54%    47%
Cookware                15%    17%
Gas Stoves               09%    12%
Kitchen appliances   17%    20%
Others                      05%    04%

a) Clearly the big volume driver isn’t Pressure Cooker which grew by only 12% in Value terms. In case of volumes it grew at 15.58% implying that discounts were higher and pricing was lower and negatively impacted. 

b)   For Cookware the volumes grew at 27% and value by 37%

c)    For Gas Stoves the volumes grew at 13% and value at 46%

d)    For Kitchen appliances the volumes grew at 88% and value at 53%

These data suggest that the company does enjoy pricing power except in case of  Cookware and Gas Stoves and that too one has to see whether the products were the same as sold as last year or improved innovated appliances being sold at higher rates have increased per unit selling price.

Financial Analysis

1)     There has been an all-round margin expansion led by lower raw materials (2%), and higher volumes have resulted in lower operating costs (3.6%).

2)    The company writes that free cash flow has been generated because of better inventory and debtor management which is INCORRECT. The debtors and inventory have grown at 23% and 22% respectively whereas sales and Cost of Goods sold have increased by 24% and 16% respectively. 

3)   I will state below the reason for the free cash flow which for some reason the company has omitted to indicate and explain.

4)   The discussion of  Prestige Kitchen Boutique and Smart Kitchens network should have been indicated by value because in the absence of that one cannot make out whether the numbers are significant or not. On the face of it increasing Kitchen Boutique to 9 from 2 stores is immaterial in the overall context of things.

Capex: Last year the company had underutilized capacity in Cookers (55%) and Cookware (30%). Yet while production increased 18% and 26% additional capacity was set up for Cookers (20%) and Cookware 11%. Why would you set up new capacity when the existing is not used or if there is a change in product mix and the collective caption is cookers then they should mention it. Maybe this explains why their RoCE at 61% is lower to their peer group company (Hawkins).

The increase in capital employed at 35% is lower then the increase in sales at 26%. 

Not a good sign unless they are investing for the future but when you have unutilized capacities why invest for the future? I guess they invested in Uuttaranchal for tax breaks but if the RoCE for investors were better in their exiting capacity without tax breaks I would have opted for the latter.

Cash Flow:  The big increase in operating cash flow has come in the back of increase in Sundry creditors. It appears that the company has outsourced more of its work to third party manufacturers and hence the big increase in Creditors. But if you strip out the Sundry Creditors (Rs 29.56 crores) the increase in Operating cash flow at 18.83 crores to Rs 61.65 crores from Rs 42.83 crores in Fy09 evaporates and the company has done worse off in terms of operating cash flow.

Getting cash from Sundry creditors by outsourcing is a one time event you can do it for a couple of years and then that will have to stop so I have not been too enthused by their cash flow statement. 

The total fixed assets is around Rs 40 crores and surprisingly the value of Buildings (Rs 14.23 crores) is as much as the Value of Plant and Machinery (Rs 14.22 crores). Value of Buildings increased by around 40% for the current year whereas Plant increased at 18%. Not sure why?

The Cash, Investments and loans in hand are Rs 43 crores enough to create another TTK (Total Capital Employed is Rs 116 crores as on date) with debt from Bank. Why then is it that the company chooses to hold cash and not distribute it amongst the shareholders?

The Company has paid off its loans and become almost debt free. (good sign) 

Properties and Investment: Why a company that generates free cash flow and is sitting pretty on its business competitiveness wants to go in for rental income? They should get the money out and distribute it amongst the shareholders rather then go in for JVs and agreements. Investments in Property is always a grey area and instead of trying to seek security for their main business by focusing on rental income they should raise the cash and a) Either expand operations in the non cooker segment or b) Just return the money back to the shareholders.  

Conclusion: The Company’s cash management is not as robust as it seems maybe the promoters are not focused on cash and Return ratios as they are on growth and somehow I get a feel that this company should be more transparent and focused in its operations then it actually is. 

I still feel that slightly lower growth with focus on productivity and cash flows is a better way to play the sector and Hawkins (their Annual Report is still awaited) appears a better relative bet.

If there is any discrepancy in the above analysis please put it up.

Edited by basant - 18/Apr/2011 at 11:16am