TTK Prestige has disappointed the market once again as discount sales hurt margins along with competition from cheap Chinese imports

Espirito Santo Securities (ESS) has downgraded TTK Prestige, a leading manufacturers of cooking and kitchen ware, to SELL. Not surprisingly, negative consumer sentiment had turned damp which has affected sales of its products. Higher interest rates have also forced consumers from smaller cities to postpone purchases. According to the brokerage, the company had been trying to get rid off inventory through discounts. This certainly boosted sales revenue, but it has come at the expense of TTK Prestige’s margins. ESS thinks TTK is a fundamentally strong company, with good balance sheet numbers, which got caught in a cycle. The report said, “We believe TTK is a strong business caught in a cyclical down cycle,” and further added, “We believe the company is trading at a rich valuation that does not reflect the near-term pain highlighted by our channel checks and even management commentary.” The value of the company pegged by ESS is Rs3,000.
 

Moneylife had written about ESS’s take on TTK Prestige last year in October when its performance was under pressure. The article can be found here. It would seem that the proverbial lid has got blown off by the pressure, as far as ESS’s views are concerned.
 

According to ESS, TTK Prestige undertook drastic sales promotional discounts given that consumers are withholding purchases. This affected its EBITDA (earnings before interest, taxation, depreciation and amortization) margins. Apart from discount measures, another factor affecting TTK Prestige has been the presence of cheap imports, especially from China. Imports have slowly eaten into the market share and the market place is getting crowded, forcing TTK Prestige to spend more on brand visibility and advertisements. In fact, according to ESS, the induction cooktop which is a successful product is already facing heat from intense competition.
 

Both EBITDA and Profit After Tax (PAT) margins were higher than the corresponding third quarter last year. EBITDA was around Rs62.1 crore which is 17.7% higher than last year. Likewise, PAT was Rs44.2 crore, 27.7% higher than the same period last year. However, these numbers disappointed ESS’s estimates which were a few percentage points higher. Capital expenditure by way of new plants and equipments is expected to be higher and eat up into future margins.

Going forward, much of the fourth quarter results, and onwards, would depend on the prevailing consumer sentiment, interest rates and general economic activity. Unless economic activity picks up, it will remain under pressure to sell to more housewives.