Positive consumer sentiment and deeper rural penetration led TTK to report sound figures. Product launches and strong traction from rural markets augur well.
Positive consumer sentiment and deeper rural penetration led TTK to report sound figures. Product launches and strong traction from rural markets augur well. However, as much of the potential has already been factored into the current market price, we maintain ‘hold’, with a revised TP of Rs 6,646. Q2 FY19 standalone revenue was up 7.3% y/y, the highest-ever Q2 revenue till now, driven by growth across all markets. Although floods in Kerala and parts of Karnataka impacted sales, greater operational efficiency, price hikes and less-than-expected commodity inflation led to a 14.7% EBITDA margin (a 187bp increase y/y).
Exports grew well, almost doubling to Rs 153 million (Rs 78.3 million). Growth came in most of TTK’s product categories. Cookers/ appliances grew 11.4/7.6% y/y. Cookware, however, declined 2%y/y. The new category, Cleaning Solutions, continued its encouraging performance. Online and rural channels contributed significantly to totals.
TTK’s growth trajectory is expected to continue. Management maintains a positive outlook for the year, expecting a double-digit growth rate. Besides, it plans to double the turnover in the next 4-5 years. The rural/ agricultural sector and the good monsoon are likely to benefit the company in the near future.
TTK has planned capex of Rs 2.5bn for the next three years, of which 1bn is expected to be spent in FY19. We expect the rural demand growth momentum to continue. On expectation of 15% revenue CAGR over FY18-20, we expect a 14% earnings CAGR to Rs 2.19bn. We maintain our Hold recommendation. Assigning a PE of 35x to FY20e, we arrive at a target of Rs 6,646.