August 5, 2008

TTK PRESTIGE LTD.

CD Equisearch Pvt. Ltd.

TTK PRESTIGE LTD. Company Brief

TTK Prestige Ltd. is the largest provider of kitchen appliances in the
No. of Shares (Crore) 1.13
country. It has a varied product portfolio ranging from pressure
Mkt. Cap (Rs. Crore) 130.07 cookers, non-stick cookware, and gas stoves to electrical appliances
Price (05/08/2008) 114.80 and kitchen tools.
Book Value (Rs.) 58.81
P/BV 1.95
Highlights
BSE Code 517506 TTK’s has been able to de-risk itself from being a single product
NSE Code TTKPRESTIG Company to “a total kitchen solutions provider.” by extending its
brands that includes over 400 products in 16 categories.
Bloomberg TTKPT IN
Reuters TTKL.BO It has diversified into retail by setting up “Prestige Smart
Kitchens”. TTK has about 173 Smart Kitchen outlets across 16
Volume (monthly) (BSE) 28363
states and 116 towns in India as on FY08 and plans to open more
52 W H/L (Rs.) 233.70 / 93.00 such outlets in next two years. TTK is expected to benefit from
these initiatives, as margins in direct retailing are higher than
Shareholding Pattern % those in traditional dealer sales.
Promoters 72.37 The company sells modular kitchens, through its exclusive
MFs / Banks / Fis 2.17 outlets "Prestige Smart Kitchens". With growing emphasis on
Foreign 3.04 “one stop shop” the modular kitchen market is huge and it is set
to grow a rapid pace.
Non-Promoter Corp. 3.18
Total Public TTK Prestige launched its second retail format 'Prestige Kitchen
19.25
Boutique' in February 2008, which is an exclusive retail initiative
Total 100.00
that showcases a gamut of designer modular kitchens. With the
(as on 30-June-2008) increase in economic & realty boom, this will lay a platform for
the company to go to the next level of growth.
Recommendation TTK Prestige is also gearing up to unlock value in its real estate
Buy holdings in Bangalore and has forayed into realty development. It
is building a retail mall on it to add another revenue stream.
At the current market price of Rs 115, the stock trades at a P/E
Analyst multiple of 5.4 x FY09E earnings. It is also attractively valued at
ROHIT AGARWAL FY09E EV/EBITDA of 4.0. We recommend a “BUY” on the
Phone: +91-33-22805601/02 stock with a price target of Rs 170, assuming a P/E multiple of
E-Mail: rohit.agarwal@cdequisearch.com 8 x FY09E earnings, an upside of 48% from the current
levels.
In Rs crores
FY05 FY06 FY07 FY08 FY09E
Net Sales 180.71 221.90 281.40 325.94 387.26
Other Income 3.19 0.75 0.66 4.43 0.94
Operating Profit 9.81 19.76 26.19 31.17 41.15
Net Profit 3.31 7.19 11.84 17.85 24.01
EPS 2.92 6.35 10.45 15.75 21.19
EPS Growth (%) 1424.00 117.22 64.67 50.77 34.41
P/E (x) 14.92 25.46 12.42 7.36 5.42
Book Value (Rs) 35.51 38.95 45.82 58.81 80.00
 Investment Arguments
Pioneer in kitchenware segment -
TTK Prestige is India's largest manufacturer and marketer of the most comprehensive range of
kitchenware within the consumer durable space. In the pressure cooker market alone, TTK Prestige
has 37% of the volume share and close to 40% of the value share. It expanded its presence into
nonstick cookware and currently enjoys a leadership position with almost 50% of this market.
Clearly, the changing face of urban India is reflected in the sales of TTK. The company claims to
have a huge customer base, with nearly 2.5 million consumers being added to this base every
year and targets to take this figure upwards to 3 million in the coming 12 months. The
changing lifestyle, double income family structures, rising income levels and preference for
the safe and branded products augurs well for the company.
Aggressive retail expansion –
Over the past three years, the company has tried to diversify into retail by setting up ‘Prestige
Smart Kitchens’ through franchisees and its own establishments in various states. It has about
173 Smart Kitchen outlets across 16 states and 116 towns in India as on FY08 and plans to open
more such outlets in next two years. Such stores offer kitchen solutions and some of them even
have modular kitchen designs.
With retail market booming, the company’s foray into retail will drive future growth, as there
is a good recall and high regard for its "prestige" brand, which signifies quality and
safety. TTK is expected to benefit from these initiatives as margins in direct retailing are
higher than those in traditional dealer sales.

New initiatives in retail – New formats Modular Kitchen to drive revenue –

TTK is a household name today. From being a manufacturing company to
a sourcing and retail company to a kitchen solutions company by selling
modular kitchens, TTK has come a long way. Modular Kitchens are sold
through the Company's exclusive outlets "Prestige Smart Kitchens".
With growing emphasis on “one stop shop”, the modular kitchen
market is huge and it is set to grow at a rapid pace. With improved life
style and disposable income, modular kitchen has become
indispensable part of any modest kitchen. Almost 70% of apartments
that have recently been furnished in the newer buildings of big cities
have installed modular kitchens. With the spurt in demand for high-
end housing and interiors, a significant chunk of future revenues could
come from this line of business.
“Prestige Kitchen Boutiques” A New retail format –
TTK Prestige launched its second retail format 'Prestige Kitchen
Boutique' in February 2008, which is an exclusive retail initiative that
showcases a gamut of designer modular kitchens. Currently there are 2
stores in Bangalore and it plans to introduce it at all major locations in the
country beginning with the southern market. The idea of this format is to
grow the modular kitchen business.
Even before the launch, TTK had 150 orders for modular units. In the
All the three stores are different formats. current year, the company hopes to achieve a turnover of only Rs 4
Ranging from the PSK format to Lifestyle crore from these initiatives. For the next year though, it expects this
boutiques to a rural functional store. Each has format to clock a turnover of over Rs 25 crore and three-digit growth
its own role. thereafter. With the increase in economic & realty boom, the market is
ripe for such Kitchens Boutique and this will lay a platform for the
company to go to the next level of growth.

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 Untapped potential in rural India –
There is a lot of untapped potential in rural India and more focus on penetrating this market will
augur well for organized player such as TTK Prestige. According to industry sources, 90% of urban
India already owns a pressure cooker whilst barely 22% of rural India owns a pressure cooker. The
demand from urban India will be predominantly from upgrading whereas additional pressure
cookers and emergence of new households is the great opportunity in rural India.
TTK Prestige has formed a new business model to tap this market wherein the outlet will stock
other TTK products as well in addition to the kitchenware range. The business model is unique as it
involves NGOs and self-help groups. The initial investment will be by the company while the
management will be by NGOs. The company hopes to boost its revenues from the rural market with
the help of this model.

Aggressive brand extension through innovation New product launches de-risking its business model –
In the last five years, the Company's Prestige brand has
successfully extended beyond Pressure Cookers, to cover a wide
range of products like Cookware, Gas Stoves, Domestic Kitchen
Electrical Appliances, etc. Its product range has increased
significantly to include over 400 products in 16 categories, and
TTK Prestige is now “a total kitchen solutions brand.”
It has been able to de-risk itself from being a single product
Company by this brand extension exercise. This brand
extension has also enabled it to tap new geographies within the
domestic market, with its new products.

Development of surplus land in Bangalore –

TTK Prestige is gearing up to unlock value in its real estate holdings in Bangalore and has forayed
into realty development. The company owns 6.5 acres at Dooravaninagar, Old Madras Road, on
which the Bangalore unit was housed. It has entered into a joint development agreement with the
Salarpuria Group (a Kolkata-based property developer) to build a retail mall on it to add another
revenue stream. It will derive the rental income from this segment. We have not factored any
contribution from this segment in our estimates.

Uttaranchal unit commenced production –

Shifting of its plant to Roorkee in Uttaranchal augurs well for the company, since the state offers
tax benefits to attract various industries. Uttaranchal unit with a total capacity of 600,000 units has
already become operational from June 07 onwards. This would help TTK to increase its margins
going forward. Uttaranchal facility will cater to demand for Northern India market and this
facility will give the company logistical advantages and incidental cost savings.

Strong Distribution Network –

TTK has the largest distribution system and the largest service system network in India. This helps
them to tap urban, semi-urban and rural markets. It is the only company in the industry to have
exclusive brand outlets and it has presence in all retail formats.

US subsidiary Manttra Inc. progressing well -

The Company has transferred its holdings in Manttra Inc. a subsidiary in USA to another entity in
the TTK Group. TTK Prestige Ltd continues to own the brand 'MANTTRA' and will continue to
have trade relationship with Manttra Inc. to service the US market. Manttra has tie up with Wal-
Mart, K-Mart, Fred Meyer, and Target etc, the largest retail stores in US and going forward TTK is
set to explore the export possibility of modular kitchens to them. However, TTK has enough space
in India itself due to the changing taste of Indian housewife's.

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 Industry Outlook

The entire kitchenware industry is worth about Rs 3400

Breakup of Kitchenware Industry (In Rs Crore) crore. Pressure cookers account for only one sixth of the
market. TTK Prestige is the only player who straddles
the entire kitchen space. Market shares, being category
Pres sure
Modular
Cooke rs
specific, cannot be estimated. However, TTK roughly
Kitchens
1000 500 owns about 10% of the entire kitchen space, which is
Non Stick
by far the highest. Different elements in the kitchen
Cookw are appliances segment are growing between 6% - 20%,
125 which presents huge potential for players like TTK.
Domestic kitchenware segment has weathered the lull
witnessed in the past few years, and is recording
Rice
Cooke rs
impressive growth since FY 2004-05. The frontline
Gas
150 Stove s
players have, despite numerous unorganized players in
Mixer
900 the foray, been successful in increasing their market
Grinders
700 share by ensuring strong brand recall and expanding
their product range. To capitalize on the growing
demand, the players are strengthening their product
Growth in Urbanisation (% of total population) ranges, distribution network, enhancing retail network,
introduce new value added products and variants.

35 With penetration levels relatively high in urban areas,

30
30 26
28 significant growth in demand for kitchen appliances like
25 23 pressure cookers is expected to come from the rural
20 segment.
20
15 Increasing urbanization and fast-changing
10 demographics have led to a growing demand for
5 additional homes, which in turn have increased
demand for kitchen appliances. Shrinking household
0
sizes due to nuclearisation, coupled with higher
E
71

81

91

01

incomes, are expected to drive demand for household

11
19

19

19

20

20

products, including kitchenware.

Modular kitchen is another market, which has not gained much momentum as it has in the
west. In India the construction of the kitchen in a new home generally is aligned with the
construction plan of the home. Now the culture of open kitchen has brought in to focus the
concept of kitchen solution for the home. According to some estimate the modular kitchen
market has the potential demand of Rs 1000 crore.
The recent housing boom coupled with the rising disposable income would bring greater
inclination of the consumers for the kitchen products going forward. The position of the
brand, better service network and good supply chain network will prove to be the
growth drivers of the players.
Forward integration either with existing retail chain or having own retail chain may go
a long way in pushing the demand for the product as it would give a sense of feeling
among the consumers for trust and right addressing. Overall the companies like TTK
Prestige, which are moving to greater value chain of providing complete kitchen
solution rather than merely providing appliances is expected to have a robust time
going forward.

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 TTK Prestige Ltd.
TTK Prestige Limited, part of the 1100 crore TTK Group, was incorporated in October 1955, and
is India's largest manufacturer and marketer of the most comprehensive range of kitchenware. It has
a varied product portfolio ranging from pressure cookers, non-stick cookware, and gas stoves to
electrical appliances and kitchen tools. TTK pioneered pressure-cooking in the country by first
importing Prestige cookers in 1948. At present, it sells more than 2.5 million Prestige cookers in a
year in India, through strong channel partners. It also pioneered metal spoon friendly non-stick
cookware in India and it is an undisputed leader in this category.
It has two brands namely, Prestige and Manttra. In the last four years, the Company's Prestige brand
has successfully extended beyond Pressure Cookers, to cover a wide range of products like
Cookware, Gas Stoves, Domestic Kitchen Electrical Appliances, etc., and now it is in the process of
consolidating this extension. It has been able to de-risk itself from being a single product Company
by this brand extension exercise. This brand extension has also enabled it to tap new geographies
within the domestic market, with its new products.
Manttra Inc., established in 1995, offers the most comprehensive range of pressure cookers in the
world. Manttra provides the widest range of pressure cookers in the US, and is set to be the leading
pressure cooker brand there. Manttra is available at major retail chains like Wal-Mart, Target,
Kmart, Kohl’s, Rich’s / Lazarus, Burdines, Belk’s, Sears Roebuck, Macy’s and JC Penny, amongst
others.
The company presently has manufacturing set-ups in Hosur, Coimbatore and Uttarnachal. TTK
Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the only
company to have the PED / CE certification by TUV, Germany

Business Model
Revenue Model The company is primarily engaged in manufacturing kitchen
appliances. It has a wide range of product categories namely
Non-stick Kitchen Pressure Cookers, Non-stick Cookware, Gas Stoves, Domestic
Cookware Electric Kitchen Electric Appliances, Kitchen Knives and Kitchen Tools. It
Appliance
16% is among the few companies in the organized sector which has a
14%
range of kitchen appliances, including pressure cookers, gas
Gas stoves, non-stick cookware, and atta kneaders. The unorganized
Stoves segment controls over 50% of the market for kitchen appliances.
10%
Its product range has increased significantly to include over 400
products in 16 categories, and TTK Prestige is now “a total kitchen
solutions brand.”
Pressure The company made a foray into retailing in 2003 when it launched
Cookers Others exclusive showrooms called Prestige Smart Kitchens. It now has
55% 5%
173 such showrooms across the country, providing every kitchen
appliance that the Indian housewife needs to set up her kitchen. To
grow its kitchenware product line, Prestige made the decision to
sell hobs (cook tops), kitchen ventilation, and Western-style
‘modular kitchen’ accessories.

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Financials
Profit & Loss In Rs. Crores
Year ended 31st March FY05 FY06 FY07 FY08 FY09E
Net Sales 180.71 221.90 281.40 325.94 387.26
Growth (%) 29.41 22.79 26.81 15.83 18.81
Other Income 3.19 0.75 0.66 4.43 0.94
Stock Adjustment 1.55 0.22 8.65 (4.01) 2.83
Total Income 185.45 222.87 290.71 326.36 391.03
Total Expenditure 172.45 202.36 263.86 290.76 348.94
PBIDT 13.00 20.51 26.85 35.60 42.09
Interest 7.29 6.62 8.05 7.67 8.29
PBDT 5.71 13.89 18.80 27.93 33.79
Depreciation 1.87 1.89 2.20 3.84 5.55
Tax 0.03 4.89 4.83 3.42 4.24
Reported PAT 3.81 7.11 11.77 20.67 24.01
Extra-ordinary Items 0.50 (0.08) (0.07) 2.82 0.00
Net Profit 3.31 7.19 11.84 17.85 24.01
EPS (Rs.) 2.92 6.35 10.45 15.75 21.19

Balance Sheet In Rs. Crores

Year ended 31st March FY05 FY06 FY07 FY08 FY09E
SOURCES OF FUNDS 11.33 11.33 11.33 11.33 11.33
Equity Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 32.29 35.99 43.77 57.55 63.08
Total Shareholders Funds 43.62 47.32 55.10 68.88 74.41
Total Debt 64.94 57.25 73.53 46.87 51.84
Total Liabilities 108.56 104.57 128.63 115.75 126.25
APPLICATION OF FUNDS
Gross Block 55.67 56.80 64.24 67.42 95.70
Less: Accumulated Depreciation 30.74 32.48 34.67 36.09 41.64
Net Block 24.93 24.32 29.57 31.33 54.06
Capital Work in Progress 0.13 0.93 6.26 25.28 2.21
Investments 15.13 18.12 18.12 0.39 0.39
Current Assets, Loans & Advances
Inventories 55.42 57.29 73.90 60.68 65.13
Sundry Debtors 32.22 27.70 41.32 47.28 53.35
Cash and Bank 8.63 9.26 6.74 10.64 15.66
Loans and Advances 7.12 11.55 17.92 16.99 19.40
Total Current Assets 103.39 105.80 139.88 135.59 153.54
Less: Current Liabilities and Provisions
Current Liabilities 35.59 39.53 54.42 59.18 68.71
Provisions 2.78 4.77 7.83 14.58 12.19
Total Current Liabilities 38.37 44.30 62.25 73.76 80.90
Net Current Assets 65.02 61.50 77.63 61.83 72.64
Miscellaneous Expenses not written off 0.34 0.23 0.11 0.00 0.00
Net Deferred Tax 3.01 (0.53) (3.06) (3.08) (3.05)
Total Assets 108.56 104.57 128.63 115.75 126.25

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 Key Financial Ratios
Year ended 31st March FY05 FY06 FY07 FY08 FY09E
Growth Ratios
Revenue 29.41 22.79 26.81 15.71 18.94
EBITDA 4.92 57.77 30.91 39.78 19.63
Net Profit 1424.00 117.22 64.67 50.84 34.41
EPS 1424.00 117.22 64.67 50.84 34.41
Margins
Operating Profit Margin (%) 5.43 8.90 9.31 9.83 10.63
Net Profit Margin (%) 1.83 3.24 4.21 5.49 6.20
Return
ROCE (%) 10.25 17.81 19.16 29.11 30.52
RONW (%) 7.59 15.19 21.49 25.93 32.26
Valuations
Market Cap / Sales 0.28 0.74 0.47 0.38 0.32
EV/EBIDTA 8.38 10.68 7.67 4.43 3.95
P/E 14.92 25.46 12.42 7.36 5.42
P / BV 1.31 3.87 2.68 1.97 1.44
Other Ratios
Debt-Equity Ratio 1.49 1.21 1.33 0.68 0.70
Current Ratio 2.69 2.39 2.25 1.84 1.90
Interest Coverage Ratio 1.53 2.81 3.06 3.65 4.41
Turnover Ratios
Fixed asset turnover 7.25 9.12 9.52 10.39 7.16
Total asset turnover 1.66 2.12 2.19 2.81 3.07
Debtors turnover 5.61 8.01 6.81 6.89 7.26
Inventory turnover 3.26 3.87 3.81 5.37 5.95

Risk & Concerns

The Company faces competition from regional brands and the unorganized sector, from time to
time, with their extremely low-priced products. However TTK has been adopting different
strategies to stay above such competition and has also been growing at a pace faster than the
industry average.
A sharp rise in key raw material prices could impact the profitability of the company. The
major raw materials are aluminium and stainless steel. The increase in costs of inputs can put
pressure on margins if there be resistance in the market for end product price increases.
However, TTK has been able to pass on the hike in inputs to the end customers and we believe
a diversified product range will help it mitigate some of the risks.
The general inflationary trend and the consequent increase in interest rates is a cause for
concern for the industry in general.
5

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Recommendation
TTK Prestige is the market leader in pressure cookers within the consumer durable space. TTK
Prestige has been growing in size over the past couple of years on the back of increasing demand
for branded products. After positioning itself as a total kitchen solution company by setting up retail
stores, TTK has significantly increased its addressable market.
The company is well placed to capitalise on the consumption boom led by changing lifestyle,
double income family structures, rising income levels and the demographic shift towards nuclear
families in India.
At the current market price of Rs 115, the stock trades at a price-earnings (P/E) multiple of 5.4 x
FY09E earnings. It is also attractively valued at FY09E EV/EBITDA of 4.0
Given the company’s aggressive retail foray and product diversification, we believe the current
valuations are extremely attractive. Hence, we recommend a “BUY” on the stock with a price
target of Rs 170, assuming a P/E multiple of 8 x FY09E earnings, an upside of 48% from the
current levels. We haven’t factored in any contribution from value unlocking in its real estate
assets, which can provide further upside to the stock.

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