TTK Prestige - Disappointing Q3FY14, But Expect A Better Q4.

TTK Prestige announced its December quarter results and on the first looks, it seems that the numbers are disappointing. The topline and bottomline has declined on a YoY as well as on a sequential basis. The topline for the quarter stood at Rs 369.44 crore and bottomline stood at Rs 29.49 crore as against Rs 437.13 crore and Rs 44.10 crore earned during the corresponding period respectively. Though the numbers do not look good, there are a few factors that one needs to consider while analyzing the results.

We asked our readers to keep a close watch on the TTK Prestige stock, as the December quarter results were expected to be good. A demand revival in the south Indian markets (Andhra Pradesh and Tamil Nadu) along with an expected increase in exports were the prime factors behind our conviction in the future prospects of the stock. However, the numbers have actually diverged a bit from our expectations.

The demand from the core markets like AP and Tamil Nadu is yet to recover. Though we had expected this demand to improve after the natural calamities that had hit the coastal states, it is yet to happen. Also, the management has stated that the local disturbances still continue to impact sales growth and a good monsoon has not resulted into a good demand from the rural markets yet.

If you look at the various segments it operates in, it was a poor performance of the induction cook tops and bundled products that resulted in poor overall results. To put numbers in perspective, for Q3FY14 the Cookers segment generated revenues of Rs 133 crore (Rs 158 Crore in Q3FY14). Cookware sales stood at Rs 71 crore (Rs 75 crore), Appliance Rs 162 crore (Rs 199 crore) and others contributed revenues of Rs 12 crore as against Rs 13 crore during the same period last year.  So it was an overall poor show by all the segments.

We had expected exports to witness some traction in the December quarter. However, exports of new products has been delayed and as a result the overall exports for the quarter declined to Rs 11.48 crore from Rs 16.54 crore in Q3FY13. Even margins remained under pressure for the quarter on account of a drop in topline resulting in under-absorption of incremental overheads and even the higher fixed costs. EBITDA margins stood at 12.87% as against 14.39% last year. With such a poor performance, it was no wonder that the stock took an immediate beating on the bourses. But the fall was temporary as the management provided an answer to each and every question.

However, we need to look at the results with a different perspective altogether. First of all, the Q3FY14 results are not comparable with Q3FY13. The reason being, last year, there was an unprecedented rise in demand of induction cook tops as the Government had capped the number of subsidized cylinders to six. However, now it has been increased to 9 and there is a possibility of it increasing it to 12.

According to the management the consumer sentiment continues to be depressed. Though efforts are being made to get moderate growth in the last quarter, the outcome is still unpredictable. But we are hopeful of a revival on various performance parameters as we expect new products getting launched in the coming quarter. Also, exports are expected to revive. We have recommended the counter in our portfolio of where to invest in 2014. We still remain bullish on it and recommend investors to hold on to the stock with a long Term perspective.