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Utensils Market (TTK Prestige and Hawkins Cooker) in India presents multibagger opportunities

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TTK Prestige and Hawkins Cooker present wonderful opportunities to grow the money multifold times. With very high ROCE ratios and rural India being at the cusp of upgrade cycle of cookers – it presents once in a lifetime opportunity to grow the money multifold.

Following is the logic for buying TTK Prestige:

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Company Brief
TTK Prestige Ltd. is the largest provider of kitchen appliances in the
country. It has a varied product portfolio ranging from pressure
cookers, non-stick cookware, and gas stoves to electrical appliances
and kitchen tools.
Highlights
TTK’s has been able to de-risk itself from being a single product
Company to “a total kitchen solutions provider.” by extending its
brands that includes over 400 products in 16 categories.
It has diversified into retail by setting up “Prestige Smart
Kitchens”. TTK 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. TTK is expected to benefit from
these initiatives, as margins in direct retailing are higher than
those in traditional dealer sales.
The company sells modular kitchens, through its exclusive
outlets “Prestige Smart Kitchens”. With growing emphasis on
“one stop shop” the modular kitchen market is huge and it is set
to grow a rapid pace.
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. With the
increase in economic & realty boom, this will lay a platform for
the company to go to the next level of growth.
TTK Prestige is also gearing up to unlock value in its real estate
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 300, the stock trades at a P/E
multiple of 7x FY10E earnings. It is also attractively valued at
FY09E EV/EBITDA of 4.0. We recommend a “BUY” on the
stock with a price target of Rs 1000 in three years, assuming a P/E multiple of
10x FY12E earnings, an upside of 250% from the current
levels.

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
196 Smart Kitchen outlets across 16 states and 116 towns in India as on FY09 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.

“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
current year, the company hopes to achieve a turnover of only Rs 4
crore from these initiatives. For the next year though, it expects this
format to clock a turnover of over Rs 25 crore and three-digit growth
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.

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.

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.

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.

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.

The entire kitchenware industry is worth about Rs 3400
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
specific, cannot be estimated. However, TTK roughly
owns about 10% of the entire kitchen space, which is
by far the highest. Different elements in the kitchen
appliances segment are growing between 6% – 20%,
which presents huge potential for players like TTK.
Domestic kitchenware segment has weathered the lull
witnessed in the past few years, and is recording
impressive growth since FY 2004-05. The frontline
players have, despite numerous unorganized players in
the foray, been successful in increasing their market
share by ensuring strong brand recall and expanding
their product range. To capitalize on the growing
demand, the players are strengthening their product
ranges, distribution network, enhancing retail network,
introduce new value added products and variants.
With penetration levels relatively high in urban areas,
significant growth in demand for kitchen appliances like
pressure cookers is expected to come from the rural
segment.
Increasing urbanization and fast-changing
demographics have led to a growing demand for
additional homes, which in turn have increased
demand for kitchen appliances. Shrinking household
sizes due to nuclearisation, coupled with higher
incomes, are expected to drive demand for household
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.

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
The company is primarily engaged in manufacturing kitchen
appliances. It has a wide range of product categories namely
Pressure Cookers, Non-stick Cookware, Gas Stoves, Domestic
Kitchen Electric Appliances, Kitchen Knives and Kitchen Tools. It
is among the few companies in the organized sector which has a
range of kitchen appliances, including pressure cookers, gas
stoves, non-stick cookware, and atta kneaders. The unorganized
segment controls over 50% of the market for kitchen appliances.
Its product range has increased significantly to include over 400
products in 16 categories, and TTK Prestige is now “a total kitchen
solutions brand.”
The company made a foray into retailing in 2003 when it launched
exclusive showrooms called Prestige Smart Kitchens. It now has
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.

Written by amitdipsite

October 25, 2009 at 11:57 pm

Posted in Uncategorized

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