When an ageing, risk averse 56-year old company's stock rises 370 per cent in a matter of just two years, surely it spells something cooking behind the scenes. Why has pots and pans maker TTK Prestige suddenly been steaming up the market?
The biggest reason, perhaps, is that it is no longer just a pots and pans company. From a product line consisting mainly of pressure cookers, TTK Prestige has been trying to transform itself into a ‘kitchen solutions' provider, with some success.
The kitchen, it says, will be a domain rather than just a hot place to get out of. The company has extended its brand across categories such as stoves, electric as well as non-electric kitchen appliances and accessories.
The shift has helped TTK Prestige deliver a scorching pace of sales and profit growth during a lacklustre phase for much of India Inc. The company's revenues have trebled since 2009 (it closed FY 2011-12 at sales of Rs 1,103 crore from Rs 400 crore in FY 2008-09), and net profits have jumped five-fold (Rs 113 crore versus Rs 22 crore).
With much larger consumer names struggling to deliver any growth at all, this has attracted notice at the stock market. The stock price has been frenetically bid up and now trades at a multiple of 30 times its latest earnings. Business Line looks at the TTK Prestige story.
Fix the mix
For much of its history (it belongs to the TTK conglomerate founded by former Union Finance Minister, Mr T.T. Krishnamachari, which straddles businesses ranging from healthcare to maps and condoms), TTK Prestige was synonymous with just one item – pressure cookers. It had tried hard to shake off this image several times in the past – but made little headway. Over the last three years though, the diversification ploy has begun to pay off.
Taking note of the consumer preference for the less messy and healthy microwave cooking, TTK Prestige rolled out a range of glassware and stylish cookware. It backed this up with its own retail outlets, the Prestige Smart Kitchens, stylish stores in upmarket localities in the South that made shopping for pots and pans a better experience. Some smart digital marketing and advertising has helped changed the brand's perception. Then, spotting opportunity in the perennial shortage of LPG cylinders in Southern cities, it began to sell induction cooktops that use electricity, with a whole range of specialised cookware to go with these stoves. These have literally flown off the shelves.
These initiatives have helped TTK Prestige reduce its dependence on the humble cooker. Numbers for 2011-12 show that appliances and cookware chipped in with 60 per cent of the company's sales this year, while pressure cookers brought in just 37 per cent.
Not simply South
TTK Prestige has an image problem, though. It is seen as a “South Indian” brand. Part of the problem is the wheat eating habits of the North. If you don't eat rice, what would you do with a pressure cooker?
But now TTK is going to fix the mix. The company did not have the right products to suit these markets. This was corrected with the launch of appliances and inner-lid cookers. Opening new outlets in North and North-East India, TTK Prestige also began making inner-lid pressure cookers, which consumers in the North prefer.
Currently, contribution to revenues from non-South markets is around 35 per cent as compared to 20 per cent prior to 2001.
Mr Ankur Bisen, AVP, Consumer Products & Retail, Technopak, a business consulting firm, says that the TTK brand is nationally recognised and does not carry a regional tag. “A lot has got to do with its iconic campaign - Biwi se kare pyaar. But there is a need for TTK to refresh the memory and connect afresh with the young India,” he says.
Anxious to move out of its traditional bastion of the South, the company is setting up new facilities in the West and North. It plans to add about four million in pressure cooker capacity across plants, which will contribute gradually over the next three-four years. TTK is also in the process of expanding its cookware capacity by 10 million units. Production at the upcoming Gujarat plant is expected to start before the end of the current fiscal.
Tie up and grow
To produce quality kitchen appliances, TTK has followed a strategy of joining hands with the best in the game. So in the last one year TTK Prestige has announced tie-ups with three global companies with well-known brands.
The partnership with US-based World Kitchen will launch the Corningware and Pyrex brands in the Southern markets soon. The tie-up with US-based Meyer International is to bring in a range of premium cookware. TTK is also bringing in a non-electric water filter for the mass market through a tie-up with Switzerland-based Vestergaard Frandsen. These tie-ups could earn TTK up to Rs 60 crore and and Rs 120 crore by way of additional revenues.
The company is still fairly closely held, with promoters (members of the TTK family) holding 63 per cent of the equity. Another 15 per cent stake is cornered by FIIs and mutual funds, leaving 25 per cent in the hands of public shareholders.
Will the momentum sustain?
Analysts point to the gathering clouds on the horizon. There is the rising challenge from competition. All kinds of players, ranging from MNCs to electrical brands like Havells are edging into the Indian kitchen space now. What's more - global players such as Philips are strengthening their regional presence. The Dutch appliances maker bought Preethi, the South Indian maker of mixers and grinders, for Rs 350 crore last year. Mr K. Sankaran, Director, Corporate Affairs, TTK Prestige, seems unworried though. “Competition can grow the market and also drive the market to organised branded players. We will continue to focus on our philosophy of offering a concept and a solution through innovative products,” he says.
What of inflation and rising interest rates? If the loan instalments begin to bite will urban consumers happily splurge on cookware - certainly not an essential item? Then there is the rupee depreciation which adds directly to this company's costs. Signals from other consumer goods companies suggest that consumers are beginning to bridle a bit at so many price increases. Will TTK be able to pass on costs to its consumers?
Given all this, can the stock continue to enjoy its sky-high multiples? After its breathless run in the past three years, the TTK Prestige stock trades at a fancy multiple of 30 times its earnings. Now, the question is if investors will remain enthused at these levels, which are pretty close to valuations enjoyed by consumer behemoth Hindustan Unilever.