Posts
All Comments
Larger Banks Outperforming Regionals
■ Most large banks profitable, regional banks struggled in Q2 09
■ Larger banks benefiting from capital markets and mortgage refi “boomlet”
■ Regionals under pressure because of commercial real estate, middlemarket loans
■ Liquidity and capital issues are off the table for most large banks
■ Some signs of moderation in NPA growth
To see full report: U.S. FINANCIALS
INVESTMENT RATIONALE
• TTK Prestige Ltd, India's largest manufacturer of kitchen appliances has made a successful transformation from being a reliable consumer brand to an aspirational brand and the Rs4bn company now derives 75% of its revenues from products launched during the past four years. The company employs close to 900 people and has manufacturing facilities in Hosur and Coimbatore with its new unit at Uttarakhand to begin operations by the end of the current fiscal.
• Pressure Cookers now form 53% of its revenues; non-stick cookware and gas stoves account for 25% of its revenues and more than 20% of its revenues come from Kitchen Electrical Appliances like mixer grinders, hobs, electric chimneys and induction cook tops.
• Prestige Smart Kitchen outlets based on the 100% franchise model now has 202 outlets and contributes 18% of its revenues. Its second retail initiative - Prestige Kitchen Boutiques now has 9 outlets offering a wide range of modular kitchens.
• TTK Prestige presently operates at a capacity utilization of 57% and we believe that increased capacity utilization and geographical expansion beyond southern parts of the country would enable the company to grow its top-line at a CAGR of 19% over the next two years.
• Having exited the loss making US business and with a virtual debt-free status this fiscal we expect bottomline to start looking very healthy on the back of free cash generation.
• TTK Prestige is jointly developing its real estate of ~7 acres in Bangalore into a residential cum commercial complex which when completed in FY'12 should fetch Rs1.4bn to the company.
• TTK Prestige being an innovative company constantly developing new products we have factored an ad-spend of more than 8% of revenues in our forecasts.
• We forecast EBIDTA margins to stay well above 11% this fiscal and the next despite the same almost touching 13% during the first quarter of this fiscal.
OUTLOOK & VALUATION
• With the repeated cut in excise duties on branded pressure cookers we believe that TTK Prestige with its clear strategy of providing total kitchen solutions would stay ahead of the curve and maintain its first mover advantage in this growing consumer durable space.
• With an ROCE of 41% and attractive valuations of 6xFY'11E we remain optimistic on the prospects for TTK Prestige and re-iterate our BUY CALL on the stock with an 18 month price target of Rs400.
To see full report: TTK PRESTIGE
THRIFTY FOR PROSPERITY!!!
Indian Organized Retail (IOR) was in the fast forward mode over the last few years. While scaling up 3x in just three years to USD18bn (40%+ CAGR), caution was thrown to the winds when it came to business economics. However, the first round of casualties (Subhiksha, Indiabulls Retail, etc), and poor profitability as also leveraged balance sheets – exacerbated by growth slowdown – for survivors have forced them to focus on operational efficiency. Importantly, cost pressures have receded with lower competitive intensity and measures are being adopted to enhance capital efficiency. Pace of scale-up has been redefined to align with internal cash accruals as there is no recourse to external capital. This, we believe, would converge to gradual (25% 3-year CAGR) but profitable growth and healthier balance sheets. It is re-rating time for the sector and we bet on Shoppers Stop, Pantaloon Retail and Provogue.
Mad rush for scale at any cost…: IOR, in the rush to capitalize on under-penetration and gain critical mass before influx of foreign competition, took to the path of rapid scale-up over the last few years. However, even as the sector grew 3x in size over FY06-09, profits were elusive. While costs doubled as everyone chased the limited resources, disproportionately higher scale-up of front-ends ahead of back-ends led to capital inefficiency. Leveraged growth became more a norm than an exception.
…giving way to prudent growth: As external capital taps dried up, players have woken up to the imperative of raising capital within to fund future growth. IOR is now in the course correction mode and while the competitive landscape is more settled, employee costs are trending down and lease rentals have corrected 30-50% from the peak. Players are focusing on efficient manning, inventory management, space rightsizing, etc. These initiatives, we believe, would drive margin expansion for retailers even as same store sales are picking up.
Re-rating ahead; we are Overweight: We see significant profitability improvement and healthier balance sheets ahead as retailers adopt a calibrated growth stance using internal capital. This, we believe, would drive a re-rating in sector valuations. Shoppers Stop stands to be the key beneficiary of easing cost structures (570bp margins expansion over FY09- 11E) while Pantaloon Retail, the largest Indian retailer, too would be attractive as its balance sheet gets deleveraged. We maintain our bullish stance on Provogue given Prozone’s value unlock potential. We are Neutral on Titan due to its rich valuations.
To see full report: INDIAN RETAIL
