Stocks
TTK Prestige downgraded to SELL: Espirito Santo Securities

TTK Prestige has disappointed the market once again as discount sales hurt margins along with competition from cheap Chinese imports

Espirito Santo Securities (ESS) has downgraded TTK Prestige, a leading manufacturers of cooking and kitchen ware, to SELL. Not surprisingly, negative consumer sentiment had turned damp which has affected sales of its products. Higher interest rates have also forced consumers from smaller cities to postpone purchases. According to the brokerage, the company had been trying to get rid off inventory through discounts. This certainly boosted sales revenue, but it has come at the expense of TTK Prestige’s margins. ESS thinks TTK is a fundamentally strong company, with good balance sheet numbers, which got caught in a cycle. The report said, “We believe TTK is a strong business caught in a cyclical down cycle,” and further added, “We believe the company is trading at a rich valuation that does not reflect the near-term pain highlighted by our channel checks and even management commentary.” The value of the company pegged by ESS is Rs3,000.
 

Moneylife had written about ESS’s take on TTK Prestige last year in October when its performance was under pressure. The article can be found here. It would seem that the proverbial lid has got blown off by the pressure, as far as ESS’s views are concerned.
 

According to ESS, TTK Prestige undertook drastic sales promotional discounts given that consumers are withholding purchases. This affected its EBITDA (earnings before interest, taxation, depreciation and amortization) margins. Apart from discount measures, another factor affecting TTK Prestige has been the presence of cheap imports, especially from China. Imports have slowly eaten into the market share and the market place is getting crowded, forcing TTK Prestige to spend more on brand visibility and advertisements. In fact, according to ESS, the induction cooktop which is a successful product is already facing heat from intense competition.
 

Both EBITDA and Profit After Tax (PAT) margins were higher than the corresponding third quarter last year. EBITDA was around Rs62.1 crore which is 17.7% higher than last year. Likewise, PAT was Rs44.2 crore, 27.7% higher than the same period last year. However, these numbers disappointed ESS’s estimates which were a few percentage points higher. Capital expenditure by way of new plants and equipments is expected to be higher and eat up into future margins.


Going forward, much of the fourth quarter results, and onwards, would depend on the prevailing consumer sentiment, interest rates and general economic activity. Unless economic activity picks up, it will remain under pressure to sell to more housewives.

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COMMENTS

Suiketu Shah

4 years ago

Appreciate the news from Santo but I personally prefer since the recent past to go as per moneylife and kensource recommendations for any shares,not TTK.(We donot hold TTK which is a very good company)

PSUs will comply with shareholding norms: SEBI

“We have received confirmation from the government that it is very keen to complete the transactions with regard to public sector undertakings (PSUs) and they will not be seeking any extensions,” SEBI chairman UK Sinha told reporters here after its board meeting

Chennai: Market regulator Securities and Exchange Board of India (SEBI) today said the government is committed to ensuring that public sector companies comply with the minimum public shareholding norms and will not be seeking any extension, reports PTI.

 

As per SEBI norms, private sector firms need to have a minimum public shareholding of 25% by June, while a threshold of 10% is required by PSUs by August.

 

“I can share with you that we have received confirmation from the government that it is very keen to complete the transactions with regard to public sector undertakings (PSUs) and they will not be seeking any extensions,” Sinha told reporters here after its board meeting.

 

“Government’s full commitment is there to follow (the norms) with regard to their own companies,” he added.

 

Promoters of nearly 190 companies are yet to bring down their shareholding to the desired level to meet the guidelines, although SEBI has already provided various options to meet these norms.

 

Noting that good progress has been made by listed companies in complying with the norms, Sinha said that SEBI was “very hopeful that companies would be able to do it”.

 

He said the SEBI board today discussed the actions it could take in case listed companies fail to comply with the minimum public shareholding norms.

 

Sinha added: “What consequences happen if somebody decides to violate SEBI instructions is a matter which is legal and should be well known. It is well known.

 

“If you decide to violate, for example, the listing agreements, if you decide that you will not follow ICDR regulations, then the consequences are very, very clear. SEBI is serious about public shareholding. SEBI is willing to consider any practical suggestions pertaining to this.”

 

He also noted that there has been no spurt in delisting of companies.

 

“SEBI received lot of requests and suggestions from industry, experts to make delisting easier but unfortunately we cannot agree to those suggestions,” he said.

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Gold investment speculative, not inflation-hedge: RBI deputy governor

Discounting the argument that gold is a hedge against inflation, the senior-most deputy governor wondered how a hedge instrument can offer as high as 37% return year after year

 

Mumbai: Terming investment in gold as a speculative activity and not hedge against inflation, RBI deputy governor KC Chakrabarty today said high returns the precious metal offers only reflects high risks associated with it, reports PTI.

 

Discounting the argument that gold is a hedge against inflation, the senior-most deputy governor wondered how a hedge instrument can offer as high as 37% return year after year.

 

“If gold has been giving 37% return for the past few years, how can it be a hedge against inflation?

 

The second logic is that gold is a safe investment. How come a hedge gives a 37% return? ...that means it has become speculation,” Chakrabarty said while addressing the students of the Vivekananda Education Society here.

 

He said analysis of risk-return trade-off shows that anything which gives higher returns is a risky asset.

 

“In finance, you know there is a risk-return trade off. Anything that gives high returns has higher risks associated with it. If gold is giving 37% return that means it is very risky. (But) this risk is not manifested (and) that is why it looks safe.

 

“I have no problem if you say you are speculating in gold. But don’t say gold is hedge against inflation,” he said.

 

Rising gold import has raised concerns among policymakers as it has increased the current account deficit (CAD), the difference between a country's exports of goods, services and transfers (remittances) and total imports.

 

India’s CAD hit a record high of 5.4% of GDP in the September quarter, or at $22.3 billion, majority of which was contributed by the gold imports. In this context, the government is trying to curb imports by increasing the duty on the precious metal to make it less attractive.

 

Referring to banking transactions in rural areas, Chakrabarty said transactions are not increasing to the desired level despite addition of business correspondents.

 

“Number of transactions are increasing because of addition of accounts but transactions are not increasing in the existing accounts... (instead) inefficiency has gone up...”

 

He said bank account convertibility was not possible as of now. 

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