Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Mark-to-market/  E-commerce boom, weak discretionary spend to weigh on TTK Prestige
BackBack

E-commerce boom, weak discretionary spend to weigh on TTK Prestige

A price cut for induction cooktop variants and low capacity utilization at recently set-up cookware facility in Gujarat may also weigh on the margins

Unless revenue growth improves, led by a pickup in discretionary spending and by discounts between online and offline channels narrowing, the stock may continue to remain under pressure. Photo: Aniruddha Chowdhury/MintPremium
Unless revenue growth improves, led by a pickup in discretionary spending and by discounts between online and offline channels narrowing, the stock may continue to remain under pressure. Photo: Aniruddha Chowdhury/Mint

Attractive discounts by online retailers are already hurting brick-and-mortar stores and TTK Prestige Ltd, a kitchen appliance manufacturer, is not immune to the change in shopping patterns as physical stores start stocking less and consumer demand remains weak.

ICICI Securities Ltd has reduced TTK Prestige’s earnings estimate for FY16 and FY17 by around 15% each to factor in lower revenue growth of 14-16% as brick-and-mortar stores hold less inventory. Revenue growth slowed to 3.9% year-on-year (y-o-y) to 384 crore in the December quarter as festival demand in the months of November and December remained subdued.

The cookers segment, which makes up over a third of the overall sales, slowed to 4.7% in the December quarter from 14% growth in the September quarter. Aggressive e-tailing has led to offline channels holding inventory for about two weeks compared with six weeks earlier. Sales for the appliances segment, which makes up two-fifths of revenue, declined 2.5% following 3% growth in the September quarter. Competition has also increased in the southern markets as regional brands become more active.

Brokerages have cut the operating margin estimates for TTK Prestige by 10-20 basis points (bps) to 13%-14% for FY16-17 due to sales decline denting operating leverage.

One basis point is one-hundredth of a percentage point.

Moreover, a price cut for induction cooktop variants and low capacity utilization at recently set-up cookware facility in Gujarat may also weigh on the margins. Operating profit margins declined by over 60 bps y-o-y to 11.86% in the December quarter. Raw material costs as a percentage of net sales remained elevated at 56.8% while employee expenses continued to increase. Overall, net profit declined by 5% to 28 crore in the three months ended December.

Shares of TTK Prestige are trading at 26 times one year forward price to earnings multiple and have underperformed the broader markets and its peer Hawkins Cookers Ltd in the last one year. While the company has shifted its focus away from southern markets to other regions and launched new products, that has not yet translated into sales traction.

Unless revenue growth improves, led by a pickup in discretionary spending and by discounts between online and offline channels narrowing, the stock may continue to remain under pressure.

The writer doesn’t own shares in the above-mentioned companies.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 26 Jan 2015, 08:00 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App