Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities of TTK Prestige Ltd (TTKPL).

 

The ratings continue to reflect the healthy business risk profile of the company backed by its robust market position in pressure cookers and cookware segment, strong brand, established distribution network and longstanding relationships with dealers and distributors. The ratings also factor in the strong financial risk profile, supported by heathy networth and negligible debt, and sufficient liquidity. These strengths are partially offset by exposure to intense competition, and susceptibility to volatility in raw material prices and foreign exchange (forex) rates.

 

Revenue fell by 4% in fiscal 2024 on account of decline across pressure cooker, cookware and appliance segments due to weakened demand for kitchenware amid continued inflation and high interest rates impacting purchasing power. Demand remained subdued in the first quarter of fiscal 2025 owing to the impact of elections, intense heat wave and weak rural demand. Revenue is expected to grow at 3-4% in fiscal 2025 driven by revival of demand for branded cookware and appliances, supported by upcoming festivals, continuous addition of new products and cooling of interest rates, which will likely improve discretionary spending. Rebranding of Judge (brand owned by the UK subsidiary Horwood Homewares Ltd [Horwood]) by Prestige will likely close the market gap of TTKPL in entry-level products at lower price points, which will aid growth over the medium term. Also, strong growth in real estate and government of India’s push for affordable housing is expected to percolate to allied business categories, such as kitchen and home appliances, and will provide impetus for growth of the consumer durables segment over the medium term.

 

Operating margin declined by 160 basis points in fiscal 2024 on account of sluggishness in revenue growth, resulting in lesser absorption of fixed cost along with higher employee cost owing to superannuation and recruitment of new hires in senior management, which coincided, and elevated sales/promotional expenses due to intense competition particularly amid weak demand. Profitability was also impacted by the modest performance of subsidiaries. The operating margin is expected to sustain at 11.0-11.3% over the medium term driven by better economies of scale with higher sales, stabilisation in raw material cost and scaling up of operations at subsidiaries.

 

The financial risk profile of TTKPL was robust, with healthy networth over Rs 1,900 crore and comfortable debt protection metrics owing to almost debt-free balance sheet as on March 31, 2024. Debt metrics will likely remain strong with no debt addition and nominal capital expenditure (capex) to be funded by own cash accrual.

 

CRISIL Ratings has taken note of the latest share buyback proposed by the company, which was approved by board of directors vide meeting dated August 2, 2024, and record date for the proposed buyback as August 14, 2024. The buyback is proposed for up to 16.67 lakh shares representing up to 1.2% of the paid up equity shares of the company at Rs 1,200 per share. This is payable in cash for an aggregate amount of up to Rs 200 crore.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of TTKPL, TTK British Holdings Ltd, Horwood and Ultrafresh Modular Solutions Ltd (Ultrafresh), collectively referred to herein as TTK. Horwood and Ultrafresh are subsidiaries of TTKPL, operating in the same business, with business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Robust market position in the kitchen equipment industry and sound operating capabilities: The company will likely maintain its strong market position driven by its wide distribution network and healthy opportunities in the global market. Prestige is one of the strongest kitchen equipment brands, with leading market share in the domestic pressure cooker segment. The company offers cookware, appliances, gas stoves, mixer grinders and cleaning solutions, among others. To compete with global brands, it has ventured into the luxury segment in categories such as built-in ovens and island chimneys, through Prestige Lifestyle stores. An in-house research and product development team helps expand the product base with innovation and improve efficiency.

 

Healthy financial risk profile: The financial risk profile is expected to remain stable over the medium term backed by healthy cash accrual, comfortable capital structure, nominal debt (on standalone basis) and robust debt protection metrics. Networth was sizeable over Rs 1,900 crore as on March 31, 2024, up from Rs 1,775 crore as on March 31, 2023. Debt protection metrics were comfortable, as reflected in gearing estimated to be negligible at 0.02 time as on March 31, 2024, and net cash accrual to total debt ratio of 4.41 times in fiscal 2024.

 

Weaknesses:

Exposure to intense competition: TTK has healthy market share in the domestic pressure cooker segment. In the inner-lid category, the company competes with established players such as Hawkins Cookers Ltd, which holds significant market share. Multichain, large-format stores have also launched their own brands to target customers looking for all products under one roof. Though the company is increasing its market presence in the electric appliances segment by introducing new designs and products every year, it continues to face competition from regional and national players.

 

Susceptibility to volatility in raw material prices and forex rates: The operating margin remains susceptible to volatility in prices of key raw materials, steel and aluminum, and adverse movements in forex rates. The company has successfully reduced its reliance on imports from China and has been passing on price hikes to customers but may still be partly vulnerable to adverse movement in input cost.

Liquidity: Strong

Cash and equivalent was Rs 889 crore as on March 31, 2024. Fund-based limit of Rs 56 crore remained unutilised in the 12 months through June 2024. Expected cash accrual of Rs 200-220 crore per fiscal will comfortably cover yearly capex of Rs 60-70 crore and debt obligation of Rs 42 crore in fiscal 2027. With estimated gearing of 0.02 time as on March 31, 2024, the company has sufficient headroom to raise additional debt. The minimal working capital requirement will likely be met through cushion in the bank limit.

 

While the company is actively looking for an acquisition, there are no deals in the pipeline. In case of any deal materialising, the company will fund the acquisition through surplus funds and still be able to maintain liquid surplus around Rs 250 crore on steady state basis.

 

ESG Profile of TTK Prestige Limited

CRISIL Ratings believes the Environment, Social, and Governance (ESG) profile of TTKPL supports its already strong credit risk profile. TTKPL is developing a detailed ESG framework which will mitigate environmental and social risks.

 

Key ESG highlights:

• The share of renewable energy in total energy consumption has increased to 4% in fiscal 2024 with commissioning of a 240 KW capacity solar rooftop in Hosur plant.
• The attrition rate for permanent employees remained moderately high at 16% in fiscal 2024, although it improved from 20% in the previous fiscal year. Furthermore, the company reported a zero lost time injury frequency rate for both employees and workers during fiscal 2024.
• Its governance structure is characterized by ~64% of its Board being independent directors, presence of three-women Board directors, dedicated investor grievance redressal committee, and extensive financial disclosures.

 

There is growing importance of ESG among investors and lenders. The commitment of TTKPL to ESG principles will play a key role in enhancing stakeholder confidence.

Outlook: Stable

CRISIL Ratings believes the business risk profile of TTKPL will continue to be supported by healthy market position in the kitchen equipment segment. Furthermore, strong balance sheet and adequate liquidity should offset any impact of stressed business conditions.

Rating Sensitivity Factors

Upward Factors

• Steady diversification in revenue streams and improvement in market share in key product segments
• Revenue growth of over 20% (in compounded terms) and operating margin of 14-15% leading to higher cash accrual
• Strengthening of the financial risk profile and liquidity

 

Downward Factors

• Significantly weak operating performance owing to decline in revenue or operating margin (to 10-11%)
• Large, debt-funded capex or acquisition or stretched working capital cycle, depleting the cash surplus and weakening the capital structure

About the Company

Set up as a private limited company in 1955, TTKPL went public in 1994. The company is among the leading brands in the kitchen equipment space, especially in the pressure cooker segment. Its product profile is diversified, with 29% of revenue coming from pressure cookers, 15% from cookware and 44% from appliances. TTKPL was a south India focused player earlier. To expand its addressable market, TTKPL entered into kitchen appliances by leveraging its brand and expansive distribution network to penetrate the west, north and east markets. Currently, it derives over 50% revenue from non-south markets.

 

Prestige is a premium brand primarily targeting the upper middle class. TTKPL is the flagship company of the TT Krishnamachari group of companies, which has interests in healthcare, consumer products and services. On the recommendations of nomination and remuneration committee, the company’s board decided to split the roles of managing director (MD) and CEO and appointed Venkatesh Vijayaraghavan as CEO from January 2024, who will report to Mr Chandru Kalro, MD.

 

In April 2016 TTKPL acquired Horwood Housewares Limited through its 100% subsidiary TTK British Holdings Limited, UK as a part of its global expansion strategy. Horwood is one of UK’s largest table and cookware sellers under the brand Horwood, Stellar & Judge etc. During the last quarter of FY 22, Company made strategic investment of around 41% in Ultrafresh Modular Solutions Ltd (Ultrafresh) which is engaged in the business of providing end-to-end modular kitchen solutions and kitchen appliances. Further the shareholding was increased to 51% in Q4 FY 23 pursuant to which shareholding, it become a subsidiary from the said date.

Any other information: Not Applicable