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TTK Prestige Ltd
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Ladies and gentlemen, good day, and welcome to Q1 FY '23 Earnings Conference Call of TTK Prestige hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to [ Ms. Vidisha Seth ] from AMBIT Capital. Thank you, and over to you, [ Ms. Seth ].
Hello, everyone. Welcome to the Q1 FY '23 earnings call of TTK Prestige Limited. From the management, we have with us Mr. Chandru Kalro, Managing Director; Mr. K. Shankaran, Whole-Time Director; and Mr. R. Saranyan, Chief Financial Officer. Thank you, and over to you, sir, for your opening remarks.
Thank you. Good afternoon, everybody, and thank you for joining us on the earnings call. We've had quite a good quarter, with very satisfactory quarter, considering the kind of headwinds that were there in the quarter. It has been volatile in terms of commodity, in terms of market, inflation, et cetera, et cetera.
And all told, I think we've done extremely well. Our volume growths are robust, value growths are robust, margins are good and we are looking at a fairly stable situation going forward as well. And we -- all geographies have done well, all channels have done well and all categories have done well. I stand by for your questions from here.
[Operator Instructions] The first question is from the line of Bharat Chhoda from ICICI Securities.
I had a query regarding our revenue momentum. Like last year, the Q2 was a very high base. So do you expect the revenue to be positive from that level or probably, we would say, a marginal decline? How would the revenue move from there? If you could throw some light on that?
Yes, absolutely. You're right, we are on a very high base as far as Q2 of last year is concerned. Q2 of last year was high because there was a truncated Q1, there was some level of pent-up demand as well, and therefore, the base was quite high. We are looking at overhauling that slightly, but not by much. If things go well, I think we should overhaul it as we speak.
Okay. And sir, one more thing. Like in the press release, we have said that probably the commodity inflation is easing out, but there are other items, inflationary items, which is a cause of concern. So what are these items we are referring to here? Is it shipping freight cost or anything else specific you want to call out over there?
Yes, the freight costs haven't come down because the oil prices haven't really come down in terms of marketplace. There are some commodities that haven't come down, for example, whichever is oil-based that hasn't come down. So paper hasn't come down fully to where it was.
So there are still some areas. However, the good news is it's not going up anymore. So I think from here on, we're looking at some kind of stability in pricing in terms of our raw material, which is good news. And I must also add that nothing has gone haywire in terms of our planned, our raw material prices that we have looked at, at the beginning and where they are now. So where we have our [indiscernible] that's why there are no spikes.
[Operator Instructions] The next question is from the line of Naveen Trivedi from HDFC Securities.
Sir, my first question is, can you just share what sort of price hike have you taken in the quarter? And what sort of price actions are expected considering the RM side, we're seeing softening?
No. There were no major price hikes that we took in this quarter, but for a few items in this quarter, and that would be, you can say, a range between 3% and 5% over a few categories. These 2 categories would be induction cooktops where, for example, some key components went up in price because they were imported. Otherwise, we had announced the pricing in the end of fourth quarter, which is what we took it.
Going forward, we are looking at -- and when we took these price hikes, whatever price hikes we took, we did not exactly take the spot rates into account, but we took an average rate that we had in mind when we took it. And I think we are at that an average position. So there are no price hikes planned, and I don't think we're looking at any price reductions either. So there is a stable pricing regime which we are looking for.
You mentioned that the volume side also you have seen a decent amount of traction in this quarter also in the previous quarters also. How should we look at volume trajectory going ahead considering the demand scenario you expect in the coming quarters?
In terms of trend, I mean the inflation -- inflationary pressure is well known to you. So the trend that we are seeing is that the mass end or the entry level end is struggling for volumes. The upper end, which is the premium end or the niche end is not struggling for volume, growths are there.
So in that sense, if you look at an overall volume picture, the volume picture is not positive. But since we have launched so many new innovative products in the Q1 also, we are expecting that our volume is stable, if not marginally growing on a large base of last year. That's where we're looking at the volume outlook.
Sir, considering a lot of consumer companies are talking about demand slowing down and now price side also, there will be more, I would say, not taking cuts, but still there won't be any price element which will drive the revenue side and thereby, the volume traction seems to be very important in terms of understanding the revenue trajectory going ahead. That's why I was trying to understand how volume trajectory will be there in the coming quarters?
So as far as Q2 is concerned, I already answered you. I'm seeing the second half being more positive than the Q2 because our second half base was reasonably stable last year. So I'm expecting growth to happen in the second half. And therefore, overall, for the year, we will look at reasonable growth in volumes as well.
And you can't compare our company with FMCG, we're in [ brown ] goods not in white goods I'll say.
I missed out a comment on -- for the second quarter, you mentioned that there will be some slide in the -- on a Y-o-Y basis, correct?
A few categories, but many categories, we are looking at growth as well. So at the upper premium categories, we are looking at growth. At the mass end, we are not looking at growth. There, we're a little bit minus there.
Sure. And considering in this environment also, sequential gross margins have improved this quarter. So on that basis -- and RM side, we are seeing some softening. So how should we look at gross margin trajectory in the coming quarters, particularly when the festive season side, it will start benefiting the second quarter instead of third quarter this time?
Good question. Yes, the gross margins have improved on a sequential basis. But remember that there is some inventory which we are holding at a higher cost. So the entire benefit of the softening commodities will not happen in Q2, that will happen from Q3 onwards. But yes, we are looking at a decent situation in the gross margin front going forward.
The next question is from the line of Indrajit Agarwal from CLSA.
Congratulations on a stable set of numbers. A few questions. Sir, you mentioned that your growth is 38% on sales over a normal base of 1Q FY '20. If I were to split it within value and volume, what would be the ballpark breakdown of it?
See, we are a multi-category company. So our growths have been in the volume terms, if you look at on most categories, at a double-digit CAGR from that time to now, and even if you include the COVID years in many of our major categories. Some categories maybe it's a single-digit growth. But there is volume growth across categories in -- between the Q1 of FY '20, which was the last normal Q1 to this Q1.
Sure. This is helpful. My second question is you had a target of INR 5,000 crore of revenue by '25. So any update on that? How are we looking at any inorganic expansion or any change in that guidance yet?
No, that guidance, if you remember, we had given for FY '25 in the year FY '20. And then we said that the COVID years has put us back by 2 years. So we pushed that deadline to '26%, '27. And yes, that guidance of INR 5,000 crores, if you recall, was INR 1,000 crores inorganic and the INR 500 crores export and INR 3,500 crores will be existing portfolio. And I think we are on course to achieve those other than the inorganic because while inorganic proposals are under consideration, we don't have anything to report back other than what we've already told you.
Sure. This is helpful. My last question is on the other expenses for this quarter, which has seen a significant jump up. Anything to note over there? Is A&P spend unusually high or anything that would normalize in the following quarters?
So actually, the A&P spends of last year Q1 were a little lower than normal. And what you're seeing this year in Q1 is a normalized A&P spend. That is one.
Second thing is, over last year, if you see, last year, the traveling expenses and other business expenses were slightly lower. This year, we've had a largely a normal quarter. So in percentage terms, we are still fine. There's nothing wrong with what we have, and it's a normalized expenditure that you are likely to see. Nothing out of the ordinary.
The next question is from the line of Renjith Sivaram from Mahindra Mutual Fund.
Congrats on good set of numbers. Just wanted to understand now that this...
Hello?
Sorry, sorry. Am I audible?
Yes, now you are audible. Yes.
Yes. So now that this Crompton has acquired Butterfly and it's almost a month end, do you see more competition from Butterfly? And are they taking market share from us in the Northern region with the reach of Crompton? Is there any threat to us in terms of market share loss?
No, I won't say threat, but I certainly think that there would be a credible competitor in the non-South frontier on, which I believe we are more than happy to face in these markets.
If -- the jury is out on how much they would sustain their presence, but they've certainly become more active in the market. There's no doubt about it. But more competition is only good because I believe that it will spur us on better.
Okay. And also Crompton is planning to launch it's in kitchen in terms of the chimneys and other equipments also where we are kind of -- it's not nonpremium player, not a premium is Faber and Elica and we are the second run. So there if Crompton is coming up with these products, do you see more challenges for us?
See, first of all, that end of the business is very small for us. You are aware about that. Secondly, I think the investment we've made in Ultrafresh gives us a significant edge for that end of the business because you know that Ultrafresh has already 89 studios of their's, where they're selling kitchens. And they are all going to be selling Prestige kitchen hoods and cook tops in these 89 stores, which gives us a set of ready-made launchpad, while they will have to build that store base.
So in that sense, we are talking to a customer who is making their kitchen and at the same -- that is the time when they are likely to buy these kind of items. So I think we are very well placed. The investment in Ultrafresh will be more than adequate to actually grow the business rather than descent. I believe we will be aggressive very soon.
And therefore, I think this category will become very important to us. We've also got new products coming in, in that category, wherein we will address the issue of being second run instead of the mainline players. Hopefully, in the next couple of years, we shall be able to achieve that.
Okay. And sir, lastly, one, if you -- if I subtract the stand-alone from console, it's a loss this quarter, so anything in that, if you can throw some light?
Yes. The U.K. markets have been less than happy in the last 1 quarter, as you can see. And therefore, there has been significant drop in their top line, reducing their operating leverage. Their gross margins are good.
But unfortunately, because the operating leverage coming down, they've actually shown a loss. And there is also an exchange adjustment that has come in the consolidated, which is causing that significant drop. I say that adjustment, I think, is a onetime. I don't think the...
It is notional, it's not a...
Yes, that's very notional. Going forward, the operations, I think we will need a quarter or so to see how the U.K. economy will do. There are a lot of good things that they have done in the meantime to address growth and top line.
We've just launched the product in the U.S. for the first time that they're going to sell online debt. So hopefully, that would be a new channel for growth. We are also listing in the EU markets for listing their brands for online sales there, that could be another channel for growth so that they are less -- or the -- right now they're completely dependent on U.K. and Ireland. They're kind of getting new geographies to hedge that. But how much of this will come into play, I think we need a couple of quarters to see.
The next question is from the line of Anirudh Joshi from ICICI Securities.
Yes. Sir, 1 question on the phasing out of price hikes. So what is the total price hike for this quarter? I mean it's not taken in this quarter, particularly, but the price hikes taken in earlier quarter, what will be total price hikes effective in Q2, Q3 and by Q4? That is one question.
And second is on Horwood, so basically, Horwood has remained in investment mode. And even in this quarter also, the profitability is a bit actually adverse. So how do you see the outlook and considering the likely recession in developed countries, Europe, U.K., et cetera. So how do we see turning that business into a profitable that is generating positive EVA, higher than cost of capital ROC? Yes.
So let me first answer your Horwood question. The Horwood has not been in investment mode all this while, yes, most of the time since we acquired it. Last year, for example, Horwood turned around with a fantastic performance.
The last financial year, if you look at Horwood's performance, they've had a steady growth, both in top line and bottom line. This time around in the Q1, they've had a serious headwind because of what everybody knows. There has been a food inflation, there's been an energy inflation, there's been an overall downturn in the U.K. economy, which is what is causing this.
So these are factors beyond our control. The point is what it is their control, they are doing enough, we believe, to expand their base of customers to expand the number of geographies in which they operate. I believe that even now, relatively speaking, over their peers in their market, they will probably be performing better. So that is on the Horwood story.
On the realization story, the price increase story, it's difficult to answer that question fully because you see what realizations we get are a function of channel mix, model mix and all of those. So if you look at the actual price increases that we took, depending on the category, we have taken close to 8% to 10% in pressure cookers and cookware. We've taken 12% to 15% in some parts of the appliances. And in some appliances, we've taken in single digits also. So overall, if you have to extrapolate net of inflection, what is the price increase, it is difficult but I would say between 8% and 9% is what you're looking at price increase. But it varies depending on the model mix or the general mix.
The next question is from the line of Aadi Jain from Ampersand Capital.
Sir, my question is that in this quarter, while your gross margin has improved on a sequential basis, your EBITDA margin has gone down because of your other expenses. Was there any particular advertisement-related or any particular thing that you would like to flag out?
EBITDA markets have gone down with respect to what?
This March quarter.
No, you must not look at a sequential quarter performance because our's is a very seasonal business. You have to look at it on a Y-on-Y basis. If you look at it on a Y-on-Y basis, there is an increase in margin in EBITDA. And -- so therefore, I wouldn't look at it sequentially because there are several things that come into play between Q4 and Q1, and they're not really comparable, not in our business at least.
We have been maintaining that. If you take a -- moving into 12 months period, we'll be able to maintain our margins of 15%, plus or minus 1%, that's what we are adhering to.
15%, 1-5?
Yes. We're closer to that.
Okay. Okay. Okay. Because your March quarter, [indiscernible] the financial year '22 where the raw material costs were so elevated, your EBITDA margin was somewhere around 17%.
Yes. But then it's a question of a combination of other expenses and other things like that in the Q4.
The timing of these expenses vary from quarter to quarter. And we are not looking at the numbers for every quarter, we are looking at a stable 12-month period and take a -- register accordingly, the expense will vary. Therefore, as a veteran analyst, I would rather look at what is my moving gross margin and EBITDA margin. If it stays within the range of plus or minus 1%, I would say I'm actually under trough, I'm not losing anything.
Understood, sir. Sir, let make -- what you're saying is that your full year margin is going to be lower than last financial year?
That is what we said because of the commodity pricing, right, at that point in time.
Understood. And sir, the other question that I wanted to ask is that, that while you were talking about a bit of a higher base for quarter 2 where the growth will be subdued. But I was saying that your full -- second half will be much better. So the overall full year, I think we're looking at healthy double-digit growth in...
Of course, yes. Definitely.
Okay. And this is despite the fact that what you're pressing in exports and in your international subsidiary?
Yes.
Yes. But sir, if I can just ask last question that you've done this acquisitions and you're trying to foray into the modular kitchen and all that. Can we just see some more action in terms of your inorganic initiative to something related or something very different than what you are doing now?
We are moving around with the cart. We haven't added anything into it.
The next question is from the line of Sameer Gupta from India Infoline.
I have one, but it's slightly long, so kindly bear with me. So basically, what I'm thinking is that in COVID times, we saw little tailwinds for our business. There was extra demand for kitchen equipment, people spending more time at home, cooking at home, and there were share gains from organized. Given now that we are latching on these in the basis, also kitchenwares are now renewed for these kitchens and that renewal or replacement demand will only come maybe 4, 5 years later. And plus there is added inflation and volumes in the [ March end ] are under pressure.
So how confident are we of delivering a double-digit growth rate in second half and beyond? Is it contingent on the overall consumption environment picking up? Or we are confident on our own efforts and distribution expansion, et cetera. Any details you can share on that front, non-South versus South would be helpful?
See, the market -- according to what we see, we are confident of doing what we just said, which is having a healthy double-digit growth. I believe that we can do what is in our control, and we have to manage what is not in our control. And what we believe is we don't believe any catastrophe is likely to happen. Hopefully, I'm right.
Hopefully, nothing wrong happens to India. And in that sense, we will beat -- we will be the industry-leading growth rate even now, I believe. We will continue to innovate and continue to launch many products and continue in our efforts of marketing and branding and customer-centric innovation. And that's what gives us the confidence Beyond that, whether in spite of everything will I grow, I think it's a -- it will be arrogant on my point to -- it's hard to say yes.
We believe that the external factors in market was there what is known. So given the current situation, we believe we'll be able to [indiscernible] for the current year.
And this growth that we are targeting is largely going to be led by entering newer markets getting more consumers into the TTK Prestige foray? Is that understanding, correct?
These are strategy issues. I can only tell you that we are cognizant of the fact that the inflation hits a certain section of the society and certain section of the society is relatively immune to this inflation. And I believe that, that forms part of our marketing strategy and our product strategy and our channel strategy.
There is a constant effort to expand on our distribution and channel dominance in various parts of the country, which is continuous process. There is no such thing as tomorrow morning everything is done, it's a continuous journey and that we are embarking on. Therefore, I believe that we will have better growth rates as we go along.
Just 1 follow-up, sir. Can you give a split of your South versus non-South revenue split?
Whatever peak was, it remains around 50-50, [indiscernible] depending upon the seasonal quarter.
Got it. 50-50, it is. Okay.
Yes.
The next question is from the line of Digant Haria from GreenEdge Wealth.
Hello?
Yes, now we can hear you. Sorry, we lost his line again.
[Operator Instructions] The next question is from the line of Digant Haria from GreenEdge Wealth.
Yes, sir. Am I audible?
Yes.
Yes. Yes, sir, we have constantly highlighted it, there is -- the high-end products are doing well and the entry range products are not doing well because that segment has been hit initially by COVID and now by inflation. So in that entry-level segment, are there any green shoots that only in any channels like say, if there were good monsoon, good crop in last winter season like rural is doing a little better or it's uniformly that is one segment, which is not doing well?
No, I think the green shoots are there because I think the food inflation has abated. That pressure is going off. Monsoons are related to be good, so I'm hoping that the second half of the year is good, which is what I have stated. And we have -- and added a push on our lower-end brand, which is Judge which we are, at this moment, expanding our distribution. But clearly, that is very much smaller than Prestige to be of any significance. But I think we don't want to lose any kind of customer.
So all of this put together, I believe that we are seeing something. But having said that, at this moment, the -- when we say that the lower end is hurt by inflation, it's not as if there's a disastrous situation there, it's a lack of growth or a slight degrowth in those segments, while there is a growth in the upper-end segment. That is where it is. So in overall category sense, the volumes are still very steady.
Right, sir. Sir, and before COVID we used to -- or maybe before COVID we used to do some sales through these microfinance companies also which were primarily in rural areas. Now have they started? Because I think that sector has started disbursing and doing well in the last 6 months.
Yes. Yes. That segment is quite active, both in Q4 of last year and Q1 of this year, that segment has been quite active.
The next question is from the line of Naveen Trivedi from HDFC Securities.
Can you just share the mix of entry level and the premium for our business?
I don't think I would like to share that as part of the business. I believe that is competitive sensitive information.
But any ballpark number from the industry point of view?
See, it depends on which category you're speaking of. It depends on the geography you're speaking of, et cetera, et cetera. There are categories where the mass end is 70% at the upper end and 30%. There are categories where it is 60-40. So it is a category-specific trend.
Sure, sir. Sure. And lastly, on the margin side. So I'm not taking you for any quarter specific thing. But on sustainability, how do you look at your EBITDA margin in the medium term sort of point of view, considering a lot of cost has been restoring like traveling and other expenses, while on the RM side, we are also seeing softening.
And the third angle is we are seeing some sort of a volume pressure on the -- from the external environment point of view. So in that context, how do you think that your EBITDA margin on a yearly basis are sustainable?
Like Mr. Shankaran said, I mean, a 15% EBITDA plus/minus 1%, 1.25% is what is there. We're not looking at minus from 15% at this point in time. We're very confident of delivering that 15%. Last year, we were at 17.4%. I believe that given that last year, it was a very benign commodity situation there, and like you correctly said in other expenses, there were lower expenses. I believe that within a 1 percentage band of that, we should be able to deliver.
But giving a guidance on EBITDA in these times is something that one has to be very careful about. But I think we're fairly confident that the margin structure is robust in the company. We're doing everything to make sure that we are stable and deliver that kind of margin constantly.
The next question is from the line of [ Nandini Srinivasan ] from [indiscernible] Investment Trust.
Hello? Am I audible?
Yes.
Yes, you are. But I request you to speak a bit louder, your voice is quite low.
Okay. Yes. Sir, what is the A&P spend that we are doing right now, as a percentage of our top line?
A&P spend. Around 6% to 6.5%, depending on which quarter you're looking at.
Okay, sir. And what is the e-com sales like as a percentage of sales?
It's around 15-odd percent.
So how has this changed compared to the period like where in COVID most of the channels were shut for physical purchase and all? And how much of has stayed back? And what is our view on this? Can you just go up further from here?
So you have answered the question yourself. Last year, the markets were closed. This year, the off-line markets are open. And I believe that people have come back in a big way to go and shop off-line as compared to online. And therefore, that has happened. And I believe that going forward, the trend on online shopping would be between 15% and 20%, 22% is what we believe is that -- that is the kind of brand that we are looking at.
So our own view is that our touch and feel customers are -- customers still prefer doing that more than buying it online. Is that right?
This quarter, definitely, we've seen them come back in a big way in the off-line segment. That's what we are seeing. Last year, of course, they had no option. Last year, they had to buy only online because the markets were closed.
Okay, sir. And just like a similar question, what previous analysts had asked. So this mass market and premium, like I don't want a number or something. But from an SKU perspective, what is our SKU mix like for mass market products and premium products?
We are well segmented in every single major category of ours. We have products in each and every price segment. And in fact, you are looking at it as 2 segments. We -- in many categories, we look at it as 4 segments, 5 segments depending on which way we are talking about. So it's difficult to say how many SKUs we have in each segment. You can be very confident that we are well represented in all segments.
The next question is from the line of Rushabh Sharedalal from Equirus PMS.
Hello? Am I audible?
Yes, sir, we can hear you.
Just wanted a small clarification that you said that the revenue guidance, so it will be a 15% growth from H2, right? Did I get that correctly?
We said we will have a healthy double-digit growth for the H2.
Right, right, right. And just another small clarification that I needed. So this INR 5,000 crore revenue target has been pushed back from FY '25 to FY '27, did I also get that correctly? Or am I missed it?
Yes. Correct. That COVID has pushed us back by 2 years.
The next question is from the line of [ Aakash Fadia from EF Securities ].
So what will be our CapEx plan for FY '23? And very good -- and where is the good channel is?
What was the second part of the question? You wanted CapEx for FY '23 and the second part?
And for which products we will be using that CapEx largely for?
So our CapEx for this FY '23, and I'm not taking into account any CapEx, which was carried forward from last year, is about INR 120 crores. And I believe that, that kind of money would be spent this year on CapEx.
The CapEx is on various parts of the company. We are embarking on a huge retail expansion on a company-owned franchisee-operated mode. There is also capacity expansion in manufacturing. There's a lot of automation that we are planning in manufacturing to maximize machine utilization, quality improvement, reduce cost, et cetera, et cetera. So all of these put together is where this kind of money is being spent. The capacities are being expanded in pressure cookers and cookware only.
[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you, everyone, for coming to the call. As I said, we've had a good quarter. And I believe that we are well on course to a good year ahead as we go along and things are looking all right. There are some headwinds without doubt. There are some small issues. But I believe that there's nothing that we had to plan for or ready to face. We are competitive. We have many new products for the coming period of the year, and we believe that we will end the year in a good day. Thank you very much.
Thank you.
Thank you. On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.