Consumption - Myirisbreport.myiris.com/IDBICAP1/VUAINDUS_20111013.pdfCompany Section TTK Prestige...

October 13, 2011

ConsumptionA play on the evergreen, resilient theme

Analyst: Arun Baid +91-22-4322 1258 [email protected]

2

Sector Report – Consumption

Table of contents

Executive Summary .............................................................................................................................................. 3

The consumption demand in India has been strong over the past decade ........................................................... 5

Consumption demand to remain strong over the next two decades ................................................................. 11

Company Section

TTK Prestige Ltd.: Adding Prestige to the portfolio ........................................................................................... 21

Investment Positives .......................................................................................................................................... 22

Outlook and Valuation ....................................................................................................................................... 28

Financial Summary ............................................................................................................................................ 30

Symphony Ltd.: A cool play .............................................................................................................................. 31


Valuation ............................................................................................................................................................ 39


Talwalkars Better Value Fitness Ltd.: Value fit ............................................................................................... 43


Valuation ............................................................................................................................................................ 51


V-Guard Industries Ltd.: Play on mass consumption story ................................................................................ 55

Investment Highlights ........................................................................................................................................ 55


Hawkins Cookers Ltd.: Sweet whistle ................................................................................................................ 59



Hitachi Home and Life Solutions (India) Ltd.: Bet on comfort .......................................................................... 63



COMPANY

REPORT

October 13, 2011

Consumption A play on the evergreen, resilient theme

SECTOR

REPORT

Executive Summary

India has been a consumption driven economy for the last many decades and will continue to be so over the coming two decades. As per McKinsey

Global Institute (MGI) consumption spending in India is expected to increase ~2.5x by 2025. The middle class population in India is going to increase

~12x during 2005-2025, thus fueling the consumption demand. The growing middle class and increasing disposable income thus provides many

investment opportunities in the consumption domain. In our report we have covered companies which are market leaders in their core product categories

(TTK Prestige, Symphony Ltd, Talwalkars Better Fitness Value (TBFV), V-Guard Industries, Hawkins cookers and Hitachi home & life solutions) and will

be significant beneficiaries of the increased consumption demand in India over the next two decades.

Indian GDP to grow ~5 times by 2030

India’s GDP at constant prices had grown ~4x during the period 1990-2009 and is expected to grow ~5x by 2030 (source MGI). The increase in GDP

is thus growing to be beneficial for many sectors and provides many investment opportunities.

Private consumption to increase by ~2.5x to Rs70 trillion by 2030

Private consumption has been the driver of Indian GDP for the past many decades. It has nearly doubled during 2003-09 and is expected to further

increase ~2.5x by 2030. The increase in private consumption is growing to come primarily from rising income.

Increasing urbanization + growing middle class+ rising income = higher consumption spending

As per United Nations, urbanization in India is expected to increase from ~30% in 2010 to ~40% by 2030 and the number of people living in urban

areas will increase by ~62% to 59 bn. Also, the middle class population in India will increase ~12x to 580 mn and will constitute 41% of the population

by 2025 as against ~5% in 2005(source MGI). The per capita income of India is expected to increase ~18 times by 2039 (source Emerging Market

Forum) and the disposable income for household is expected to increase ~3x by 2025 (source MGI). Growing urbanization, a young working-age

population, higher income will result in increased spending and thus, there will be a consumption boom over the next two decades.

Discretionary spending to constitute ~70% of the consumer wallet by 2025

Growing income and rising disposable income over the next two decades will result in the discretionary spending to increase from ~52% in 2005 to

~70% of the customer wallet by 2025 (source MGI). The growing discretionary spending will thus result in demand for appliances, communication,

healthcare etc.

Appliances industry to be a significant beneficiary of the rapid urbanization and growing income

The appliance industry will be a significant beneficiary of the rising income, growing middle class and increasing urbanization in the country.

Also, under-penetration and growing perception of considering appliances as necessity will result in high demand. The appliance market is expected

to witness a CAGR of 11.4% during 2005-2025 in urban India (source MGI) and companies which are market leaders in various home appliance

categories will see high growth rates over the next two decades.

We have covered 6 companies (3 initiating, 2 Unrated and 1 update) which are market leaders in the primary product

categories where they operate and will be significant beneficiary of the consumption demand.

Table: Valuation

Company Rating

Target

Price

Revenue (Rs mn) PAT (Rs mn) ROE (%) PER (x) EV/EBITDA (x)

FY11A FY12E FY13E FY11A FY12E FY13E FY11A FY12E FY13E FY11A FY12E FY13E FY11A FY12E FY13E

TTK Prestige ACCUMULATE 3,106 7,636 11,145 14,451 843 1,190 1,600 54 50 46 38.2 27.1 20.1 25.9 17.9 13.4

TBFV BUY 203 1,023 1,485 2,039 160 198 307 19 15 19 24.5 19.9 12.8 12.2 9.1 7.0

Symphony Ltd. BUY 1,523 2,905 3,630 4,665 506 659 888 42 37 37 17.8 13.7 10.1 12.9 8.6 5.9

V-Guard Ind. ACCUMULATE 244 7,263 9,382 11,858 390 488 607 25 26 26 16.4 13.1 10.6 10.6 8.5 7

Hawkins Cookers NOT RATED NA 3,315 NA NA 318 NA NA 75 NA NA 27.0 NA NA 18.1 NA NA

Hitachi Home NOT RATED NA 7,632 NA NA 332 NA NA 21 NA NA 10.9 NA NA 8.0 NA NA

Source: Company, IDBI Capital Research

Arun Baid +91-22-4322 1258 [email protected]

4


The Indian consumption demand is expected to be robust due to various factors such as young population, rising

disposable income and middle class, growing urbanization etc. The increase in consumption demand thus provides many

investment opportunities. In our report we have covered some of the beneficiaries of the increased consumption spending

which India is going to see over the next two decade.

Indian GDP to grow ~5 times by 2030

Indian GDP at constant factor cost had grown ~4x during the period 1990-2010. Going ahead as per MGI the GDP is

expected to grow ~5 times by 2030. The increase in GDP will be beneficial to many sectors.

Figure: GDP at constant prices has quadrupled during 1990-2010

Source: ADB; IDBI Capital Research

Figure: GDP growth

Source: MGI; IDBI Capital Research

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

(Rs

bn)

0

20

40

60

80

100

120

140

160

180

200

220

240

1990 1995 2000 2005 2010 2015 2020 2025 2030

Per

cap

ita d

ispo

sabl

e in

com

e–r

eal 2

008

(Rs’

000) Urban

All India

Rural

ProjectionHistory

GDP growth 6.5% 7.4%

Population growth 1.8% 1.1%

6.4

6.1

4.2

239

136

67

4.3

3.2

5.4

Compound annual growth rate (%)

CAGR 7.7 %


5

Private consumption to increase ~2.5x by 2025

Private consumption has increased ~2x during 2003-09. The contribution of private consumption to GDP has been

~60% over the last decade and been the driver of the GDP growth. Going ahead it will continue to be a major driver of

GDP and is expected to increase ~2.5x to Rs70 trn by 2025 (Source: MGI). The rise in consumption is going to

primarily come from rising income (~80%) followed by increase in number of household (~16%) (Source: MGI).

Figure: GDP at constant prices break-up


The consumption demand in India has been strong over the past decade driven by:

Increase in MSP resulting in higher income in the hands of rural India

The MSP (minimum support prices) of various food crops have increased by a CAGR of ~14% to 22% during 2006-10

(vs. a CAGR of 6-8% during 1983-84 to 2004-05) whereas the non food crops have increased between ~11 to 14% (vs.

a CAGR of 6-8% during 1983-84 to 2004-05). The increased MSP has resulted in higher incomes for the rural

community (~65% of population) and this has triggered a consumption boom.

Figure: MSP of non-food….. increasing trend Figure: MSP of food crops……. rising sharply

Source: RBI; IDBI Capital Research

The prices of agricultural produce are expected to remain high due to population growth being higher than the

agricultural food grain production. The CAGR in population growth during 1990-91 to 2009-10 has been 1.8% whereas

the food grain production has been 1.1% during the same period.

66.3 64.2 59.2 59.1 58.4 58.5 59.5 57.6

11.2 12.911.0 10.9 10.3 10.3 11.5 11.8

23.3 24.0 30.0 31.4 32.4 34.6 33.5 34.1

8.7 11.7 17.6 20.2 22.5 21.6 24.5 21.310.2 13.619.3

23.4 26.1 26.230.7

26.4

(0.5) (1.2) (0.9) (1.0) (1.0) (2.4)

0.3 0.3

FY95 FY00 FY05 FY06 FY07 FY08 FY09 FY10

Private consumption Government consumption Gross domestic capital formation

Exports of goods and services Imports of goods and services Statistical discrepancy

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1997-98 2000-01 2003-04 2006-07 2009-10

(Rs/

Qui

ntal

)

Sugarcane CottonJute Groundnut (in shell)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1985

-86

1987

-88

1989

-90

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

2009

-10

(Rs/

Qui

ntal

)

Paddy common Coarse cerealsWheat Gram

6


Higher television penetration, growing telephony and internet usage raising aspiration demand

The penetration of television, telephone and internet has increased significantly in the county over the last decade.

In particular, the penetration of cable & satellite TV has been significant over the last two decades in rural/semi-urban

India and has thus increased exposure to aspiration lifestyles. With increased disposable income of the urban/rural

masses and higher exposure to aspiration lifestyle, the consumption demand has seen high growth.

Figure: TV penetration increasing Internet users growing rapidly Rapid Mobile penetration

Figure: Sharp passenger vehicles growth (Cars+UVs) 2-wheelers sales rise briskly

Source: SIAM; Hathway Cable; Euromonitor; TRAI; IDBI Capital Research

45%

50%

55%

60%

65%

70%

75%

80%

85%

0

20

40

60

80

100

120

140

160 20

0320

0420

0520

0620

0720

0820

0920

10

(mn)

TV Households in India (mn)

C&S (%)

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011(m

n)0%

10%

20%

30%

40%

50%

60%

70%

0

100

200

300

400

500

600

700

2002

2003

2004

2005

2006

2007

2008

2009

2010

(mn)

Total wire & wireless (mn)

Telephony Penetration (%)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

(Nos

)

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

(Nos

)

CAGR 18.7%

CAGR 13.7% CAGR 12.4%


7

Growing tourism & travel resulting in higher exposure whereby raising aspiration demand

The number of travels undertaken by Indians has increased significantly over the last decade. The increased travel by

Indians both on the domestic and international front has resulted in higher exposure whereby the aspiration demand

has increased. Also, international tourist arrivals has increased significantly over the past decade whereby increasing

the exposure of the domestic masses. Going ahead, the consumption pattern is going to significantly increase due to

higher exposure which the Indians will have due to growth of travel and tourism.

Figure: Foreign tourist arrival in

India- on an upward trend

Figure: No. of outbound visits by

Indians increasing rapidly

Figure: No. of domestic tourist

visits-on a high trajectory

Source: GOI; IDBI Capital Research

High remittances – spur consumption expenditure

India has been one of the highest recipients of remittances in the world and this has helped in poverty reduction.

Though there are differences with regard to the impact of remittances on poverty reduction, however as per UNCTAD,

empirical estimates show that a 10% rise in remittances as a share of GDP leads to 1.7% reduction in poverty ratio.

Also, remittances have affected some key variables such as per capita income, private consumption expenditure and

personal disposable income.

Figure: Increasing Remittance trend….

Source: RBI; IDBI Capital research

The inflows from remittances have been on an upward trajectory and are relatively more stable, which will thus continue

to fuel the consumption demand in the country.

0

1

2

3

4

5

6

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

(mn)

0

2

4

6

8

10

12

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

(mn)

0

100

200

300

400

500

600

700

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

(mn)

12 1316 17

22 2125 31

44

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

5

10

15

20

25

30

35

40

45

50

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

(US

$ bn

)

Amount (US$ bn) % of GDP

8


Rural income getting broad based from activities beyond agriculture

The rural income which predominantly was dependent on agriculture for the last many decades is now seeing

increased income from non agricultural areas.

Figure: % of usually employed persons by broad industry division – Agriculture share coming down


Figure: GDP contribution by various sectors


The increased income of the rural masses from areas besides agriculture is coming from various social schemes which

have been launched by the Indian governments, focus of many NGOs to increase income generating activities in rural

areas through SHG, empowerment of women, technology for rural India, deployment of IT, better road connectivity etc.

Table: Government social schemes Different VOs/NGOs operating in the rural sector

(Rs bn) 2006-07 2007-08 2008-09 2009-10

NREGA 113 120 271.5 391

SGRY 30 28 75 -

PMGSY 52.25 40.4 75.3 120

SGSY 12 18 21.5 12.5

Source: FICCI; IDBI Capital Research

NREGA: National Rural Employment Guarantee Act

SGRY: Sampoorna Grameen Rozgar Yojana

PMGSY: Pradhan Mantri Gram Sadak Yojana

SGSY: Swarnajayanti Gram Swarjogar Yojana

Types of NGO Numbers

Agriculture 12,897

Animal Husbandry, Dairying & Fisheries 7,481

Environment & forests 15,045

Micro Finance (SHGs) 10,664

Panchayati Raj 6,847

Rural Development & poverty allevation 13,084

Education & literacy 21,470

Tribal Affairs 5,777

Total 93,265

Source: FICCI; IDBI Capital Research

80% 77% 74% 74% 71% 66% 66%

20% 23% 26% 26% 29% 34% 34%

0%

20%

40%

60%

80%

100%

1977-78 1983 1987-88 1993-94 1999-00 2004-05 2007-08

Agriculture Other

47% 42% 36% 30% 27% 23% 18% 17%

14%16%

19%21% 22%

20%21% 20%

3% 4% 5%5% 5%

6% 8% 8%

36% 37% 40% 44% 46% 51% 52% 55%

0%

20%

40%

60%

80%

100%

1957 1967 1977 1987 1997 2002 2007 2009

Agriculture Industry Construction Service


9

Table: Average daily wages for casual workers, MGNREG workers and public workers other than MGNREG

Average daily wage (Rs)

Male Female Person

NSS 64th round (2007-08)

Casual labour in public works other than MGNREG public works

Rural 76.0 70.7 74.5

Casual labour in MGNREG public works

Rural 78.8 79.0 78.9

Casual labour in other type of works

Rural 66.6 48.4 60.3

Urban 86.6 51.3 72.2

Rural + Urban 67.1 48.5 60.7

NSS 61st round (2004-05)

Casual labour In public works

Rural 65.3 49.2 59.3


Rural 55.0 34.9 48.9

Urban 75.1 43.9 68.7

NSS 55th round (1999-2000)

Casual labour in public works

Rural 49.0 39.5 46.7


Rural 45.5 29.4 40.3

Urban 63.3 38.2 58.0

NSS 50th round (1993-94)

Casual labour in public works

Rural 24.7 18.5 22.4


Rural 23.2 15.3 20.5

Urban 32.4 18.5 28.8

Source: National Sample Survey (NSS); IDBI Capital research

Rural income has also seen an increase due to the increasing urbanization. As per MGI it is estimated that people who

live close to cities have an income which is higher by 10-20% than average rural income due to increased access to

jobs, markets and connecting infrastructure. Also, with the growth in urban areas many rural people have become

entrepreneurs and have thus seen an increase in income.

Figure: Rural Household income – rising rapidly

Source: CII; IDBI Capital research

As per National Sample Survey (NSS) rural households with non-agriculture as the main source of income are far

higher spenders than agricultural households.

61%

41%26%

35%

50%

48%

3% 7%

22%

1% 1% 2%1% 2%

0%

20%

40%

60%

80%

100%

2005 2015 2025

< INR 90 thousand INR 90-200 thousand INR 0.2-0.5 mn INR 0.5-1.0 mn > INR 1 mn

10


Rising land and precious metals prices having a wealth effect

The prices of land and precious metals (gold and silver) have increased significantly over the past decade. As most of

the rural saving is in the form of land/precious metals, the rising prices of both, has made the rural masses wealthier

and thus boosted consumption.

Table: Gold Price (Rs/10gm) – rising consistently Table: Silver Price (Rs/KG) – increasing gradually

Source: Bloomberg; IDBI Capital Research


0

5,000

10,000

15,000

20,000

25,000

30,000

Oct

-05

Mar

-06

Aug

-06

Jan-

07

Jun-

07

Nov

-07

Apr

-08

Sep

-08

Feb

-09

Jul-0

9

Dec

-09

May

-10

Oct

-10

Apr

-11

Sep

-11

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Oct

-05

Mar

-06

Aug

-06

Jan-

07

Jun-

07

Nov

-07

Apr

-08

Sep

-08

Feb

-09

Jul-0

9

Dec

-09

May

-10

Oct

-10

Apr

-11

Sep

-11


11

Consumption demand to remain strong over the next two decades driven by:

Urbanization to increase to ~54% of total population by 2050

As per United Nations (UN) urban population in India is expected to increase ~2.5 times to ~875.2 mn during 2010-50.

The percentage of population living in urban areas will increase from ~30% in 2010 to ~40% in 2030 and ~54%

by 2050.

As urbanization increases GDP growth will be faster because increased density of population produces scale benefits

that improves productivity which in turn enhances growth - thus creating a virtuous cycle.

Figure: Growing urbanization trend in India

Source: United Nations (UN); IDBI Capital research

It has been seen that states that have had the fastest economic growth had the highest rates of urbanization.

Figure: Fastest-growing states also had the highest urbanization rates

GDP 2008, 2008 Price

Source: MGI; IDBI Capital research; India Urbanization Econometric Model

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

(mn)

Total population (mn) Percentage urban (%)

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

GD

P 1

990–

2008

: Com

poun

d an

nual

gro

wth

rate

(%)

Urbanization 2008 (%)

DelhiPondicherry

GujaratHaryana

Uttaranchal

Karnataka

Maharashtra

Tamil

Nadu

Punjab

West Bengal

Chhattisgarh

Jharkhand

Madhya Pradesh

Uttar

Pradesh

Bihar

North East

Jammu &

Kashmir

Rajasthan

Orissa

Andhra

Pradesh

Himachal

Pradesh

Kerala

12


Indian population to remain young

The average mean age in India is 24 years (Source: ASSOCHAM) with ~48% of population below the age of 25 years

and ~92% below the age of 60 years in 2010. As per United Nations, India will continue to have a young population and

will have ~39.4% below the age of 25 years and ~87% below the age of 60 years by 2030.

Figure: Age group distribution- India to have a young till 2050

Source: United Nations; IDBI Capital research

A young population with increasing urbanization will result in high consumption demand growth over the next two

decades.

Working age group population in India to increase by ~230 mn during 2010-30

As per United Nations the percentage of working age group population (classified as people between age group of

1564) is expected to increase from ~64.6% in 2010 to ~67.6% by 2030. Over the next two decades ~230 mn will be

added to the working age group which will thus result in a sustained consumption demand growth.

Figure: Working age population to increase significantly (mn)

Source: United Nations; IDBI Capital research

30.0% 28.0% 26.3% 25.0% 23.5% 21.4% 19.8%

62.0% 63.0% 63.5% 63.6% 63.3% 61.9% 60.1%

8.0% 9.0% 10.0% 11.6% 13.2% 16.7% 20.1%

0%

20%

40%

60%

80%

100%

2010 2015 2020 2025 2030 2040 2050

0-14 15-59 60-100+

758

888988

0

200

400

600

800

1,000

1,200

2010 2020 2030


13

Service sector to continue seeing high growth

The service sector has been the growth driver of the Indian GDP and would continue to be so over the next two

decades. As per MGI, service sector is expected to grow at an average of 8.2% during the period 2008-30.

Figure: Services sector on an uptrend

Source: ADB; IDBI Capital research

Some of the important contributors to the growth of the service industry have been the IT-BPO industry and tourism

industry. Both these sectors are expected to see high growth in the years ahead.

Figure: Services & Tourism GDP contribution

Source: NASSCOM, World travel and tourism council; IDBI Capital research * FY10 data

As per NASSCOM the IT-BPO industry is expected to grow ~3.7x times during 2009-20. The IT-BPO sector employed

10.5mn (~2.3 mn directly and ~8.2 mn indirectly in support activities such as transport, security, catering etc) in FY2010

which is expected to increase to 30 mn (direct and indirect) by 2020.

Figure: IT-BPO industry

Total Software Revenues Direct employment Indirect employment

Source: NASSCOM; IDBI Capital Research

40.0%

42.0%

44.0%

46.0%

48.0%

50.0%

52.0%

54.0%

56.0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(% o

f GD

P)

6%

5%

0

2

4

6

8

ITES* Tourism

(% o

f GD

P)

60

112

225

0

50

100

150

200

250

2009 2014 2020

(US

$ bn

)

0.4

0.6

0.8 1.1 2.

0

2.2

2.3

10.0

0

2

4

6

8

10

12

2003

-04

2004

-05

2005

-06

2006

-07

FY

08

FY

09

FY

10

2020

(mn)

8.2

20.0

0

5

10

15

20

25

FY10 2020

(mn)

14


The travel & tourism industry is a major employment providing industry in the country. The government has been

focusing on developing this industry and has launched various initiatives to promote it. As per World Travel & Tourism

Council (WTTC) the travel and tourism industry in India (including its wider economic impact) is expected to increase

~2x during 2011-2021. Also the total employment (including jobs indirectly supported by the industry) is expected to

increase from 37.65 mn in 2011 to 47.48 mn in 2021.

Figure: Travel and Tourism industry

GDP contribution Indirect employment

Direct employment

Source: WTCC; IDBI Capital Research

The growing travel and tourism industry and the IT-BPO industry will lead to increased domestic consumption, higher

employment opportunities and increase disposable income.

Per capita income to grow by ~18 times to US$22,000 by 2039

The per capita income of India has more than doubled in the last decade to Rs54,527 in 2010-11. As per Emerging

Market Forum, the per capita income is expected to increase ~18 times by 2039 to ~US$22,000 adjusted for inflation

and real exchange rate movements.

Figure: Per capita income rising steadily (Rs)

Source: RBI; IDBI Capital research

0%

1%

2%

3%

4%

5%

6%

7%

2,500

3,500

4,500

5,500

6,500

7,500

8,500

9,500

2008 2011 2021

(Rs

bn)

GDP (Rs bn) As a % of GDP

7.0%

7.3%

7.6%

7.9%

8.2%

10

20

30

40

50

2011 2021

(mn)

Indirect employment (mn) % of total employment

24.9

30.4

0

5

10

15

20

25

30

35

2011 2021

(mn)

0

10,000

20,000

30,000

40,000

50,000

60,000

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

CAGR 11.9%


15

The increasing per capita income will result in higher consumption demand especially in India as the mass population

has an unmet latent demand due to earlier lower income.

Average real household disposable income to grow ~3x by 2025

As per MGI average real household disposable income will have a CAGR of 5.3% from Rs113,744 in 2005 to

Rs318,896 by 2025. The disposable income CAGR is significantly higher than in the past and this shall result in

increased consumption demand.

Figure: Household income growth will accelerate across India

Source: MGI; IDBI Capital research

Disposable income to grow at 15% pa during 2010-20

The disposable income is going to significantly increase over the next few years. As per CII the per capita disposable

income growth during the period 2001-10 was 14% pa and for the next decade, 2010-2020 it is expected to be 15% pa.

The increase in disposable income is likely to enhance consumption spending.

Middle class to grow by ~12x during the period 2005-2025

As per MGI the middle class (earning between 0.2-1 mn pa) in India is expected to grow from 50 mn people to 583 mn

during 2005-2025. Middle class who constituted ~5% of the total population in 2005 will constitute ~41% of the total

population and ~58% of the total income by 2025.

Figure: Middle class to grow rapidly


0

100

200

300

400

500

1985 1990 1995 2000 2005 2010 2015 2020 2025

Ave

rage

hou

seho

ld d

ispo

sabl

e in

com

e (R

s’00

0)

5.8%

5.3%

3.6%4.6%

2.8%

3.6%

Urban

All India

Rural

ForecastActual

2005–2025

1985–2005

50

583

0%

6%

12%

18%

24%

30%

36%

42%

48%

0

100

200

300

400

500

600

700

800

2005 2025

(mn)

Middle class population (mn) % of population

16


The growing middle class in the country over the next two decades with increased income will result in consumption

boom. As a major portion of people move from below middle class to middle class, categories such as home

appliances, healthcare, transportation will see sustained high demand over the next two decade.

Improving education profile to increase skilled workers thus enabling income growth

With Indian GDP expected to grow at a brisk rate there is a need for skilled workers. The government/private sector has

been focused on increasing the skill set as well as education impartment.

Figure: Current education facilities

Primary Education Upper Primary facilities increasing

High/Hr. sec/Inter/Pre-Jr. Colleges Colleges for General Education

Colleges for Professional Education Univ/Deemed univ/Inst. of National Importance


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,00019

55-5

6

1965

-66

1975

-76

1985

-86

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1955

-56

1965

-66

1975

-76

1985

-86

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

1955

-56

1965

-66

1975

-76

1985

-86

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1955

-56

1965

-66

1975

-76

1985

-86

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1955

-56

1965

-66

1975

-76

1985

-86

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

0

50

100

150

200

250

300

350

400

450

1955

-56

1965

-66

1975

-76

1985

-86

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2006

-07


17

With improvement in education level and skill set, the income of people is expected to increase. The increased income

will further fuel consumption demand.

Table: Avg. wage/salary earnings per day by regular wage/salaried employees of age 15-59 yrs for diff broad

general education level during 2007-08 (Rs/day)

Category of

persons

Non-

literate

Literate &

upto middle

Secondary &

higher secondary

Diploma/

Certificate

Graduate &

above All

Rural

Male 90.97 123.19 190.82 247.08 298.21 175.3

Female 50.8 62.81 110.69 210.53 213.61 108.14

Male + Female 78.71 114.22 177.49 239.42 281.98 162.94

Urban

Male 117.08 143.41 221.29 339.17 510.89 276.04

Female 68.86 91.53 159.36 228.98 380.97 212.86

Male + Female 98.22 137.21 214.33 318.87 482.89 265.18

Rural + urban

Male 103.73 134.95 210.04 307.91 452.26 238.41

Female 61.32 77.75 136.01 222.04 339.55 171.68

Male + Female 88.88 127.41 200.19 291.34 428.69 226.64

Source: NSSO; IDBI Research

Table: The aggregated future scenario, 2008-09 to 2025-26

Sector

Projected

Employment

in 2025-26 (mn)

Incremental

Employment in

2008-09 to 2025-26 (mn)

Professional, technical & related workers 24.7 9.2

Administrative, executive & managerial workers 34.5 20.3

Clerical & related workers 12.4 2.1

Sales workers 54 22.8

Service workers 27.2 11.2

Farmers, fisherman, hunters, loggers 427.7 215.2

Workers in mines, metals, wood, chemicals, garments, tannery, food & tobacco 28.3 8.4

Workers in leather, wood, stone, iron, machinery, electrical, sound equipment, plumbers, jewelers, glass

27.4 10.3

Workers in rubber, paper, printing, painting, construction, equipment operators 191.9 139.2

Not classified 1 0.1

Source: Teamlease; IDBI Capital Research

18


Discretionary spending to constitute ~70% of total spending by 2025

With rapid urbanization, growing income and increased exposure, Indian consumer spending pattern is going to see a

metamorphic change. The share of necessities (food, beverages, tobacco and apparel) is going to decrease from ~48%

of average household expenditure in 2005 to ~30% in 2025.

Figure: Discretionary spending pattern to increase


Figure: Rural-Monthly per capita expenditure Urban-Monthly per capita expenditure

Source: NSSO; IDBI Capital Research

Increasing discretionary expenditure will result in higher demand for household products and consumer appliances as

the penetration of these has been low. Also, with increasing income home appliances which are now considered to be a

discretionary (due to low income) will gradually be considered as necessities (similar to mobile phones) whereby the

demand will be very high. We believe this to be very beneficial for companies covered by us as they are the market

leaders in each of the product categories and the penetration of these products is still low which thus provides them

ample opportunity to grow.

Due to the consumption boom in the country many sectors will be the beneficiary of it. However, in our report we have

focused on the home appliances and the wellness market as we believe these will be significant beneficiary of the

consumption growth.

56%42%

34%25%

5%

6%

5%

5%

14%

12%

12%

10%

4%

8%

9%

11%

11%17%

19%

20%

3% 5%6%

9%

4% 7% 9% 13%

0%

20%

40%

60%

80%

100%

1995 2005 2015 2025

Food & beverages Apparel Housing & utilites Household products Personal products & srevices

Transportation Communication Education & recreation Healthcare

64 63 59 55 54

36 37 41 45 46

0%

20%

40%

60%

80%

100%

1987-88 1993-94 1999-2000 2004-05 2009-10

Food total Non -food total

56 55 48 43 41

44 45 52 58 59

0%

20%

40%

60%

80%

100%

1987-88 1993-94 1999-2000 2004-05 2009-10

Food total Non -food total


19

Appliances to be a significant beneficiary of increased income, low penetration & urbanization

The home appliances market in India will see a significant growth due to the increased income, lower penetration and

growing urbanization. Also the need for comfort and convenience in urban households as both partners work and thus

the perception of appliances will change from luxury to necessity which will lead to a rapid growth for the home

appliance market. Besides the growing upper middle class in India will also drive the demand for appliances as they will

have multiple requirement of these ( eg several air-conditioners/air coolers in the same household).

Another major growth driver of appliance market will be the growing middle class in India. The middle class is expected

to increase by ~12 times by 2025 and as income of this strata rises, the demand for appliances will see a significant

increase.

As per the MGI the appliances market is expected to see a CAGR of 11.4% during 2005-2025 and will be Rs470 bn

market by 2025.

Figure: Urban growth across subcategories (Rs bn)


54 161

470

68

159

338

81

176

361

203

495

1,168

0

200

400

600

800

1,000

1,200

1,400

2005 2015 2025

Appliances House wares and furniture Household non-durables

20


Company Section

COMPANY

REPORT

October 13, 2011

TTK Prestige Ltd.

Adding Prestige to the portfolio

COMPANY

REPORT

CMP Rs2,842

Target Price Rs3,106

Potential Upside/Downside +9%

Relative to Sensex

Summary

TTKPT is a leading player in the kitchenware market in India with a well established brand and a pan India presence. It has over the last decade diversified from a one product company (pressure cooker) to a Kitchenware company. Its earnings have grown at a CAGR of ~63% during FY06-11 and will witness a CAGR of 38% during FY11-13. TTKPT is a play on the increasing income, urbanization and shift from unorganized to organized players in the kitchenware market in the country. We initiate with ACCUMULATE and a price target of Rs3,106. (22x FY13)

Investment Highlights

A leading player in the pressure cooker market with a strong brand name

TTKPT is one of the largest players in pressure cooker market in India and is a dominant name in this category. The pressure cooker market (~60% organized) is growing at ~10-15% whereas TTKPT has been growing at ~20%. Management has guided ~20% growth to be sustainable for 2-3 years.

Diversified product portfolio

TTKPT has over the past decade diversified its product portfolio and has added cookware and kitchen appliances. The revenue contribution of pressure cooker has decreased from ~59% in FY06 to ~41% in FY11 and will further reduce to ~35% by FY13E.

Kitchen appliances & cookware to aid future growth

TTKPTs kitchen appliances/cookware had a CAGR of 65%/56% in revenues during FY09-11 and the revenue contribution from these segments increased from 33% in FY09 to 45%in FY11. Going ahead these segments are expected to see a CAGR of ~50% during FY11-13.

Operating margins to remain stable at ~16%

TTKPT OPM in FY12 is expected to increase marginally by ~35 bps to 16.3% due to operating leverage. In FY13 the OPM will remain stable.

Revenue/PAT CAGR of 38% during FY11-13E

TTKPT revenue growth is going to be led by electric appliances and cookware segment. These segments are going to see a high growth due to under penetration and rising disposable income. Also the increasing number of PSK stores will aid the growth of these segments. Revenue/PAT is expected to witness a CAGR of 38% during FY11-13.

Return ratios to remain healthy despite ~Rs2.3 bn capex undertaken in FY12

TTKPT return ratios are expected to remain healthy during FY11-13 due to high growth in all its product segments despite ~Rs2,300 mn incurred in FY12 for increasing capacities of the pressure cooker and cookware categories. The ROE/ROIC is expected to decline to 41.8%/46.4% by FY13.

Attractive Valuations:

TTKPT is a play on the mass consumption market in India and is expected to witness a CAGR of ~38% in earnings during FY11-13. It is well positioned to capitalize on the rising disposable income and growing urbanization in the country. There are not any listed comparable players which operate in the similar space and thus we have compared it to consumption companies (Jubilant Foodworks, Page Industries, Titan Industries etc) which are the closest peer set. The consumption companies trade at an average PER of ~30x FY13 whereas TTKPT trades at 20.1x FY13. As TTKPT has high growth visibility, sustainable OPM and better return ratios, it can trade at similar multiples. However, we have been conservative and have valued TTKPT at 22x FY13 (~25% discount) and initiate with a ACCUMULATE and a target price of Rs3,106.

Source: Capitaline

ACCUMULATE

Nifty: 5,099; Sensex: 16,958

Analyst

Arun Baid

+91-22-4322 1258

[email protected]

Sector Consumer Durables

Bloomberg / Reuters TTKPT IN / TTKL.BO

Shares o/s (mn) 11.3

Market cap. (Rs mn) 32,173

Market cap. (US$ mn) 653

3-m daily average vol. 45,811

Key Stock Data

52-week high/low Rs3,200/1,101

-1m -3m -12m

Absolute (%) 1 4 135

Rel to Sensex (%) (2) 12 151

Price Performance

Promoters 74.9

FIIs/NRIs/OCBs/GDR 7.1

MFs/Banks/FIs 5.8

Non Promoter Corporate 1.5

Public & Others 10.7

Shareholding Pattern (%)

Financial snapshot (Rs mn)

Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) PE (x) EV/EBITDA (x) RoE (%) RoCE (%)

FY10 5,079 750 14.8 485 42.8 66.5 42.4 46.4 40.6

FY11 7,636 1,218 15.9 843 74.4 38.2 25.9 53.4 50.1

FY12E 11,145 1,817 16.3 1,190 105.0 27.1 17.9 49.6 45.5

FY13E 14,451 2,355 16.3 1,600 141.2 20.1 13.4 46.4 41.8

Source: Company; IDBI Capital Research

70

100

130

160

190

220

250

280

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

TTKPT Sensex

22

Company Report – TTK Prestige Ltd.

Investment Positives

A major player in the domestic pressure cooker market

TTKPT is one of the largest organized players in the pressure cooker industry. The pressure cooker industry over the

last few years has moved from unorganized to organized market (~60% of the industry). TTKPT and Hawkins are two

major national players in the organized market and together they account for ~50-60% of the organized market.

Besides these two players there are other regional players like United, Butterfly, Vinod and Pigeon etc.

The Indian pressure cooker market is growing at ~10-15% and is estimated to be ~Rs9,500 mn (source: company).

TTKPT however is growing at ~20% due to the shift from unorganized market to organized players and increased sales

from inner lid pressure cookers. TTKPT had launched the inner lid pressure cookers a few years ago and as it has a

major demand in Northern and Eastern India; it has resulted in high growth in this product for the company.

TTKPT has a strong brand name in this category and has a well established dealer network. As per the company its

product are sold in ~ 30,000 outlets and it has a presence in 85% of the outlets which sell pressure cookers throughout

the country.

Strong brand name leveraged to become a kitchenware company

TTKPT has been one of the pioneers in the pressure cooker market in India and has built a strong brand name.

The company over the last decade has leveraged its brand name and has expanded its product and become a

kitchenware company.

It has added cookware and kitchen appliances (induction tops, mixer grinders, rice cookers, toasters etc.) besides

pressure cookers and now offers complete kitchen ware products. The expansion of the product portfolio thus provides

better revenue visibility.

Figure: The Prestige product portfolio


Preparation before

cooking

Food

preparation

Kitchen

supplements

Kitchen

Hardware

Chopping Pressure cooking Heaters Chimneys

Blending Cooking ToastingModular Kitchen

furniture

GrindingSautéing, frying

etc.Beverage makers

Storage

management

Processing Baking

Mixer grinders

Food Processors

Choppers

Blenders

Juicers

Wet Grinders

Knives

Pressure cookers

Non stick cookware

LPG gas Stoves

Induction Cook tops

LPG Hobs

OTG’s

Microwave ovens

Rice Cookers

Barbecues

Kettles

Pop up

Toasters

Sandwich toasters

Coffee Makers

Tea Makers

Complete kitchen

Solutions.

Service business


23

Wide distribution network

TTKPT has built a wide spread distribution network and markets its products through various modes such as dealers,

exclusive outlets, Canteen Stores departments and Modern retail formats (Big Bazaar, Reliance retail etc).

TTKPT has a strong presence in the traditional dealer network. It sells its products through ~30,000 traditional retail

outlets which are spread across the country.

Over the last few years the company has also started Prestige Retail Outlets (PSKs) which exclusively sell TTKPT

products. The PSKs are owned and managed by the franchisees and there are ~285 PSKs spread across the country.

The setting up of PSKs has enabled in expanding its portfolio to kitchen appliances too.

TTKPT also has a presence in the modern retail format stores like Big Bazar, Reliance Retail etc where its products are

sold under the brand ‘Prestige’. Besides modern retail it also sells its products to Canteen Stores Department (CSD).

Figure: Sales channel distribution contribution


Diversified product mix

TTKPT over the last decade has diversified from being a pressure cooker company to a kitchenware player who also

deals in cookware and electrical appliances.

Figure: Revenue break-up

FY06 FY11 FY13


We believe the increased diversification of the company holds it in good stead as it is no longer dependant on a single

product. Also, it has resulted in exploiting its brand potential and distribution network.

Traditional dealers63%

Cateen stores department (CSD) & others

12%

PSK15%

Modern Retail10%

59%

15%

19%

7%

41%

20%

36%

3%

35%

25%

37%

3%

Pressure cooker Cookware Appliances & gas Others

24


A prudent mix of manufacturing and outsourcing model to be beneficial in the long run

TTKPT focuses on the manufacturing of its core products pressure cookers and cookware whereas it outsources the

production of kitchen appliances. It also does partial outsourcing of cookware too.

The company has outsourced the production of kitchen appliances as this enables it to keep control over costs and also

have a wide product portfolio in the segment without incurring any significant capital expenditure. The electrical

appliances are outsourced to vendors who meet the quality parameters laid by the company.

Figure: Production-outsourcing mix


All product categories to see strong growth

TTKPT is going to witness a high growth in all its product categories. The pressure cooker segment is expected to see

a ~27% CAGR during FY11-13 due to increasing income, shift from unorganized to organized players, increasing

urbanization and growing demand.

TTKPT’s kitchen appliances and cookware segment is expected to have a CAGR of ~50% respectively during

FY11-13E. The high growth from these segments is due to the increasing PSKs, lower penetration and higher

disposable income.

Table: Pressure cooker and cookware growth

FY07 Growth FY08 Growth FY09 Growth FY10 Growth FY11

Pressure cooker

Units (pcs) 1,825,736 17% 2,133,118 11% 2,375,223 19% 2,824,814 32% 3,718,903

Revenue (Rs mn) 1,634 14% 1,861 18% 2,203 9% 2,407 32% 3,169

Realization (Rs/pc) 895 (3)% 872 6% 928 (8)% 852 0% 852

Cookware

Units (pcs) 1,179,119 1% 1,193,269 28% 1,526,222 27% 1,938,270 83% 3,543,132

Revenue (Rs mn) 435 24% 540 18% 636 37% 873 76% 1,540

Realization (Rs/pc) 369 23% 452 (8)% 416 8% 450 (3)% 435


Outsourcing35%

Manufacturing65%


25

PSKs to aid growth and also branding of the company as a kitchenware player

TTKPT had launched its first exclusive Prestige Smart Kitchen (PSK) in 2003 and now has ~285 PSKs (FY11) all of

which are owned and operated by the franchisees. The PSKs exclusively sell prestige products and has enabled

TTKPT to have a significant presence in the kitchen appliances market besides the cookware and pressure cooker

market. Also these stores have transformed TTKPT from being known as a pressure cooker player to a kitchenware

player.

TTKPT plans to add ~215 stores over the next two years and have ~500 stores by FY13. The PSKs are spread across

the country but have a higher presence in the South Indian markets (~65%).

Figure: No. of PSK outlets


We believe TTKPT is now in a position to launch other kitchenware products such as tableware, cutlery etc led by the

PSK network and this can enable a higher sustained growth for the company. However, we have not factored any

revenues from this potential market.

Capital expenditure of ~Rs2,300 mn to fuel future growth

TTKPT is incurring a capital expenditure of ~Rs2,300 mn in order to meet the growing demand for its pressure cooker

and cookware segment. The company plans to double its pressure cookers capacity and triple its cookware capacity.

The capital expenditure would be incurred during CY11 while the capacities are expected to come on stream partly in

FY12 and partly in FY13. This capital expenditure would be funded primarily by internal accruals and some by debt.

TTKPT has been a debt free company but due to the planned capital expenditure it will raise some debt ( ~Rs442 mn)

in FY12. However, by FY13 it will again become a debt free company.

Revenue/PAT to witness a CAGR of 38% during FY11-13E

TTKPT had revenue CAGR of 28% during FY06-11. Going ahead, the top line will witness a CAGR of 38% during

FY11-13 due to high growth seen by all its product segments. TTKPT bottom line had a CAGR of ~110% during FY06-

11 and is expected to witness a ~38% CAGR during FY11-13 due to top line growth and stable OPM.

18

180

228

285

0

50

100

150

200

250

300

350

FY04 FY07 FY10 FY11

CAGR 48%

26


Figure: Revenue and PAT


OPM to remain stable at ~16%

TTKPT OPM in FY11 increased by ~110 bps to 15.95% due to increased contribution from high margins products

(pressure cooker and cookware) and operating leverage. In FY12, the OPM will marginally increase by ~35 bps to

16.3% due to operating leverage. However in FY13, the OPM will remain stable at ~16.3%.

TTKPT is able to maintain margins despite raw material pressure as it has a strong brand and is thus able to pass on

the raw material price increase to the consumer. Also by expanding its product portfolio there has been operating

leverage which has resulted in a sustainable OPM. The strategy of outsourcing of kitchen appliances also has resulted

in keeping a control over costs and thus maintaining margins.

We expect the OPM of TTKPT to be ~16% going ahead too despite increased turnover from lower margin products

(kitchen appliances) due to high growth also seen in better margin products ( pressure cookers and cookware) and

operating leverage

Figure: OPM to remain stable


0

4,000

8,000

12,000

16,000

FY08 FY09 FY10 FY11 FY12E FY13E

(Rs

mn)

PAT Revenues

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E


27

Return ratios to remain healthy

TTKPT has historically seen high return ratios. Going ahead, the return ratios would continue to remain high but would

see some decline due to the planned capital expenditure in CY11, the benefits of which would accrue over the next

two-three years. TTKPT is expected to have a ROE/ROIC of 46.4%/41.8% in FY13

Figure: RoE Figure: RoCE


Value unlocking from Bengaluru land may be another trigger

TTKPT had shifted one of its factory from Bengaluru which has freed land and it has decided to develop this land. As

per the agreement with the developer (Rajmata Realtors (Salarpuria)) the land would be developed by the builder and

TTKPT would get a share of the developed area. The company expects to see a one-time income of ~Rs1 bn from this

land and an annual rental income of Rs80-100 mn. The inflow from land is expected to come from FY14/FY15.

10%

20%

30%

40%

50%

60%

FY09 FY10 FY11 FY12E FY13E

10%

20%

30%

40%

50%

60%

FY09 FY10 FY11 FY12E FY13E

28


Outlook and Valuation

Attractive valuations - Accumulate with a target price of Rs3,106

TTKPT is a play on the growing mass consumption market in India. It is well positioned to capitalize on the rising

disposable income and growing urbanization in the country. TTKPT is expected to witness an earning CAGR of 38%

during FY11-13E.

There are not many listed comparable players which operate in the similar space. However, the closest comparable

peers to it would be the consumption companies. The average consensus PER at which these companies trade is ~30x

FY13E whereas TTKPT trades at 20.1x FY13. TTKPT can trade at similar multiple as its comparable peerset due to

superior growth prospects, unique business model and higher return ratios. However, we have been conservative and

have valued TTKPT at 22x FY13E (~25% discount to its comparable peerset). We initiate with an Accumulate and a

target price of Rs3,106.

Table: Peer comparison

Revenue (Rs mn) Net Income (Rs mn) P/E (x) EV/EBITDA (x) ROE (%)

Company Mkt Cap

(Rs mn)

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

Page Industries 28,195 4,947 6,693 8,774 560 866 1,140 50.5 33.3 25.5 31.5 21.2 16.4 50.9 58.3 57.5

Jubilant Foodworks 58,446 6,635 10,103 13,933 725 1,069 1,578 79.2 54.2 36.5 48.4 30.4 21.4 45.9 43.4 42.9

Titan Industries 195,313 63,881 84,316 100,214 4,572 5,948 7,409 42.7 32.8 26.3 29.2 23.2 19.0 50.8 47.3 43.0

Lovable Lingerie 8,329 1,174 1,407 1,811 168 237 282 49.6 35.2 29.5 36.9 30.8 23.6 40.9 15.5 16.1

Average 30 20

TTK Prestige * 32,157 7,636 11,145 14,451 843 1,190 1,600 38.2 27.1 20.1 25.9 17.9 13.4 53.4 49.6 46.4

Source: Company; IDBI Capital Research, * IDBI estimates

Concerns

Unorganized sector: In all segments where TTKPT operates, the unorganized sector has a significant presence.

In case the company is unable to manage competition, it can affect the growth.

Increase in raw material prices: Any increase in raw material cost and inability to pass it will affect the

profitability adversely.

Slow down in the economy: A slowdown in economy will affect the growth of the company.

Inability to maintain the distribution network: Distribution is an integral part of the business and inability to

retain it will affect the growth adversely.

Increased competition from modern retail: Modern retail is expanding its foot print into the country and as they

are creating their own private label it can affect the future growth of the company.

Fall in commodity prices: A substantial fall in commodity prices will offset the benefit of a higher volume growth

whereby impacting the total value/sales growth.


29

About the company

TTKPT is a Bangalore based company and has been in the pressure cooker industry for many decades. It is one of the

pioneers in getting the pressure cooker into the Indian markets and is a prominent player in the kitchenware market in India.

TTKPT diversified its product portfolio over the last decade and today markets besides pressure cookers, cookware and

kitchen appliances. It has transformed itself from a pressure cooker player to a kitchenware company.

TTKPT has built a strong brand name in the kitchenware market and is one of the few national players in this industry. It has

also built a strong dealer network which encompasses the entire breadth of the country. Besides having a traditional dealer

network it has also strong presence in modern retail formats and CSDs.

TTKPT in order to capture the growing kitchenware market has also stated the Prestige Smart Kitchen (PSKs).

These stores are owned and managed by the franchisees who exclusively deal in products of the company. There are ~285

such stores spread across the nation and the company targets to have ~500 such stores by FY13.

TTKPT has manufacturing facilities at Hosur (Tamil Nadu), Coimbatore (Tamil Nadu) and at Roorkee (Uttarakhand).

These plants manufacture pressure cookers and cookware. The company plans to incur a capital expenditure of Rs2,300

mn in FY12 to increase the capacities of its pressure cooker and cookware. It also plans to build another plant at Baroda,

Gujarat to manufacture pressure cooker and cookware. At this plant it will manufacture some kitchen appliances too.

Table: Plant location and products manufactured

Plant Manufacturing

Hosur, Tamil Nadu Pressure cooker and cookware

Coimbatore, Tamilnadu Pressure cookers

Roorkee, Uttarakhand Pressure cookers


TTKPT outsources the manufacture of electrical appliances and also some part of its cookware requirement. These are

manufactured by vendors who meet the quality parameters set by the company.

TTKPT over the past few years has transformed from being South India dominated sales company to a pan India player.

Currently ~40% of its turnover comes from regions other than South India.

TTKPT is run by a professional team and the company employees ~1,300 people. It is headed by Mr. T T Jagannathan,

who is from the promoter family.

30


Financial Summary

Profit & Loss Account (Rs mn)

Year-end: March FY10 FY11 FY12E FY13E

Net sales 5,079 7,636 11,145 14,451

Growth (%) 26.6 50.3 46.0 29.7

Operating expenses (4,329) (6,418) (9,328) (12,095)

EBITDA 750 1,218 1,817 2,355

Growth (%) 99.4 62.3 49.2 29.7

Depreciation (36) (43) (84) (137)

EBIT 726 1,217 1,758 2,288

Interest paid (11) (8) (58) (3)

Other income 11 42 25 70

Pre-tax profit 754 1,204 1,700 2,286

Tax (230) (366) (510) (686)

Effective tax rate (%) 30.5 30.4 30.0 30.0

Net profit 524 838 1,190 1,600

Adjusted net profit 485 843 1,190 1,600

Growth (%) 116.5 74.0 41.1 34.4

Shares o/s (mn nos) 11 11 11 11

Balance Sheet (Rs mn)


Net fixed assets 640 914 2,531 2,694

Investments 4 4 4 4

Other non-curr assets - - - -

Current assets 2,081 3,336 3,266 4,703

Inventories 613 1,050 1,221 1,584

Sundry Debtors 603 747 1,038 1,425

Cash and Bank 440 535 151 586

Loans and advances - - - -

Total assets 2,725 4,255 5,800 7,400

Shareholders' funds 1,242 1,915 2,882 4,014

Share capital 113 113 113 113

Reserves & surplus 1,128 1,801 2,769 3,901

Total Debt 28 22 442 22

Secured loans 28 22 22 22

Unsecured loans - - 420 -

Other liabilities 59 55 475 55

Curr Liab & prov 1,946 3,147 3,176 4,485

Current liabilities 1,424 2,285 2,443 3,331

Provisions 522 862 733 1,154

Total liabilities 1,483 2,340 2,918 3,386

Total equity & liabilities 2,725 4,255 5,800 7,400

Book Value (Rs) 108 167 254 354


Cash Flow Statement (Rs mn)


Pre-tax profit 754 1,204 1,700 2,286

Depreciation 34 43 84 137

Tax paid (230) (365) (510) (686)

Chg in working capital 372 279 (305) 139

Other operating activities (213) (356) (73) (254)

Cash flow from operations (a) 718 804 897 1,622

Capital expenditure (79) (317) (1,700) (300)

Chg in investments - - - -

Other investing activities - - - -

Cash flow from investing (b) (79) (539) (1,478) (300)

Equity raised/(repaid) 0 0 (0) (0)

Debt raised/(repaid) (179) (6) 420 (420)

Dividend (incl. tax) (132) (164) (223) (468)

Chg in minorities - - - -

Other financing activities 3 - - -

Cash flow from financing (c) (308) (170) 197 (888)

Net chg in cash (a+b+c) 331 96 (384) 434

Financial Ratios


Adj. EPS (Rs) 42.8 74.4 105.0 141.2

Adj. EPS growth (%) 116.5 74.0 41.1 34.4

EBITDA margin (%) 14.8 15.9 16.3 16.3

Pre-tax margin (%) 14.8 15.8 15.3 15.8

ROE (%) 46.4 53.4 49.6 46.4

ROCE (%) 40.6 50.1 45.5 41.8

Turnover & Leverage ratios (x)

Asset turnover (x) 2.2 2.2 2.2 2.2

Leverage factor (x) 2.2 2.2 2.1 1.9

Net margin (%) 9.5 11.0 10.7 11.1

Net Debt / Equity (x) (0.3) (0.4) 0.1 (0.1)

Working Capital & Liquidity ratio

Inventory days 44.0 50.2 40.0 40.0

Receivable days 43.3 35.7 34.0 36.0

Payable days 56.7 60.2 49.0 47.8

Valuation


PER (x) 66.5 38.2 27.1 20.1

Price/Book value (x) 26.4 17.0 11.2 8.0

PCE (x) 61.9 36.4 25.3 18.5

EV/Net sales (x) 6.3 4.1 2.9 2.2

EV/EBITDA (x) 42.4 25.9 17.9 13.4

Dividend Yield (%) 0.4 0.4 0.6 1.2

COMPANY

REPORT

October 13, 2011

Symphony Ltd.

A cool play

COMPANY

REPORT

CMP Rs1,286

Target Price Rs1,522


Relative to Sensex

Summary

Symphony Ltd. is one of the leading domestic players in the air cooler market with a ~20% market share of the total domestic air cooler market and ~45% market share of the organized market. Its main competitors are Kenstar, Bajaj and Usha. Symphony PAT had a CAGR of 110% during FY07-11 and will witness a CAGR of 32% during FY11-13E. Symphony has an asset light business model, low working capital requirement, generates free cash flow and has high return ratios. It trades at a PER of 10.1x FY13. We initiate with a BUY and a target price of Rs1,522.


Increasing temperatures & growing availability of power to boost demand

As per INCCA, the mean average temperature has increased by 0.51C/100 years during the period 1901-2007 and is expected to further increase by 1.7 to 2C by 2030. The rising mean temperatures will result in increased demand for air coolers/conditioners. Also growing availability of power (India plans to add ~0.1 mn MW of power in the 12th plan) will increase the demand for cooling equipments.

Rising income + growing middle class + lower cost of purchase / maintenance = high demand Air coolers will have a strong demand due to rising temperatures, increasing income and growing middle class in the country. Also, as the cost of acquisition (~50% lower) and maintenance of an air cooler is lower as compared to the air conditioner it will see increased off take from the mass market.

Strong brand name with wide spread distributor network

Symphony is one of the largest air cooler producers in the country and has a strong brand name in this product category. It has a widespread distribution network of ~550 dealers and ~10,000 retailers spread across the country. The company plans to double its dealer and distribution network over the next 2-3 years which will result in high growth.

Asset light model + High OPM + low working capital = High Return ratios

Symphony outsources the production of air coolers to OEMs whereby capital expenditure is low. Also, it has high OPM due to strong branding and lower cost of production. Symphony derives ~65% of revenues from traditional distributors to whom it sells on cash basis whereby working capital requirement is negligible. Due to an asset light business, low working capital requirement and high OPM the company has high return ratios. Symphony is expected to have ROCE/ROE of ~37% in FY13.

Revenues/ PAT CAGR of ~27%/32% during FY11-13

Symphony is expected to witness a Revenue/PAT CAGR of ~27%/32% during FY11-13E. The growth in revenues will come from both domestic/export markets. Domestic market is expected to witness a CAGR of 32% during FY11-13 due to increased demand and further widening of the distribution network. Export market will have a CAGR of 25% during FY11-13 due to addition of newer geographies.

Attractive Valuations: BUY with a price target of Rs1,522

Symphony is one of the leaders in the domestic air cooler industry and has enormous growth potential. It has over the past decade built a strong brand name and a wide distribution network and is now in a position to see high sustained growth over the next few years. Also an asset light business model with negligible working capital requirement and high return ratios makes the company attractive. Symphony currently trades at a PER of 10.1x FY13, which is a significant discount to its listed comparable electronic and consumption peers. We believe given the growth prospects and superior return ratios the stock can trade at similar multiples to its peers. However we have been conservative and have valued the company at ~40% discount to its peers. We initiate with a BUY and a target price of Rs1,522 (12x PER FY13).

Source: Capitaline

BUY

Nifty: 5,099; Sensex: 16,958

Analyst

Arun Baid

+91-22-4322 1258

[email protected]


Bloomberg / Reuters SYML IN / SYMP.BO

Shares o/s (mn) 7.0




Key Stock Data

52-week high/low Rs1,672/520

-1m -3m -12m

Absolute (%) 11 4 125

Rel to Sensex (%) 8 12 141

Price Performance

Promoters 75.0


MFs/Banks/FIs 0.3




Financial snapshot (Yr end June) (Rs mn)


FY10 1,902 534 28.1 366 52.4 24.6 15.8 53.2 53.4

FY11 2,905 687 23.7 506 72.3 17.8 12.9 42.3 42.3

FY12E 3,630 906 25.0 659 94.2 13.7 8.6 37.1 37.1

FY13E 4,665 1,195 25.6 888 126.9 10.1 5.9 37.5 37.4


70

120

170

220

270

320

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

SYML Sensex

32

Company Report – Symphony Ltd.


Rising temperature to fuel demand for air coolers

As per INCCA (Indian Network for Climate Change Assessment) the Indian annual mean temperature showed

significant warming trend of 0.51C/100 years during the period 1901-2007. Accelerated warming has been seen in the

recent period 1990-2007 mainly due to intense warming in the recent decade 1998-2007.

Mean temperatures increased by about 0.2C per decade for the period 1971-2007 with a much steeper increase in

minimum temperatures than maximum temperatures. However in the recent decade maximum temperature was

significantly higher compared to the long term (1901-2007) mean, with a stagnated trend during this period, whereas

minimum temperature showed an increasing trend, almost equal to that observed during 1971-2007.The all-India

maximum temperature has increased by 0.71C/100 years whereas the mean annual minimum temperature has

increased by 0.27C/100 years during the period 1901-2007.

Figure: All-India annual mean, maximum and minimum temperature variations during 1901-2007

Source: INCCA; IDBI Capital Research


33

INCCA in its November, 2010 report has forecasted based on PRECIS simulations that the annual mean surface air

temperature will rise by ~1.7 to 2C by 2030. The rising temperature will lead to increased demand for equipments which

can keep the enclosed environment cooler like air conditioners and air coolers. We believe that the demand for air

coolers will be strong despite some drawbacks it has (not effective in humid climate etc.) due to the acquisition and

operating cost being lower than an air conditioner.

Increased availability of power

The major deterrent for the usage of home appliances is the lack of availability of power. However, with increased focus

of the government on generating electricity and higher participation of the private sector, the availability of power is

going to increase significantly. The government plans to add another 0.1 mn MW of power capacity in the 12th plan

(FY13-FY17) which is an addition of ~50% capacity.

Figure: Energy (BU) to increase

Source: CEA; IDBI Capital Research

Power is a crucial requirement for purchase decision of an air cooler and non/limited availability of it deterred many

potential buyers. With growing availability of power, the demand for air coolers will thus increase.

Lower cost of acquisition + lower maintenance = more preferred by the mass market

The cost of acquisition an air cooler is significantly lower (~Rs3,000-Rs9,000) as compared to an air-conditioner

(~Rs10,000-Rs40,000) and thus it can have a wider reach as compared to the air-conditioner market. Also, the cost of

maintenance is lower (0.18 units/hr Vs 5.5 units/hr for an AC) which thus makes it a preferred option.

Table: Air cooler vs. Air Conditioner

Air coolers Air conditioners (AC)

Uses 100% fresh and natural air for cooling Re-circulate the same dry air for cooling

Electricity consumption for a 750 sq ft size room for cooling by

Symphony cooler is ~0.18 units/hr

Electricity consumption for similar area by an AC would be

5.5 units/hr

Uses water as a refrigerant which is recycled into the air Uses and generate harmful gases such as CFCs, HFCs, HCFCs

and other ozone-depleting gases

Can be used both in open spaces and closed environment Are effective only in closed areas

Are largely plug-and-play equipment requiring no additional

infrastructure

Do require additional infrastructure before installation

They are portable and can be used in multiple points They are fixed and thus restrict their application

Less effective in humid climate Are effective in humid climate too


0

100

200

300

400

500

600

700

800

900

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

34


Another major area where air cooler will see higher demand is that in can also be used in areas which are open such

as lawns, garden etc unlike air conditioners. We thus believe that the demand for air coolers will be strong due to the

benefits it has.

A strong brand name

Symphony has been in the air-cooler business for over two decades and is one of the early organized air cooler players

in the country. It has a strong brand and with a widespread distribution network it has been able to capture the

customer mind share. A strong brand presence and a wide distributor-dealer network have resulted in it being a major

national player in the domestic air-cooler industry.

Widespread distribution and dealer network

Symphony has built a widespread distributor and dealer network over the last many years. The strong distributor-dealer

network has enabled it to reach the wide spread consumer market. Symphony has established presence across the

breadth of the nation through its dealer network and has near equal contribution to revenues from all four regions of the

country.

Figure: Distributors (nos) Figure: Dealers (nos)


Besides being in the traditional dealer network the company is also increasing its presence in the modern retail format.

Figure: Sales break up


We believe as the company has been able to build a wide spread distribution network along with a strong brand; it will

be able to compete with the unorganized market in a better way.

100

400

450

550

0

100

200

300

400

500

600

FY05 FY09 FY10 FY11

2,500

6,400 6,500

10,000

0

2,000

4,000

6,000

8,000

10,000

12,000

FY05 FY09 FY10 FY11

Traditonaldealers

74%

Modern retail10%

Exports16%


35

Outsourcing resulting in an asset light business model

Symphony outsources the production of air coolers to OEM (original equipment manufacturers). It has been doing so

for the past 5 years in order to keep control over the production cost, have manufacturing facilities which are wide

spread and also to have a lower capital cost.

Currently the company has 10 vendors who manufacture air coolers for it. These vendors follow the quality parameters

laid down by the company. Also, there is a technical team at each of these vendor factories in order to ensure quality

and timeliness of delivery.

Symphony develops its own models, designs and prototypes at its plant near Ahmedabad which are then given to the

vendors for mass production.

We believe the strategy of outsourcing of air coolers will enable the company to have better control over cost, have a

wide spread production base whereby reducing the transportation cost and also ability to meet the growing demand

with ease.

A robust business model

Symphony has built a robust model over the past few years after being referred to BIFR in 2002 due to erosion of net

worth. Its net worth eroded as it suffered losses due to addition of products such as water purifiers, washing machines,

air conditioners etc to its portfolio and incurring high marketing and advertisement expenses. Also in order to gain

market share, the company undertook sales on credit and saw significant bad debts whereby the net worth got eroded.

However, over the past few years the company has reduced its product portfolio and now focuses primarily on one

product, air coolers. It has trimmed its portfolio to one product as it had a significant market share and strong brand

recall. Also, the company decided to undertake sales on cash and expand its distributor-dealer network. The strategy

paid off and it turned profitable by FY07 and it reported APAT of ~Rs505 mn in FY11.

Symphony in order to improve its profitability has moved from manufacturing to outsourcing of air coolers. It also

increased the range of air coolers and introduced newer, efficient models at various price points. Also, in order to widen

its customer reach the dealer-distributor network was increased by ~5 times over the past 4 years (it has ~550

distributors and ~10,000 dealers spread across the country). The increased dealer-distributor network with a focused

product has resulted in a Revenue/PAT CAGR of 62%/110% during FY07-11.

Symphony’s major sales happen during the period Jan-June (Q3 and Q4) which is the peak of summer season in India

and thus its revenue is skewed. However, over the past few years the company has been able to reduce the skewed

second half pattern of sales by offering incentives to distributors during non peak seasons.

Figure: Seasonality in sales


Symphony is also focusing on the export potential of air coolers. Over the last few years it has expanded its export

reach to ~54 countries such as Mexico, Middle East, USA etc. Exports now account for ~16% of total sales. In order to

strengthen its export presence further, it has acquired a 100% stake in Mexico based company Impco S. DE. R.L

DE.,C.V (IMPCO) through a Singapore-based company Sylvan Holdings Pte Ltd (Sylvan).

8% 6%13% 17%

33%

92% 94%86% 83%

67%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY07 FY08 FY09 FY10 FY11

H1 H2

36


IMPCO has been in the air cooler business for over 55 years. It has a manufacturing facility at Monterrey, Mexico and a

subsidiary in USA. IMPCO has the capability to make industrial coolers besides making small air coolers and has a

significant presence in large format stores such as Wall mart, Home Depot, Lowes etc. Its major market is Mexico

and USA.

Symphony by acquiring a significant stake in IMPCO will be able to make its presence in North and Latin America

markets with ease. Also, now it can enter the industrial coolers market in India which can be a potential big revenue

stream going ahead. Industrial coolers can be used for providing cooling solutions for factories, offices and even large

residences.

Domestic sales volume CAGR of ~32% during FY11-13E

Symphony had witnessed domestic sales volume CAGR of ~42% during FY07-11. The increase in volumes was due to

higher disposable income of consumers, increasing affordability and widening distributor-dealer network. Symphony is

expected to see a volume CAGR of ~32% during FY11-13E. We have not factored any growth from industrial

coolers which the company plans to enter.

Figure: Domestic sales volumes


In the domestic market, it sells the products to distributors on cash/advance basis who in turn deal with the dealers

spread across the country. Symphony has seen high growth in the domestic market due to the strong brand, high

quality and servicing it offers to its customers. The company is now also selling air coolers through large format stores

like Croma, Vijay Sales etc. in the domestic market on credit.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

FY07 FY08 FY09 FY10 FY11 FY12E FY13E

CAGR: 39%


37

Export volume CAGR of ~25% during FY11-13E

Symphony exports to 54 countries across the Americas, Europe, Middle East, Africa and Southeast Asia. It has seen

export volume CAGR of ~49% during FY07-11. The company sells in the export markets through distributors and large

format stores. Going ahead, the export sales volume will witness a CAGR of ~25% during FY11-13.

Figure: Export sales volumes Figure: Exports region wise for FY11


OPM to be ~26% due to consolidation of IMPCO, Mexico

Symphony on a standalone basis has reported OPM of ~27-29% from FY09-11. It will continue to have similar margins

from the domestic and export markets till FY13. However due to consolidation of IMPCO, Mexico in FY11 which has

lower margins (~14%) the consolidated margins will decline to ~25/25.6% in FY12/FY13.

Figure: OPM


Revenue/PAT CAGR of ~27/32% during FY11-13

Symphony’s had revenue CAGR of 62% during FY07-11 which was led by high growth in both the domestic and

international markets. Going ahead revenue is expected to witness a CAGR of 27% during FY11-13. The growth is

expected to come from both domestic as well as export market. Also, as the company has bought 100% in IMPCO in

April, 2011 (an associate till FY10) which will add to the top line. IMPCO had a top line of ~578mn in FY11. PAT is

expected to have a CAGR of 32% during FY11-13 driven by higher volumes.

0

50,000

100,000

150,000

200,000

250,000


USA57%

Middle East33%

Africa5%Europe

5%

20%

22%

24%

26%

28%

30%

32%

FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

CAGR: 40%

38


Figure: Revenue-PAT rising steadily (Rs mn)


To remain a debt free entity

Symphony has constantly tried to remain a debt free company ever since it was referred to BIFR. It became a debt free

company in FY08. Symphony has an asset light model and does not require any significant capital expenditure to be

incurred. Also, it undertakes majority of its sales on cash basis and has a lower inventory (as the season ends in June)

by the end of the season and so it generates free cash. We expect it to have cash and cash equivalents of ~Rs1,880

mn or Rs269 cash/share by FY13.

High return ratios

Symphony has high return ratios due to higher operating margins, lower working capital requirement and limited capital

expenditure. We expect it to continue having higher return ratios (ROE and ROCE of 37% in FY13E) due to the strong

growth which it will witness.

Figure: RoE Figure: RoCE


FY11 result hampered due to weak summer season

Symphony witnessed a growth of ~23% in FY11 in its India operations due to a weak summer season. The summer

was weaker in Apr-June, 2011 whereby air-cooler sales saw a modest growth (similar to the air-conditioning industry).

A weaker summer season (which constitutes to ~50% of sales in a given normal year) resulted in lower air-cooler

demand whereby resulting in higher inventory. The inventory has increased YoY ~6x to Rs417 mn on a standalone

basis. We believe, the inventory build-up is one-off event due to weaker summer and going ahead the company will be

once again able to exhibit tighter control over the inventory.

0

1,000

2,000

3,000

4,000

5,000


PAT Revenue

53.2%

42.3%

37.1% 37.5%

0%

10%

20%

30%

40%

50%

60%

FY2010 FY2011 FY2012 FY2013

53.4%

42.3%

37.1% 37.4%

0%

10%

20%

30%

40%

50%

60%

FY2010 FY2011 FY2012 FY2013


39

Valuations

Symphony is one of the major players in the air cooler industry in the country. It has a strong brand name and a widespread

distribution network and is expected to see high growth due to the increased income, growing urbanization and higher

power availability. It is a proxy play on the mass consumption growing market in India.

There are not many listed players which are comparable. However the closest peer comparison to it will be the consumer

electronic industry and consumption players. The average consensus PER at which these companies trade is ~19x FY13

whereas Symphony trades at 10.1x FY13.


Revenue (Rs mn) Net Income (Rs mn) P/E (x) EV/EBITDA (x) ROE (%)

Company Mkt Cap

(Rs mn)

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

Whirlpool India 27,449

28,796 33,906

1,591 2,537 - 17.4 10.8 - 11.4 7.9

33.5 38.9

Crompton Greaves 105,718 99,842 110,338 123,990 9,190 7,051 8,968 11.5 15.1 11.9 7.6 9.3 7.4 31.4 19.6 21.0

Bajaj Electricals 19,789 27,209 32,747 38,875 1,448 1,683 2,114 13.3 11.7 9.5 9.2 7.8 6.4 25.8 24.1 24.8

Havells India 43,590 57,948 63,503 70,651 2,596 3,566 4,282 16.8 12.2 10.2 11.2 8.7 7.6 49.4 43.3 37.3

TTK Prestige 32,157 7,343 10,967 14,265 836 1,181 1,523 38.6 27.2 21.1 27.4 18.8 14.4 49.5 46.3 40.5

Page Industries 28,195 4,947 6,693 8,774 560 866 1,140 50.5 33.3 25.5 31.5 21.2 16.4 50.9 58.3 57.5



V-Guard Industries 6,404 6,878 9,750 12,410 389 497 671 16.4 12.7 9.5 10.5 8.0 6.2 24.9 26.2 28.2


Average 19 13

Symphony 9,128 2,904 3,630 4,665 506 659 888 17.8 13.7 10.1 12.9 8.6 5.9 42.3 37.1 37.5


We believe that Symphony can trade at similar multiples as its peers given its growth trajectory and high return ratios.

However as the company has one product concentration it should trade at a discount and we have thus valued the

company at 12x FY13 (~40% discount to its peers.).We initiate with a BUY and a price target of Rs1,522 (12x FY13).

Risks

Lack of diversification: Symphony gets its revenues from one product namely air coolers and is thus exposed to

revenue risk in case of fall in demand.

Climatic changes: A delay in summer season/lower temperature during the summer season may result in lower

volume growth.

Risk from export market: Symphony has been rapidly growing its export volumes. In case it is not able to

penetrate the export markets further its future growth may be impacted

Increased competition from domestic/international players: There are many established players who are into

the air cooler industry and they can be a potential threat to Symphony’s dominance.

Inability to maintain/grow the distribution network: If the company is unable to maintain/expand the distribution

network its growth will be adversely affected.

Low liquidity: The stock has low liquidity and thus there may be a significant impact cost.

40


Company Background

Symphony Ltd. was founded by Mr. Achal Bakeri in 1988 at Ahmedabad. It is one of the major air cooler players in the

country and has a 0.1 mn sq ft manufacturing facility at Thol, near Ahmedabad. It is also setting up an assembly unit at a

SEZ in Sachin (near Surat, Gujarat) for exports. The total capital expenditure on the SEZ will be ~Rs35 mn.

Symphony used to manufacture air coolers but in order to keep control over cost and to have large capacities it now

outsources the manufacturing of air coolers to OEMs. It has a technical team at each of the OEM’s in order to ensure that

the quality parameters are met.

Symphony develops its own models, designs and prototypes of air coolers before giving it to OEM’s for large scale

manufacturing. It currently has 10 OEMs which manufacture air coolers.

Symphony had been referred to the BIFR in 2002 due to erosion of net worth. However since then it has changed its

business strategy and from being present in multiple product categories such as washing machines, water purifiers etc it

now focuses primarily on air coolers. Besides air coolers it also is into water heaters which constitutes ~3% of total turnover.

Symphony has over the years built a comprehensive product portfolio of air coolers which thus helps it to meet the varied

customer requirement. It has a product range for all categories of customers and is thus able to penetrate the entire strata

of the market.

Symphony uses the distributor-dealer network to market its product in the country. It sells its product on cash to ~550

distributors which are spread across the breadth of the country. These distributors in turn undertake sales to ~10,000

dealers.

Beside the distributor-dealer network it also sells directly to large format stores such as Croma, Vijay Sales etc. Large

format stores contribute to ~10% of sales and they are given a credit period of 45-90 days.

Symphony has also been focusing on the export market. It sells its product in the export markets through distributors.

Symphony products are sold in ~54 countries such as USA, Mexico, Middle East etc. Exports contribute to ~16% of the

domestic turnover.

In order to increase its presence in export markets Symphony has acquired 100% stake in IMPCO, a Mexico based

company for ~ USD 0.65 mn. IMPCO has been in the air cooler industry for nearly six decades and has a significant

presence in the USA and Mexico market. Also IMPCO has an established relationship with large format stores such as

Wal Mart, Home Depot, Lowes etc.

The acquisition of IMPCO will help Symphony establish a presence in the USA and Mexico markets and also in large format

stores which will thus boost export sales. Also, IMPCO has the capability of making industrial air coolers which Symphony

does not possess.

Industrial air cooler is an untapped market in India and it can be used for providing cooling solutions for factories, offices

and even large residential houses.

Symphony has a professional team and is managed by Mr. Achal Bakeri, who is the Chairman and Managing Director.

The company has no plans to diversify into any other business as it sees high growth potential in the air cooler business.


41

Financial Summary


Year-end: June FY10 FY11 FY12E FY13E

Net sales 1,902 2,905 3,630 4,665

Growth (%) 53.2 52.7 25.0 28.5


EBITDA 534 687 906 1,195

Growth (%) 44.0 28.7 31.8 31.9

Depreciation (13) (53) (63) (64)

EBIT 521 634 843 1,132

Interest paid (4) (1) (0) (1)


Pre-tax profit 551 752 969 1,305

Tax (184) (246) (310) (418)


Net profit 370 512 659 888

Adjusted net profit 366 506 659 888

Growth (%) 68.4 38.0 30.3 34.7



Year-end: June FY10 FY11E FY12E FY13E

Net fixed assets 130 704 671 637

Investments 30 0 - -


Current assets 938 1,428 2,187 3,068

Inventories 65 697 391 426

Sundry Debtors 121 386 445 507

Cash and Bank 28 48 21 16

Loans and advances 219 179 180 239

Total assets 1,097 2,132 2,857 3,705

Shareholders' funds 864 1,525 2,030 2,710


Reserves & surplus 794 1,455 1,960 2,640

Total Debt 1 2 2 2


Unsecured loans - - - -


Curr Liab & prov 242 637 857 1,025

Current liabilities 225 560 781 948

Provisions 16 77 77 77

Total liabilities 233 607 827 995


Book Value (Rs) 124 185 257 354




Pre-tax profit 551 752 969 1,305


Tax paid (281) (247) (310) (418)

Chg in working capital 46 (545) 395 (42)

Other operating activities - - - -

Cash flow from operations (a) 318 742 1,116 910

Capital expenditure (67) (1,357) (29) (30)

Chg in investments (30) 30 0 -


Cash flow from investing (b) (288) (939) (1,062) (760)

Equity raised/(repaid) - - - -

Debt raised/(repaid) (2) 1 - -

Dividend (incl. tax) 12 61 73 53


Other financing activities (17) 155 (154) (208)

Cash flow from financing (c) (7) 217 (81) (154)

Net chg in cash (a+b+c) 23 20 (27) (5)

Financial Ratios


Adj. EPS (Rs) 52.4 72.3 94.2 126.9

Adj. EPS growth (%) 68.4 38.0 30.3 34.7

EBITDA margin (%) 28.1 23.7 25.0 25.6

Pre-tax margin (%) 28.9 25.9 26.7 28.0

ROE (%) 53.2 42.3 37.1 37.5

ROCE (%) 53.4 42.3 37.1 37.4




Net margin (%) 19.3 17.4 18.2 19.0

Net Debt / Equity (x) (0.6) (0.1) (0.6) (0.7)


Inventory days 12.4 87.6 39.3 33.3

Receivable days 23.2 48.5 44.7 39.7

Payable days 24.5 52.5 60.5 56.1

Valuation

Year-end: June FY10 FY11 FY12E FY13E

PER (x) 24.6 17.8 13.7 10.1


PCE (x) 23.7 16.1 12.5 9.5

EV/Net sales (x) 4.5 3.0 2.2 1.5

EV/EBITDA (x) 15.8 12.9 8.6 5.9

Dividend Yield (%) 0.0 0.0 0.0 0.0

COMPANY

REPORT

April 8, 2011

India Real Estate

COMPANY

REPORT

Completion/leasing of ‘Market City’ properties is the key

With FY12 likely to be a year of completions, we expect ‘Market City’ properties to

stabilize only by FY13-end. HSP still accounts for with 63% contribution to our FY12 NAV

of Rs190. Initiate coverage with a HOLD rating.

‘Market City’ properties to stabilize only by FY13-end; NAV contribution at 18%

PML expects ‘Pune Market City’ to become operational in 1QFY12. The mall has LOIs/agreements in

place for ~75% of the total 1.2 msf retail space at an average rental of Rs60 psf. Kurla and Bangalore

properties are now expected to commence operations in Q2FY12, while the opening of Chennai mall

may slip into Q4FY12. Consequently, we expect a majority of these properties to stabilize only by

FY13-end. We value the contribution of 5 ‘Market City’ projects at Rs34 (18% of NAV).

Pune and Kurla commercial sales to boost FY12 PAT…

A significant proportion of revenue from the commercial sales in Pune and Kurla is expected to be

booked in FY12. Till date the company has sold inventory worth Rs2.6 bn, with cash collections

amounting to Rs1.4 bn. The commercial sale coupled with rental revenue from ‘Pune Market City’ is

likely to result in 23% YoY growth in FY12 PAT.

…however Shangri-La to be a drag on FY13 earnings

Assuming ARR/OPM of Rs10,000/35%, the hotel should operate at an occupancy level of ~65% just

to cover its interest cost. With occupancy levels expected to remain ~40% in FY13 (first year of

operations), the consolidated profitability is likely to be impacted due to Shangri-La’s high interest

cost. We expect consolidated PAT to witness de-growth of 12% in FY13 to Rs1.0 bn. Due to high

development cost, we see limited value accretion in the property and value PML’s 53% stake at

Rs11 per share (1x equity investment).

HSP still the major contributor to NAV at 63%; provides downside support to valuations

We estimate HSP NAV at Rs120 or 63% of our target price. Unlike other real estate companies,

operational rental asset (HSP) forms a significant portion of the PML’s NAV, which should act as a

downside support to valuations.

Stock trading at 3% premium to our FY12 NAV; Initiate with a HOLD

We initiate coverage on Phoenix Mills with a HOLD rating and a target price of Rs190 based on 1x

our FY12 NAV. HSP contributes Rs120 (63%), while the 5 Market Cities together account for Rs34

(18%). The balance Rs26 is contributed by EWDPL, BARE and other hospitality projects.

Risks: Better than expected leasing/rentals of ‘Market City’ properties is the key upside risks to our

estimates.

HOLD

CMP Rs197

Target Price Rs190

Potential Upside/Downside (3)%

Relative to Sensex

Source: Capitaline

Nifty: 5,842; Sensex: 19,452

Analyst

Hansraj Singh

+91-22-4322 1368

[email protected]

Sector Realty

Bloomberg / Reuters PHNX IN / PHOE.BO





Key Stock Data

52-week high/low Rs269/160

-1m -3m -12m

Absolute (%) 14 (10) (4)

Rel to Sensex (%) 9 (9) (14)

Price Performance

Promoters 65.9


MFs/Banks/FIs 4.9


Public & Others 5.6


80

90

100

110

120

130

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

PML Sensex

Table: Financial snapshot (Rs mn)


FY09 996 602 60.4 689 4.8 41.3 53.2 4.5 2.2

FY10 1,230 775 63.0 595 4.1 47.8 44.4 3.4 2.5

FY11E 1,912 1,216 63.6 924 6.4 30.8 29.3 5.0 4.0

FY12E 3,614 1,791 49.6 1,137 7.9 25.0 19.7 5.8 5.2

FY13E 4,000 2,261 56.5 1,001 6.9 28.4 15.0 4.9 5.5


This page has been left blank intentionally.

COMPANY

REPORT

October 13, 2011

Talwalkars Better Value Fitness Ltd.

Value fit

COMPANY

REPORT

CMP Rs164

Target Price Rs203


Relative to Sensex

Summary

Talwalkar Better Fitness Value (TBFV) is the largest health club player in the country and amongst top

twenty in the world. It is an early entrant into the health club market in India and has been able to build a

strong brand name by providing high quality equipment and service. TBFV is on an expansion spree and

plans to increase its owned gyms by ~2x to 143 by FY13 without any further equity dilution. TBFL will

have a CAGR in Revenue/PAT of 41%/38% during FY11-13 and will see its return ratios significantly

improving (RoE/RoIC~20%/13.7% in FY13). We believe TBFV to be a play on the growing healthcare

market in India and initiate with a BUY and a target price of Rs203 (16x FY13).


Under penetration + Increasing income + growing health awareness = High growth potential

The penetration of fitness market in India is ~0.4% (taken for top 7 cities) as per IHRSA report

200809, which is significantly lower than other nations (China 2.3%, Japan 3.1%). The growing

income, increasing urbanization and higher health awareness in India will result in higher penetration

of fitness market. As TBFV is the largest player in the market with a strong brand it will be a major

beneficiary of this growing market.

Strong brand name + First mover advantage + Large reach = High growth

TBFV has a strong brand name in the health club market in the country. It has been able to provide

high quality equipment with good service which has thus enabled it to be a prominent player in the

otherwise fragmented market. TBFV is one of the first movers in the industry and has a pan India

presence (~50 towns) which will enable it to cater to the widespread market. We expect TBFV to

have a CAGR in Revenue/PAT of 41%/38% during FY11-13.

Number of gyms to double by 2013 without any further dilution

TBFV will increase its owned gyms by ~2x to 143 gyms by FY13. TBFV had raised ~Rs774 mn in

2010 through an IPO to repay high cost debt (~Rs206 mn) and to fund its expansion plans for

27 gyms (~Rs502 mn). The company has been able to deploy the funds as per expected use and will

now require no further dilution for its future growth plans (35 gyms each in FY12/FY13). With no

further dilution required and the benefits of expansions to come, the return ratios are going to improve

(ROE/ROIC of 20%/13.7% in FY13).

Attractive Valuations: BUY with a target price of Rs203

TBFV is a play on the growing healthcare market in India. It has a strong brand name and is now

capitalizing, with rapid expansion. There are not any listed comparable players and thus its closest

comparable peers are the consumption companies (Jubilant Foodworks, Page Industries, Titan

Industries etc) which trade at an average PER of ~28x FY13. As TBFV will have lower return ratios in

the near term and also its execution capabilities will be under scanner, we believe it will trade at a

discount (~40%) to the comparable peer set. We initiate with a BUY and a target price of Rs203 (PER

16x FY13).

Source: Capitaline

BUY

Nifty: 5,099; Sensex: 16,958

Analyst

Arun Baid

+91-22-4322 1258

[email protected]

Sector Consumer Discretionary

Bloomberg / Reuters TALW IN / TALW.BO





Key Stock Data


-1m -3m -12m

Absolute (%) (18) (31) (30)

Rel to Sensex (%) (20) (23) (14)

Price Performance

Promoters 59.5


MFs/Banks/FIs 9.9






FY10 661 252 38.0 82 3.4 48.3 19.0 26.4 11.0

FY11 1,023 394 38.5 160 6.6 24.5 12.2 19.0 11.1

FY12E 1,485 561 37.8 198 8.2 19.9 9.1 14.5 11.2

FY13E 2,039 767 37.6 307 12.7 12.8 7.0 19.4 13.7


60

70

80

90

100

110

120

130

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

TBFV Sensex

44

Company Report – Talwalkars Better Value Fitness Ltd.


Untapped market potential

The fitness market size in India is estimated to be US$113 mn. This market is highly under penetrated with a mere

0.4% (taken for top 7 cities) of the population having a fitness club membership compared to 2.3% in China and 3.7% in

Asia Pacific.

Figure: Membership penetration rates


In India as per IHRSA Asia Pacific Market Report, 2008 the total number of fitness club in India are 765 and number of

membership was 0.23 mn. The industry is highly fragmented with many standalone gyms. This industry is in the early

growth stages with little differentiation and high price sensitivity.

In India the income of the people is going to increase and as per MGI (McKinsey Global Institute) with the increasing

income the spending on health care is going to increase significantly.

Figure: Annual spending on health care (Rs bn)

Source: MGI, IDBI Capital Research

We believe with the growing spending on healthcare, the fitness market will see high growth and as TBVF is an early

mover in this industry and has a strong brand, it will be a major beneficiary.

0.4%

2.3%

3.1%

3.7%

3.9%

6.5%

7.3%

11.9%

12.4%

16.0%

16.6%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

India

Mainland China

Japan

Asia Pacific average

Hongkong

Singapore

South Korea

UK

Australia

US

Spain

247 359

1,148

3,076

8,902

0

2,000

4,000

6,000

8,000

10,000

1985 1995 2005E 2015E 2025E

(Rs

bn)


45

Growing urbanization to act as a catalyst for health club market growth

In India, as per United Nations the percentage of urban population is going to increase from ~30% in 2010 to ~54.2%

by 2050. Increasing urbanization will result in greater usage of fitness club due to higher health awareness and growing

lifestyle diseases.

Figure: Urbanization on an increasing trend

Source: United Nations, IDBI Capital Research

The no of towns/cities with a population >0.5 mn is 65 as per census 2001. As per TBVF every city/town with a

population of ~0.6 mn can accommodate one health club of its kind. The growing urbanization will thus increase the

number of towns/cities with a population >0.6 mn whereby further expanding the potential market for TBVF.

Lifestyle disease on a rise whereby increasing the demand of health clubs

In India lifestyle disease is on a significant rise due to the changing work environment, increased consumption of fast

foods etc.

It is estimated that ~5% of the population have morbid obesity and ~20% of Indians above the age of 40 suffer from

blood pressure. Also India leads the number of people suffering from diabetes and by 2030 ~9% of the population will

be affected by it (Source: International Diabetic Federation).

The increasing life style diseases create a burgeoning need for fitness clubs along with other physical activities. We

believe that the rising lifestyle disease will increase the usage of fitness clubs and as TBVF is one of the early movers

and has a strong brand, it stands to gain from this trend.

Growing awareness for a healthy lifestyle to spur future growth

The awareness among Indians about having a healthy lifestyle is increasing. As per an AC Neilsen’s Global Online

Consumer Survey findings released in 2009, 54% of Indian respondents think they have an issue with their weight, 80%

people said they exercise once a week and going to gym was the second most preferred option for exercise

after walking.

0%

10%

20%

30%

40%

50%

60%

CY10 CY15 CY20 CY25 CY30 CY35 CY40 CY45 CY50

(% o

f pop

ulat

ion)

46


Figure: Forms of exercise preferred by Indians Figure: Frequency of exercise


We believe growing awareness amongst Indians will lead to increasing number of individuals going to gym’s in future

which augurs well for the industry.

Changing demographic profile + higher education + increased awareness = Robust growth for fitness industry

India has a young population and it is expected that the population will continue to remain young for the next two

decades. Currently ~65% of the population is between the age of 15-64 and it is expected that ~68% of the population

in 2030 will remain in this age group. It has been globally seen that the people in the age group of 18-54 tend to

exercise more.

The literacy level in India is expected to improve significantly over the next two decades. With increasing literacy the

awareness for better healthy lifestyle will also follow. Also, growing literacy will increase the income of the people thus

enabling them to spend on better lifestyle.

We believe the combination of a young population, higher literacy and increased awareness will result in increased

number of people having membership of fitness clubs. As TBVF is one of the major players in the health club market in

India with a pan India presence and has a first mover advantage it stands to gain tremendously.

Higher media penetration and increased aspiration level to augur well for the fitness industry

The satellite penetration of media in India over the last decade has increased the exposure of the masses towards

modern lifestyle in which going to gym is part of a normal routine. Also during the past decade the income level of

people in semi urban/rural areas has increased due to various governmental schemes as well as demographic

changes. The increased income has resulted in aspirations of the masses rising and thus they too want to adapt to the

modern lifestyle.

We believe this trend is going to continue and will result in a significant growth in the membership base of the fitness

club and TBVF will be a significant beneficiary of this growing trend.

A strong brand name to lure the customer base in an otherwise fragmented industry

TBVF is one of the earliest entrants in the fitness market in India with its co-promoters opening the first gym about

50 years ago. TBVF is today the largest fitness chain in India and the second largest in Asia. It has a presence in 50

towns across the country.

TBVF has built a strong brand name for itself by providing the latest gym equipments. It has also standardized the

equipment to be used. Besides this, in order to provide quality training to its members it has built a training centre in

Thane where it trains the staff whereby they can offer standardized service to all its members across all locations. As

the major variant in the fitness industry besides equipment are the trainers, the company by standardizing them has

tried to remove the variability from the industry.

Walking35%

Gym18%

Yoga/Pilates17%

Running/Joggin16%

Others14%

Never20%

1-2 days a week22%

3-6 days a week36%

Daily22%


47

We believe standardization of services and equipment across the country will be a key differentiator for TBVF in an

otherwise highly fragmented industry. Also, its pan India foot print, ability to deliver consistent similar service across the

country and its presence in the industry for many decades will hold it in high stead against its competitors.

Competitive pricing to help gain significant market presence

TBVF has kept its price point attractive vis-à-vis its competitors. It has positioned itself in a way whereby the mass

market finds its pricing to within its reach and at the same time it carries a premium tag to it (due to use of latest

equipment and availability of high quality trainers).

Table: Comparison to peers

Name No. of health clubs Size of a gym (sq ft) Avg. fees/per annum

TBFV 100 4,000-5,000 14,000-16,000

Gold Gym 55 6,000-8,000 16,000-18,000

Fitness First 3 14,000-22,000 24,000-35,000

Fitness One 31 15,000-18,000 16,000-18,000


Also, in order to give its customers a better experience it provides value added services such as aerobics, spinning,

steam, sauna etc. The availability of a complete gamut of services under one roof ensures customer loyalty as well as

attracts newer customers.

We believe the strong brand name, high service quality and attractive price point TBVF provides will be instrumental in

getting a significant presence in the fitness market in India.

Well funded for future growth

TBVF had in 1HFY11 raised ~Rs774 mn through an IPO. The money was raised to open 27 new gyms and also to

repay high cost debt (~Rs206 mn). We believe with the money which was raised and the expansion plan spelt out by

the management, it is well funded to grow over the next 3-4 years and requires no further dilution.

Number of owned gyms to increase by ~2x over FY11-13

TBVF plans to increase its owned gyms from 73 in FY11 to 143 in FY13. The company plans to expand its presence

from 28 towns in FY10 to 85 towns by FY13. The increase in number of gyms will result in the company having a wider

pan India presence and higher membership.

We believe that the aggressive strategy of increasing its number of gyms will hold the company in good stead due to

the under penetration of fitness club and will result in it having a significant market share and gaining on its first mover

advantage.

Figure: No. of gyms Figure: No. of towns


5 6 8 1224

3858

100

135

170

0

50

100

150

200

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

9

1923

28

50

70

85

0

20

40

60

80

100

FY07 FY08 FY09 FY10 FY11 FY12 FY13

48


A robust business model

TBVF target markets are geographies where the population is > 0.6mn. It believes that any geography which has this

population can accommodate at least one health club of its kind. TBVF gets ~800-900 members within the first year of

operations of the health club and ~1,000 members within 18 months. The membership fee is ~Rs13,000-15,000 p.a.

and the payback period for a health club is ~3-4 years.

TBVF besides having its own gyms also gives franchisees. It has 7 franchisees and it charges ~6-8 of revenues as

royalty. The company however now plans to focus on opening its own gyms.

TBVF in April, 2011 has announced to enter into the Tier III & Tier IV cities with the launch of HiFi Gyms. These gyms

will be priced lower than the existing gyms and will have lesser facilities but will have similar OPM’s as the

current gyms.

Table: HiFi comparison

Particulars Talwalkar Health Club HiFi Gym

Size (Sq. Ft) 4,500-5,000 2,500-2,800

Capex (Rs mn) 18.5 - 20 7.7 - 9.5

Fees (Rs/p.a.) 13,000-15,000 8,000-9,000

Facilities Gym + Gym

Cities Metro, Tier I & II Tier III & IV

Positioning Health, Fitness & Wellness Health & Fitness

Upfront Royalty NA Rs0.4-0.6 mn

Ongoing Royalty NA 6-8% of the top line


The company plans to open HiFi gyms either through franchisees or on its own. We believe there is tremendous

potential for low cost gym in Tier III & Tier IV cities and if the company is able to launch these gyms and deliver the

margins it will see very high growth. However, we have been conservative and have not factored any revenue /capex

for these gyms in our assumption as we would like to see how the execution of this is done.

Figure: Cumulative No. of gyms- HiFi


We believe TBVF has a robust business model which can generate high returns and is scalable. It will be a significant

beneficiary of the growing health awareness in the country. Also, the first mover advantage it has will enable it to

capitalize on the growing healthcare market.

25

75

150

250

0

50

100

150

200

250

300

FY12 FY13 FY14 FY15


49

Revenue/PAT to have a CAGR of 41%/38% between FY11-13

TBVF will have a top line CAGR of ~41% during FY11-13. The increase in top line is due to ~2x increase in owned

gyms. The PAT is expected to have a CAGR of 38% during FY11-13 due to sustained OPM and increase in top line.

Figure: Revenue and PAT increasing steadily (Rs mn)


OPM to be maintained at ~37-38%

TBVF reported an OPM of ~38.5% in FY11 and the management has guided that the sustainable margins are

~3638%. We believe TBVF will be able to maintain its margins due to the strong brand name it has and entry into

newer markets where the aspiration demand is high. We have factored OPM of 37.8%/37.6% for FY12/FY13.

Figure: Stable OPM


Debt-equity to remain stable

TBVF had a debt-equity ratio of 2.1x in FY10. In 1HFY11, the company raised capital of Rs774 mn through an IPO for

meeting its capital expenditure requirement as well as repaying some high cost debt (~Rs260 mn). Post the IPO the

debt-equity has come down to 0.7x in FY11.TBVF is opening 70 new owned gyms during FY12-FY13 across India and

these are expected to contribute to the top line and bottom line. We expect the D/E to be ~0.9x in FY13.

0

500

1,000

1,500

2,000

2,500


PAT Revenues

25%

28%

31%

34%

37%

40%


50


Figure: Stable Debt-equity


Return ratios to significantly improve by FY13

TBVF return ratios are expected to improve significantly due to its many gyms coming on stream. With these gyms

getting operational they will contribute significantly and thus improve the return ratios. We expect the ROE and ROIC to

improve to 20% and 13.7% by FY13E.

Figure: RoE to improve further Figure: RoIC moving northwards


0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x


0%

10%

20%

30%

40%

50%


3%

6%

9%

12%

15%

18%



51

Valuation

TBVF is a play on the growing healthcare market in India. It is expected to have a CAGR of 38% in earnings during

FY1113. There are not any comparable listed peers in the category where the company operates.

We have thus compared TBVF to the domestic consumption plays. The average consensus PER at which these companies

trade is 28x FY13 whereas TBVF trades at 12.8x FY13E. However, as compared to its peers TBVF’s ROE is lower as it is

on an expansion spree but gradually it will move closer to its listed consumption peers.

We believe given the secular growth area in which it operates and limited listed peers, TBVF could command a similar

multiple as its other consumption peers. However, since the ROE is going to be lower in the near term and the execution

capabilities will be under scanner, we believe that the stock will trade at a discount (~40%) to its comparable listed peers.

However this discount will shrink as the execution of the gyms happen and the return ratios improve.

We have valued TBVF at 16x FY13 (~40% discount to its listed peers) and initiate with BUY and a target price of Rs203.


Revenue (Rs mn) Net Income (Rs mn) P/E (x) EV/EBITDA (x) RoE (%)

Company Mkt Cap

(Rs mn)

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

CY10E /

FY11E

CY11E /

FY12E

CY12E /

FY13E

TTK Prestige 32,157 7,343 10,967 14,265 836 1,181 1,523 38.6 27.2 21.1 27.4 18.8 14.4 49.5 46.3 40.5

Page Industries 28,195 4,947 6,693 8,774 560 866 1,140 50.5 33.3 25.5 31.5 21.2 16.4 50.9 58.3 57.5




Average 28 19

TBFV 3,934 1,023 1,485 2,039 160 198 307 24.5 19.9 12.8 12.2 9.1 7 19 14.5 19.4


Concerns

Inability to maintain the service levels: TBFV has been able to build a strong brand due to the high service

quality it provides. In case the company is unable to maintain its service levels its growth may be affected.

Unorganized market: The gym market in India is highly fragmented with the presence of many small players.

These small players can affect the market dynamics.

Entry of multinationals: Many large scale global players are entering the Indian fitness market. These may cause

threat to the growth prospects of TBFV.

Slow down in the economy: Any significant slowdown may affect the growth prospects of the company.

Entry to unrelated businesses: Any diversification into unrelated businesses may stall the future growth

prospects.

Risk of Dilution: TBFV plans to enter into “Recreation club’ whereby providing sports, recreation, food and leisure

activities all under one roof. To fund the expansion plans it may have to dilute whereby affecting the earnings.

52


Company Background

TBVF was formed in 2003 but its co-promoters i.e. the Talwalkars has been in the fitness business for over five decades.

The co-promoters had opened its first gym in 1962 in Mumbai. TBVF is today the largest fitness chain in India, the second

largest in Asia and amongst the top twenty of the world.

TBVF has rapidly expanded its gyms. It had 5 gyms in FY05 which it expanded to 100 in FY11 and plans to have

~170 gyms by FY13. The company over the past five years has expanded its pan India foot print and today has presence in

50 towns spread across the country. TBVF further plans to expand its pan India presence through opening of its own gyms.

TBVF in order to deliver consistent quality service to its members has set up a residential training academy in Thane

(Maharashtra). The trainers who are going to be deployed in various locations are trained at this residential academy in

order to deliver consistent quality service which is similar in all locations of the country.

TBFV besides providing gym facilities also provides value added services such as aerobics, steam, sauna etc. It also has

Spa facilities in some of the gyms. The availability of value added services has resulted in higher customer loyalty and also

attracted newer customers.

TBVF besides having its own gyms also has joint ventures and franchisees. It had increased its shareholding in joint

venture companies above 50% in 2HFY11 and is thus able to consolidate them. Going ahead the company plans to grow its

network primarily through company owned gyms.

Figure: Total No. of gyms as on 30th June 2011


TBVF came with an IPO in 2010 and raised ~Rs774 million. The money was raised to repay debt and to finance its

expansions.

TBVF is managed by Mr. Madhukar Talwalkar who has been in the fitness business for many decades. The company is

jointly promoted by the Talwalkar family and the Gowande family.

73

9

11

8

Owned Subsidiary Trademark Licensed Franchised


53

Financial Summary



Net sales 661 1,023 1,485 2,039

Growth (%) 11.1 54.7 45.2 37.3

Operating expenses (410) (629) (924) (1,271)

EBITDA 252 394 561 767

Growth (%) 49.4 56.7 42.4 36.8

Depreciation (61) (90) (120) (155)

EBIT 191 304 441 613

Interest paid (76) (79) (131) (139)


Pre-tax profit 116 242 315 478

Tax (37) (74) (104) (158)


Net profit 79 168 211 321


Growth (%) 107.5 96.7 23.2 55.6




Net fixed assets 1,291 2,060 2,640 3,185

Investments 49 50 49 49


Current assets 266 774 329 454

Inventories - - - -




Total assets 1,607 2,884 3,018 3,688



Reserves & surplus 240 1,017 1,172 1,423

Total Debt 972 1,211 1,170 1,470

Secured loans 497 1,069 - -

Unsecured loans 475 143 1,170 1,470

Other liabilities 1,020 1,321 1,279 1,579

Curr Liab & prov 174 292 290 397


Provisions - 6 - -



Book Value (Rs) 17 53 60 71






Tax paid 35 (11) (205) (158)

Chg in working capital (60) (208) 221 (29)


Cash flow from operations (a) 150 125 450 447

Capital expenditure (326) (870) (700) (700)

Chg in investments (8) (1) 1 -


Cash flow from investing (b) (334) (908) (662) (700)

Equity raised/(repaid) 177 710 3 -

Debt raised/(repaid) 159 239 (41) 300


Chg in minorities - 14 - -

Other financing activities (35) 1 - -

Cash flow from financing (c) 301 949 (67) 258

Net chg in cash (a+b+c) 118 167 (279) 4

Financial Ratios


Adj. EPS (Rs) 3.4 6.6 8.2 12.7

Adj. EPS growth (%) 107.5 96.7 23.2 55.6

EBITDA margin (%) 38.0 38.5 37.8 37.6

Pre-tax margin (%) 17.5 23.7 21.2 23.5

ROE (%) 26.4 19.0 14.5 19.4

ROCE (%) 11.0 11.1 11.2 13.7




Net margin (%) 12.3 15.7 13.3 15.1

Net Debt / Equity (x) 2.1 0.7 0.8 0.8


Inventory days 0 0 0 0

Receivable days 18 72 18 18

Payable days 22 15 59 59

Valuation


PER (x) 48.3 24.5 19.9 12.8


PCE (x) 27.6 15.7 12.4 8.5

EV/Net sales (x) 7.2 4.7 3.4 2.6

EV/EBITDA (x) 19.0 12.2 9.1 7.0

Dividend Yield (%) 0.3 0.6 0.9 1.2

COMPANY

REPORT

April 8, 2011

India Real Estate

COMPANY

REPORT

Completion/leasing of ‘Market City’ properties is the key

With FY12 likely to be a year of completions, we expect ‘Market City’ properties to

stabilize only by FY13-end. HSP still accounts for with 63% contribution to our FY12 NAV

of Rs190. Initiate coverage with a HOLD rating.

‘Market City’ properties to stabilize only by FY13-end; NAV contribution at 18%

PML expects ‘Pune Market City’ to become operational in 1QFY12. The mall has LOIs/agreements in

place for ~75% of the total 1.2 msf retail space at an average rental of Rs60 psf. Kurla and Bangalore

properties are now expected to commence operations in Q2FY12, while the opening of Chennai mall

may slip into Q4FY12. Consequently, we expect a majority of these properties to stabilize only by

FY13-end. We value the contribution of 5 ‘Market City’ projects at Rs34 (18% of NAV).

Pune and Kurla commercial sales to boost FY12 PAT…

A significant proportion of revenue from the commercial sales in Pune and Kurla is expected to be

booked in FY12. Till date the company has sold inventory worth Rs2.6 bn, with cash collections

amounting to Rs1.4 bn. The commercial sale coupled with rental revenue from ‘Pune Market City’ is

likely to result in 23% YoY growth in FY12 PAT.

…however Shangri-La to be a drag on FY13 earnings

Assuming ARR/OPM of Rs10,000/35%, the hotel should operate at an occupancy level of ~65% just

to cover its interest cost. With occupancy levels expected to remain ~40% in FY13 (first year of

operations), the consolidated profitability is likely to be impacted due to Shangri-La’s high interest

cost. We expect consolidated PAT to witness de-growth of 12% in FY13 to Rs1.0 bn. Due to high

development cost, we see limited value accretion in the property and value PML’s 53% stake at

Rs11 per share (1x equity investment).

HSP still the major contributor to NAV at 63%; provides downside support to valuations

We estimate HSP NAV at Rs120 or 63% of our target price. Unlike other real estate companies,

operational rental asset (HSP) forms a significant portion of the PML’s NAV, which should act as a

downside support to valuations.

Stock trading at 3% premium to our FY12 NAV; Initiate with a HOLD

We initiate coverage on Phoenix Mills with a HOLD rating and a target price of Rs190 based on 1x

our FY12 NAV. HSP contributes Rs120 (63%), while the 5 Market Cities together account for Rs34

(18%). The balance Rs26 is contributed by EWDPL, BARE and other hospitality projects.

Risks: Better than expected leasing/rentals of ‘Market City’ properties is the key upside risks to our

estimates.

HOLD

CMP Rs197

Target Price Rs190

Potential Upside/Downside (3)%

Relative to Sensex

Source: Capitaline

Nifty: 5,842; Sensex: 19,452

Analyst

Hansraj Singh

+91-22-4322 1368

[email protected]

Sector Realty

Bloomberg / Reuters PHNX IN / PHOE.BO





Key Stock Data


-1m -3m -12m

Absolute (%) 14 (10) (4)

Rel to Sensex (%) 9 (9) (14)

Price Performance

Promoters 65.9


MFs/Banks/FIs 4.9


Public & Others 5.6


80

90

100

110

120

130

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

PML Sensex



FY09 996 602 60.4 689 4.8 41.3 53.2 4.5 2.2

FY10 1,230 775 63.0 595 4.1 47.8 44.4 3.4 2.5

FY11E 1,912 1,216 63.6 924 6.4 30.8 29.3 5.0 4.0

FY12E 3,614 1,791 49.6 1,137 7.9 25.0 19.7 5.8 5.2

FY13E 4,000 2,261 56.5 1,001 6.9 28.4 15.0 4.9 5.5


This page has been left blank intentionally.

COMPANY

REPORT

October 13, 2011

V-Guard Industries Ltd. Play on mass consumption story

COMPANY

UPDATE

CMP Rs215

Target Price Rs244


Relative to Sensex

Summary

V-Guard is into the manufacturing and marketing of products such as stabilizers, cables, water and solar heater, pumps, fans, UPS and Digital UPS which have mass consumption demand. It is a significant brand in South India. It has recently expanded operations pan India and we believe the market for its products offer high growth opportunities. We expect revenue/PAT CAGR of 28%/25% during FY11-13. Maintain ACCUMLATE and price target of Rs244 (12x PER FY13E).


A play on the mass consumption market in India

V-Guard products are consumed by the mass market. As per NCAER, the number of middle income households is going to increase by 70% to 238 mn households by 2015. The growing middle class in India, lower penetration of household appliances, increasing housing activity will lead to sustained demand for the company's product portfolio. Also increased power availability in the country over the next few years will result in higher demand.

Broad portfolio + wide distributor network + prominent brand name = High Growth

V-Guard over the last decade has expanded its product portfolio from stabilizers and cables to many other products such as pumps, electric and solar water heaters, UPS, Digital UPS and Fans. These products have high demand especially in the semi-urban and rural market. It has also over the past three years nearly doubled its distribution network (208 distributors, 2,688 dealers and ~11,000 retailers) and thus addressed the wide spread market. As it has a strong brand name, it has been able to enter newer consumer related products and has significant presence. We believe the robust product portfolio along with a wide reach will enable a revenue/PAT CAGR of 28%/25% during FY11-13.

Expanding geographical reach to aid high growth

V-Guard has predominantly been a South Indian player but over the past few years it has expanded its presence across India. It has been able to penetrate the newer markets due to its product portfolio and ability to set up a wide distribution network. In order to cater to the growing market it has also increased its product portfolio. VGuard has grown its revenues from Non-South markets from 3% of sales in FY07 to 22% in FY11. We believe that the increased product portfolio, wide distribution network and new geographical markets will result in sustainable growth over the next few years.

Revenue/PAT CAGR of 28%/25% during FY11-13

V-Guard had a top line and bottom line CAGR of ~34% during FY06-11. Going ahead, we expect revenue/PAT CAGR of 28%/25% during FY11-13 due to entry into new markets and increased revenues from its expanded product portfolio. V-Guard OPM is expected to decline by ~15bps (9.9%) in FY12 and by further ~10bps (9.8%) in FY13 due to increased contribution from low margin products (cables, fans etc) and raw material cost pressure.

Working Capital cycle to stabilize

V-Guard‟s working capital increased significantly in FY11 primarily due to higher inventory. The increase in inventory was primarily due to higher stocking of finished goods in order to cater to the high demand period (AprJun). Management has guided that going ahead the working capital should reduce due to lower debtor days by giving cash discounts and providing channel financing too. Also prudent inventory management will enable inventory days to reduce.

Attractive Valuation: Maintain ACCUMULATE and a price target of Rs244

V-Guard has outperformed the BSE sensex (return of ~34% since our coverage in August, 2010 as against BSE giving negative returns of 8%). Going ahead, we believe the company is poised for high growth as it has created a broad portfolio, wide distribution network and a strong brand name. We continue to value V-Guard at a PER of 12x FY13 and maintain our target price of Rs244.

Source: Capitaline

ACCUMULATE

Nifty: 5,099; Sensex: 16,958

Analyst

Arun Baid

+91-22-4322 1258

[email protected]

Sector Capital Goods

Bloomberg / Reuters VGRD IN / VGUA.BO





Key Stock Data


-1m -3m -12m

Absolute (%) 2 (3) 11

Rel to Sensex (%) (1) 5 27

Price Performance

Promoters 67.3


MFs/Banks/FIs 2.8






FY10 4,541 504 11.1 255 8.5 25.1 14.2 19.0 15.0

FY11 7,263 730 10.1 390 13.1 16.4 10.6 24.9 17.2

FY12E 9,382 931 9.9 488 16.3 13.1 8.5 25.6 17.3

FY13E 11,858 1,159 9.8 607 20.3 10.6 7.0 26.2 18.7


70

80

90

100

110

120

130

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

V-Guard Sensex

56

Company Update – V-Guard Industries Ltd.

Figure: Revenue, PAT and OPM Figure: Sales break up

Figure: Geographical break-up Figure: RoCE vs. RoE

Figure: EPS (Rs) Figure: Net working capital days

Source: IDBI Capital Research

0

2

4

6

8

10

12

14

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12E

FY

13E

(%)

(Rs

mn)

Net Sales (Rs mn) Adj Pat (Rs mn) OPM (%)

44%31% 23% 22% 21%

21%

22%29% 29% 30%

6% 6% 7%

20%

21% 17% 16% 15%

6%10% 8% 8% 8%

0%

20%

40%

60%

80%

100%


Stabilzer Cable LT Cables

Pump Electric water heater Solar water heaters

UPS Fans DHU

Other Products

91% 85% 78%70%

9% 15% 22%30%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY09 FY10 FY11 FY12E

South India Mkt Non South India Mkt

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12E

FY

13E

ROCE(%) ROE(%)

2.6

5.8

8.5

13.1

16.3

20.3

0

5

10

15

20

25

FY08 FY09 FY10 FY11 FY12E FY13E

51.4

62.1

83.676.7

68.1

81.7

90.3 88.1

0

10

20

30

40

50

60

70

80

90

100



57

Company Background

V-Guard was founded in 1977, by Mr. Kochouseph Chittiappily, and was into manufacturing and marketing of voltage

stabilizers. It has since then expanded its product portfolio and today manufactures and markets besides stabilizers, cables,

pumps, fans, solar water heaters, electric water heaters, UPS and Digital UPS.

It has manufacturing facilities at Coimbatore (Tamil Nadu), Kashipur (Uttaranchal) and Kala Amb (Himachal Pradesh).

Table: Plant location and products made

Location Products

Coimbatore Building Wire Cable, LT Cable, EMW pump factory and solar water heaters

Kashipur Building Wire Cable

Kala Amb Water Heater and Fans

Source: Company

Table: Installed capacities

Product Units Capacity

PVC Insulated cables mn mtrs 563.73

LT cables Kms 5,700

Solar Water Heaters Nos 22,575

Pumps Nos 30,000

Fans Nos 2,00,000

Electric water heaters Nos 1,35,000

Source: Company

V-Guard manufactures cables, solar water heaters whereas it outsource the manufacturing of stabilizers, fans, electric

water heaters, pumps, UPS and digital UPS. The company outsources to vendors who are required to produce the product

as per specified standard. In order to ensure that the vendors get major raw material like copper and aluminum at

competitive prices, it does centralized purchasing. However, each vendor is responsible for the payment of raw material

purchase.

V-Guard markets all its products under the brand name „V-Guard‟. It sells its products primarily through distributors who in

turn sell it to dealers. The company has over the past few years expanded its distributor network and now has presence

across India. It has also appointed direct dealers in a few markets in order to penetrate those geographies.

V-Guard has been primarily a South India based player. However, over the past few years it has expanded its geographical

area of operations to pan India.

V-Guard has built a professional team which manages the entire business and it employees over 1,200 people. It is headed

by Mr. Kochouseph Chittiappily, who is a first generation entrepreneur and has been instrumental in getting the company to

the current position.

58


Financial Summary



Net sales 4,541 7,263 9,382 11,858

Growth (%) 43.3 60.0 29.2 26.4


EBITDA 504 730 931 1,159

Growth (%) 60.4 44.9 27.5 24.5

Depreciation (71) (79) (87) (94)

EBIT 433 651 843 1,065

Interest paid (51) (113) (156) (205)



Tax (140) (165) (219) (273)


Net profit 255 426 488 607


Growth (%) 46.8 53.1 25.1 24.4




Net fixed assets 1,152 1,158 1,286 1,242

Investments 46 - - -


Current assets 1,904 2,892 3,515 4,445

Inventories 985 1,424 1,748 2,209

Sundry Debtors 756 1,231 1,517 1,917



Total assets 3,102 4,050 4,801 5,687

Shareholders' funds 1,415 1,720 2,085 2,552


Reserves & surplus 1,116 1,421 1,787 2,254

Total Debt 805 1,398 1,556 1,706


Unsecured loans 749 1,372 1,500 1,650

Other liabilities 862 1,459 1,613 1,763

Curr Liab & prov 824 871 1,103 1,372

Current liabilities 824 871 1,103 1,372

Provisions - - - -









Tax paid (123) (165) (216) (270)

Chg in working capital (578) (955) (433) (667)


Cash flow from operations (a) (239) (461) 156 36


Chg in investments 68 46 - -




Debt raised/(repaid) 543 593 158 150



Other financing activities - - - -

Cash flow from financing (c) 453 486 36 25

Net chg in cash (a+b+c) 33 (3) (35) 12

Financial Ratios


Adj EPS (Rs) 8.5 13.1 16.3 20.3

Adj EPS growth (%) 46.8 53.1 25.1 24.4

EBITDA margin (%) 11.1 10.1 9.9 9.8

Pre-tax margin (%) 8.7 8.1 7.5 7.4

RoE (%) 19.0 24.9 25.6 26.2

RoCE (%) 22.5 23.9 24.5 26.6




Net margin (%) 5.6 5.4 5.2 5.1

Net Debt/Equity (x) 0.5 0.8 0.7 0.6

Working Capital & Liquidity ratios




Valuation


PER (x) 25.1 16.4 13.1 10.6

Price / Book value (x) 4.5 3.7 3.1 2.5

PCE (x) 19.6 13.6 11.1 9.1

EV / Net sales (x) 1.6 1.1 0.8 0.7

EV / EBITDA (x) 14.2 10.6 8.5 7.0

Dividend Yield (%) 1.4 1.6 1.6 1.9

COMPANY

REPORT

October 13, 2011

Hawkins Cookers Ltd.

Sweet whistle

COMPANY

REPORT

CMP Rs1,622

Target Price NA

Potential Upside/Downside NA

Relative to Sensex

Summary

Hawkins Cookers Ltd. is one of the major national players in the Indian pressure cooker market. It has a

strong brand in the kitchenware market with a significant presence in the Western and Northern markets

of India. Hawkins has diversified into cookware over the years and its Revenue/PAT had a CAGR of

18%/43% during FY07-11.


Major national player in the pressure cooker market

Hawkins is one of the two national players in the pressure cooker market in India. The pressure

cooker market in India is growing ~10-15% p.a. and there is an increasing shift towards the organized

market (~60% of the market). Hawkins being a national player is a significant beneficiary of the

growing pressure cooker market and increasing shift towards organized markets. Hawkins pressure

cooker segment has grown at a CAGR of 20% during FY06-11.

Strong brand name and wide spread distributor network

Hawkins is one of the earlier entrants in the pressure cooker market in the country and has built a

strong brand in this product category. It has a widespread distribution network with a strong presence

in the Western and Northern markets in India. The company in order to further penetrate the Southern

markets (where it has a lesser presence) has launched outer lid pressure cookers which have high

demand and this will enable future growth. We believe the company can also leverage its brand to

enter into other kitchenware products which can enable it to see high growth.


Hawkins had revenue CAGR of 18% during FY07-11 which was driven by the pressure cooker

segment. PAT had a CAGR of 43% during FY07-11 due to higher operating margins. OPM increased

by ~560 bps to ~13.9% during FY07-11.

High return ratios

Hawkins is a debt free company and has high return ratios. The return ratios are higher due to

negligible working capital and capital expenditure requirement. Hawkins reported RoE/RoCE of

75%/56% in FY11.

Valuations

Hawkins is one of the major players in the pressure cooker market in India. It has a strong brand and

large distribution network and can leverage it to become a complete kitchenware player in the

domestic market. We believe Hawkins can witness a high growth given its brand and ability to expand

its product portfolio. Hawkins trades at a PER and EV/EBIDTA of ~27x and 18.1x FY11 respectively.

We have no rating on the stock.

Source: Capitaline

NOT RATED

Nifty: 5,099; Sensex: 16,958

Analyst

Arun Baid

+91-22-4322 1258

[email protected]


Bloomberg / Reuters HAWK IN / HWKN.BO

Shares o/s (mn) 5.3




Key Stock Data

52-week high/low Rs2,118/827

-1m -3m -12m

Absolute (%) 1 2 50

Rel to Sensex (%) (2) 10 66

Price Performance

Promoters 56.1


MFs/Banks/FIs 5.4






FY08 2,042 197 9.7 113 21.3 76.1 43.7 61.5 42.0

FY09 2,415 282 11.7 191 36.2 44.9 30.2 81.8 61.4

FY10 2,856 556 19.5 368 69.7 23.3 14.9 112.3 85.9

FY11 3,315 460 13.9 318 60.1 27.0 18.1 74.7 55.6


50

100

150

200

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

HAWK Sensex

60

Company Report – Hawkins Cookers Ltd.

Figure: Revenue & PAT (Rs mn) Figure: OPM (%)


Figure: Sales break-up (%) Figure: Pressure cooker sales volume


Figure: RoE vs. RoCE Figure: FCF (Rs mn)


0

50

100

150

200

250

300

350

400

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY06 FY07 FY08 FY09 FY10 FY11

Revenue (LHS) PAT (RHS)

5%

10%

15%

20%


80% 81% 81% 81% 81% 82%

13% 13% 14% 14% 13% 12%

7% 6% 6% 5% 6% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Others Cookware Pressure cooker

1,51

2,29

0

1,86

1,26

9

2,04

4,67

2

2,33

9,44

4

2,79

2,77

7

3,14

2,71

3

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000


30%

50%

61%

82%

112%

75%

18%

29%

42%

61%

86%

56%

0%

20%

40%

60%

80%

100%

120%


RoE (%) RoCE(%)

8298

160

339

240

0

50

100

150

200

250

300

350

400


CAGR: 16%


61

Company Background

Hawkins Cookers Limited is a major player in the pressure cooker market in India and has been in business since 1959. It has expanded its product portfolio over the past few years and now also deals in cookware and idli stands too.

In cookware it has both the hard anodized and non-stick surfaces. It has a wide product category in cookware such as tava, frying pan, sauce pan, handi, cook-n-serve bowl, stewpot etc. Hawkins markets its cookware product category under the brand name Futura.

Hawkins has a wide variety of pressure cookers and has ~57 models. However, it has been primarily an inner lid pressure cooker player with a significant presence in the Western and Northern markets in India. It is now focusing on the outer lid pressure cookers too (which has high demand in Southern India). The focus on outer lid pressure cooker is expected to further drive growth in the years ahead. Hawkins pressure cookers are marketed under three brand names Hawkins, Futura and Miss Mary.

Hawkins manufactures pressure cookers whereas it primarily outsources cookware. It has manufacturing facilities at Thane (Maharashtra), Jaunpur (Uttar Pradesh) and Hoshiarpur (Punjab) and has a combined installed capacity of 7.2 mn pressure cookers.

Hawkins has a pan India distribution network. It has a strong brand in the pressure cooker market and has levered it to enter into cookware category. Its cookware segment had a CAGR of 20% during FY06-11. We believe it can become a complete kitchenware company due to the strong brand name and wide distribution network it has.

Hawkins had a revenue/PAT CAGR of 19%/51% during FY06-11. The growth has been primarily led by pressure cooker business. Pressure cooker volume CAGR during FY06-11 was ~16% and revenue growth was ~20%.

Hawkins has been a net debt free company since FY09. It has been so due to low capital expenditure and working capital requirement. Capital expenditure is low due to mix of manufacturing & outsourcing model and working capital requirement has been negligible due to control on debtors and inventory. Hawkins has been able to reduce its average working capital days from ~38 days in FY07 to ~28 days in FY11.

Hawkins is a free cash flow generating company due to its low capital expenditure and working capital model. It has been a high dividend pay-out company with an average dividend pay-out of ~55% for the past 5 years.

Hawkins is a professionally managed company and is headquartered in Mumbai. It has a strong management team which has been together for the last many decades. Its Chairman is Mr. Vasudeva and CEO is Mr. Subhadip Dutta Chowdhury.

62


Financial summary


Year-end: March FY08 FY09 FY10 FY11

Net sales 2,042 2,415 2,856 3,315

Growth (%) 17.8 18.3 18.3 16.1


EBITDA 197 282 556 460

Growth (%) 36.8 43.1 96.8 (17.2)

Depreciation (16) (17) (17) (19)

EBIT 182 266 539 441

Interest paid (15) (14) (17) (21)



Tax (66) (102) (190) (158)


Net profit 113 191 368 318


Growth (%) 50.3 69.8 92.7 (13.8)




Net fixed assets 148 152 169 185

Investments 1 1 1 1


Current assets 550 712 1,041 1,303

Inventories 268 255 312 388


Cash and Bank 38 144 394 468


Total assets 699 865 1,211 1,490

Shareholders' funds 200 267 389 461


Reserves & surplus 147 214 336 408

Total Debt 80 88 123 203

Secured loans 1 - - 26

Unsecured loans 79 88 123 176


Curr Liab & Prov 425 524 712 841



Total liabilities 499 597 822 1,029

Total equity & liabilities 699 865 1,211 1,490







Tax paid (83) (95) (197) (158)

Chg in working capital 9 (35) (5) (60)


Cash flow from operations (a) 117 177 372 273





Equity raised/(repaid) (0) (0) (0) (0)

Debt raised/(repaid) (28) 8 35 80


Net interest expense - - - -

Other financing activities (17) - - -

Cash flow from financing (c) (88) (54) (89) (167)

Net chg in cash (a+b+c) 10 106 250 73

Financial Ratios


Adj. EPS (Rs) 21.3 36.2 69.7 60.1

Adj. EPS growth (%) 50.3 69.8 92.7 (13.8)

EBITDA margin (%) 9.7 11.7 19.5 13.9

Pre-tax margin (%) 8.7 12.2 19.6 14.3

ROE (%) 61.5 81.8 112.3 74.7

ROCE (%) 42.0 61.4 85.9 55.6




Net margin (%) 5.5 7.9 12.9 9.6

Net Debt / Equity (x) 0.2 (0.2) (0.7) (0.6)





Valuation


PER (x) 76.1 44.9 23.3 27.0


PCE (x) 66.8 41.3 22.3 25.5

EV/Net sales (x) 4.2 3.5 2.9 2.5

EV/EBITDA (x) 43.7 30.2 14.9 18.1

Dividend Yield (%) 0.6 1.2 2.5 2.5

COMPANY

REPORT

October 13, 2011

Hitachi Home and Life Solutions (India) Ltd.

Bet on comfort

COMPANY

REPORT

CMP Rs158

Target Price NA

Potential Upside/Downside NA

Relative to Sensex

Summary

HHLS is a major player in the growing Air conditioner market in India with a ~9% market share in the room

AC market. It has a well established distribution network (~1,800 dealers) and a strong brand name.

HHLS has been focusing on the energy efficient Spilt AC’s with many variants which has enabled it to

capture a significant market presence. HHLS has seen a CAGR in Revenue/PAT of 24%/16% during

FY06-11 and as the Indian AC market expected to grow at ~20% (due to low penetration, increasing

income, increasing temperatures) it is poised for a high growth.


A major player in the air conditioners market

HHLS is one of the major players in the Air conditioner market in India and has a strong brand. It has a

~9% market share in room air conditioner (RAC) market. The air condition market in India is estimated to

be ~3.3mn pcs (Rs68,000 mn) and is expected to triple (~10.3 mn pcs) by 2015 (Source: CEAMA).

Split Air conditioners to drive future growth

The market in RAC is shifting towards split Ac due to lesser noise, more energy efficiency and better

appearance. Split Air conditioners account for ~65% of the total market and is expected to contribute ~80%

by FY14. HHLS has a major presence in the spilt AC segment and is seeing high growth in this segment.

HHLS has an edge over its peers in this category and sold ~79% of its split Ac’s with 5 star rating in FY10.

Growing temperatures and increasing income to boost future demand

The rising temperatures in the country have increased the demand for air conditioners and now they

are perceived as necessities as compared to luxury earlier. Also, the increasing income of the

masses across the country and easy availability of financing by distributors/retailers has resulted in

the growing demand for air conditioners.

Low penetration offer high demand prospects

Air conditioner penetration in India is ~3% which is significantly lower than Pakistan (~16%), Malaysia

(~26%) and Brazil (~12%). The penetration in India is expected to significantly improve due to rising

income, increasing affordability of products and higher availability of financing. HHLS to capture the Tier

II and Tier III city customers has launched models which are more affordable in a bid to ensure high

growth.


HHLS had revenue CAGR of 24% during FY06-11 primarily led by volume growth (FY06-11 CAGR

~24%) and PAT CAGR of ~16%. It expanded capacity in FY10 and now can produce ~0.4mn on

single shift basis (total sales in FY11 was ~0.24mn). With expanded capacity and expanding market,

HHLS is well placed to capitalize on the growing market.

Valuations

HHLS is one of the major players in the air conditioner market in India and is poised for a high growth

phase due to the growing demand and prominent market position it commands. HHLS currently

trades at a PER & EV/EBIDTA of 10.9x and 8x FY11. We have no rating on the stock.

Source: Capitaline

NOT RATED

Nifty: 5,099; Sensex: 16,958

Analyst

Arun Baid

+91-22-4322 1258

[email protected]


Bloomberg / Reuters HTHL IN / HITA.BO





Key Stock Data


-1m -3m -12m

Absolute (%) (8) (17) (51)

Rel to Sensex (%) (11) (9) (35)

Price Performance

Promoters 69.9


MFs/Banks/FIs 4.9






FY08 4,466 463 10.4 376 16.4 9.7 8.0 60.3 57.5

FY09 4,699 418 8.9 326 14.2 11.1 9.3 34.7 23.3

FY10 6,409 588 9.2 390 17.0 9.3 6.7 31.0 32.2

FY11 7,632 563 7.4 332 14.5 10.9 8.0 20.9 17.9


40

50

60

70

80

90

100

110

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

HHLS Sensex

64

Company Report – Hitachi Home and Life Solutions (India) Ltd.

Figure: Revenue & PAT (Rs mn) Figure: OPM


Figure: Air Conditioner Volume (Nos) Figure: Price Realization (Rs/pc)


Figure: EPS (Rs) Figure: RoE vs. RoCE (%)


0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Net Sales (LHS) Adj Net Profit (RHS)

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%


EBITDA margin (%)

83,085 100,380

134,344 133,131

190,347

243,365

0

50,000

100,000

150,000

200,000

250,000

300,000


27,117

30,980

33,535 33,682

31,511

29,059

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000


6.97.8

16.4

14.2

17.0

14.5

0

2

4

6

8

10

12

14

16

18

20


5760

3531

21

35

57

23

32

18

0

10

20

30

40

50

60

70


RoE (%) RoCE (%)


65

Company Background

Hitachi Home & Life Solutions (India) is a subsidiary of the Japanese conglomerate Hitachi. HHLS is into manufacturing

and selling of ‘Hitachi’ brand of air conditioners and trading of ‘Hitachi’ brand of refrigerators, washing machines

and chillers.

HHLS has its air conditioner manufacturing plants located at Kadi (Gujarat) and Jammu and has a combined production

capacity of 4 lakhs unit per annum on single shift basis.

HHLS main product category is Air Conditioners and it has presence in the room air conditioner (RAC), ductable air

conditioner and telecom air conditioners.

In the RAC segment HHLS has a ~9% market share (~7% in volume terms). The RAC market grew by ~31% in FY11

and is expected to see a sustainable high growth (~20%) for the next few years. The growth in RAC market is due to

lower penetration (~3%), increasing trend of considering RAC as a necessity vis-à-vis luxury and rising disposable

income. HHLS plans to increase its market share to ~12% in value terms and ~10% in volume terms going ahead by

increasing its product range, geographical presence and dealer network.

In the RAC market the split AC segment is witnessing high growth due to energy efficiency, better looks and lesser

noise. The split RAC market accounts for ~65% of the total AC market in the country.

RAC is the main business segment of HHLS. It has a national presence in RAC with ~1,800 dealer network. In order to

further capture the market, new innovative products developed by its R&D team have been introduced with unique

features. Also, it is expanding its dealer network to ~3,000 by CY11 which will thus enable its future growth.

HHLS has focused on R&D and developed energy efficient AC’s along with added features. The focus on product

development with high energy efficiency and its technical tie-up with Hitachi of Japan has enabled strong growth for the

company. In FY10 of the total split AC sold by the company ~79% were 5-star rated AC’s (highest in energy efficiency)

and in FY11 it launched the first 5 star rated window AC in the country.

HHLS in order to further penetrate the air conditioner market has launched low tonnage air conditioners and also mass

market product range. It had launched ‘Kaze’ a few years ago which caters to the middle class income group.

The mass market product range has enabled it to penetrate the Tier II and Tier III cities. It had a presence in 236 towns

across the country in June 2010 and plans to expand its presence to ~300 towns by FY12. The geographical expansion

and increase in number of dealers will lead to its future growth.

The ductable air conditioner market has been under pressure due to user industries such as infrastructure, retail, IT&

ITES seeing lower demand. The ductable air conditioner segment is expected to continue to be under pressure as

demand from user industries is expected to remain low in the near term. The ductable AC market grew by ~6% in FY11

whereas HHLS saw a growth of ~11%.

In the telecom air conditioner (TAC) segment HHLS has increased its market share to ~42% in FY11 from ~32% in

FY10. The TAC market had seen de-growth in FY11 due to the telecom operators sharing towers and new set ups not

coming. HHLS has been able to garner a high market share in the TAC market due to the various safety features,

energy efficiency and lower operating cost its product have. Also it has AC systems which are specifically designed for

unmanned Telecom shelters/Telecom BTS sites which thus resulted in it capturing the TAC market.

HHLS revenue CAGR during FY06-11 was 24%. The growth in revenues has been led primarily by volume growth

(~24%). The PAT CAGR during FY06-11 was 16% and was lower than revenue CAGR primarily due to a decline in

OPM in FY11. The decline in OPM in FY11 is due to higher raw material cost and increased manufacturing cost.

HHLS is managed by a professional team and its day to day operations are headed by Mr. Motoo Morimoto

(Managing Director).

66


Financial Summary



Net sales 4,466 4,699 6,409 7,632

Growth (%) 37.5 5.2 36.4 19.1


EBITDA 463 418 588 563

Growth (%) 93.4 (9.7) 40.7 (4.2)

Depreciation (76) (80) (118) (161)

EBIT 386 338 470 403

Interest paid (22) (27) (15) (20)



Tax (46) (57) (109) (106)


Net profit 422 211 461 293


Growth (%) 109.1 (13.2) 19.6 (14.7)




Net fixed assets 411 827 1,198 1,375

Investments - - - -


Current assets 2,447 2,403 3,302 4,849

Inventories 1,205 1,164 1,804 3,267

Sundry Debtors 900 818 960 1,249



Total assets 2,858 3,230 4,500 6,224



Reserves & surplus 605 816 1,237 1,490

Total Debt 118 505 601 900


Unsecured loans 0 8 153 400


Curr Liab & prov 1,944 1,716 2,514 3,711

Current liabilities 1,897 1,668 2,427 3,600










Tax paid (38) (55) (112) (111)

Chg in working capital (42) (76) (128) (630)


Cash flow from operations (a) 446 167 424 (207)






Debt raised/(repaid) (217) 388 95 300

Dividend (incl. tax) - - 80 40


Other financing activities (43) 57 (80) (83)

Cash flow from financing (c) (260) 445 96 256

Net chg in cash (a+b+c) 25 166 55 (263)

Financial Ratios


Adj. EPS (Rs) 16.4 14.2 17.0 14.5

Adj. EPS growth (%) 109.1 (13.2) 19.6 (14.7)

EBITDA margin (%) 10.4 8.9 9.2 7.4

Pre-tax margin (%) 10.5 5.7 8.9 5.2

ROE (%) 60.3 34.7 31.0 20.9

ROCE (%) 57.5 23.3 32.2 17.9




Net margin (%) 8.4 6.9 6.1 4.4

Net Debt / Equity (x) 0.1 0.3 0.2 0.5





Valuation


PER (x) 9.7 11.1 9.3 10.9


PCE (x) 8.0 8.9 7.1 7.4

EV/Net sales (x) 0.8 0.8 0.6 0.6

EV/EBITDA (x) 8.0 9.3 6.7 8.0

Dividend Yield (%) 0.0 0.0 (0.9) (0.9)

67


Notes

68


Notes

Vikrant Oak – Head Institutional Equities (91-22) 4322 1385 [email protected]

Sonam H. Udasi – Head Research (91-22) 4322 1375 [email protected]

Dealing (91-22) 6637 1150 [email protected]

Key to Ratings

Stocks:

BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto ±5%; REDUCE: -5% to -15%; SELL: -15% and below.

IDBI Capital Market Services Ltd. (A wholly owned subsidiary of IDBI Ltd.) Equity Research Desk

3rd Floor, Mafatlal Centre, Nariman Point, Mumbai – 400 021. Phones: (91-22) 4322 1212; Fax: (91-22) 2285 0785; Email: [email protected]

SEBI Registration: NSE CM – INB230706631, NSE F&O – INF230706631, BSE CM – INB010706639, BSE F&O – INF010706639, NSDL – IN-DP-NSDL-12-96

Compliance Officer: Christina Fernandes; Email: [email protected]; Telephone: (91-22) 4322 1212 Disclaimer This document has been prepared by IDBI Capital Market Services Ltd (IDBI Capital) and is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. No person associated with IDBI Capital is obligated to call or initiate contact with you for the purposes of elaborating or following up on the information contained in this document.

Recipients may not receive this report at the same time as other recipients. IDBI Capital will not treat recipients as customers by virtue of their receiving this report.

The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. In so far as this report includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

Opinions expressed are current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis, the information discussed in this material, IDBI Capital, its directors, employees are under no obligation to update or keep the information current. Further there may be regulatory, compliance, or other reasons that prevent us from doing so.

Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.

IDBI Capital, its directors and employees and any person connected with it, will not in any way be responsible for the contents of this report or for any losses, costs, expenses, charges, including notional losses/lost opportunities incurred by a recipient as a result of acting or non acting on any information/material contained in the report.

This is not an offer to sell or a solicitation to buy any securities or an attempt to influence the opinion or behaviour of investors or recipients or provide any investment/tax advice.

This report is for information only and has not been prepared based on specific investment objectives. The securities discussed in this report may not be suitable for all investors. Investors must make their own investment decision based on their own investment objectives, goals and financial position and based on their own analysis.

Trading in stocks, stock derivatives, and other securities is inherently risky and the recipient agrees to assume complete and full responsibility for the outcomes of all trading decisions that the recipient makes, including but not limited to loss of capital.

Opinions, projections and estimates in this report solely constitute the current judgment of the author of this report as of the date of this report and do not in any way reflect the views of IDBI Capital, its directors, officers, or employees.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IDBI Capital and affiliates to any registrati on or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

IDBI Capital, its directors or employees or affiliates, may from time to time, have positions in, or options on, and buy and sell securities referred to herein. IDBI Capital or its affiliates, during the normal course of business, from time to time, may solicit from or perform investment banking or other services for any company mentioned in this document or their connected persons or be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or their affiliate companies or act as advisor or lender / borrower to such company(ies)/affiliate companies or have other potential conflict of interest.

This report may provide hyperlinks to other websites. Except to the extent to which the report refers to the website of IDBI Capital, IDBI Capital states that it has not rev iewed the linked site and takes no responsibility for the content contained in such other websites. Accessing such websites shall be at recipient's own risk.

E-mail is not a secure method of communication. IDBI Capital Market Services Limited cannot accept responsibility for the accuracy or completeness of any e-mail message or any attachment(s). This transmission could contain viruses, be corrupted, destroyed, incomplete, intercepted, lost or arrive late. IDBI Capital, its directors or employees or affil iates accept no liability for any damage caused, directly or indirectly, by this email.

Consumption - Myirisbreport.myiris.com/IDBICAP1/VUAINDUS_20111013.pdfCompany Section TTK Prestige...

Documents

Transcript of Consumption - Myirisbreport.myiris.com/IDBICAP1/VUAINDUS_20111013.pdfCompany Section TTK Prestige...