Investment Idea : TTK Prestige

Current Price: Rs 107
Target Price: Rs 164
Potential Upside: 53%
Time Frame: 12 months

  • TTK Prestige is a leading kitchen appliances company with products across the entire kitchenware segment. The company has transformed its distribution model by launching exclusive retail outlets known as 'Smart Kitchens'.
  • The company is well placed to capitalise on the consumption boom led by the demographic shift towards nuclear families in India. We initiate coverage on the company with an OUTPERFORMER rating.
  • At the current price of Rs 107, the stock is trading at a P/E of 9.82x its FY07E EPS of Rs 10.9 and 7.19x its FY08E EPS of Rs 14.88. On an EV/EBIDTA basis, the stock is available at 6.87x FY07E earnings and 5.74x FY08E earnings.
  • Given the company's aggressive retail foray and product diversification, we believe the current valuations are extremely attractive.
  • I rate the stock an OUTPERFORMER with a 12-month price target of Rs 164, at 11x FY08E earnings.

Stock Reco - KSB Pumps

Recommendation: Buy
CMP = Rs 518
Price target: Rs 650
Strong performance - Result highlights
  • KSB Pumps delivered good results for Q4CY2006. Its net sales grew by 24.9% to Rs108.3 crore during the quarter. There was a delay in the dispatch of certain orders in the previous quarter; the delayed sales got reflected in the fourth quarter, boosting the Q4CY2006 performance.
  • On segmental basis, the revenues of the pump business went up by 16.2% to Rs78.9 crore while that of the valve business grew by a strong 57.7% to Rs28.7 crore. However, the margin in the pump business declined to 13.4% from 15.3% last year, while the profit before interest and tax (PBIT) margin in the valve business grew by 120 basis points to 25.4%.
  • Overall, the operating profit grew by 24.2% to Rs20 crore, while the operating profit margin (OPM) was stable at 18.5%. This despite a steep hike in the raw material cost, which rose from 41% in the same quarter last year to 46.4%. However, substantial savings were made in the staff cost and other expenses.
  • The profit after tax (PAT) for Q4CY2006 rose by 42.4% to Rs12.1 crore. For CY2006, the OPM grew to 20.4% from 18.1%, while the full years' PAT grew by 38.3% to Rs51.6 crore.
  • Sales are traditionally better in the first and second quarters for pump makers because of seasonal factors. Hence, we should expect even better results from the company in the coming quarters, both in terms of revenues and margins.
  • The pumps industry is set to benefit from the huge investments being planned in the user industries, particularly power and petrochemicals. KSB Pumps, enjoying a 12% market share, would be one of the key beneficiaries of the same and hence we expect the growth momentum to sustain going forward.
  • CY2008 earnings per share (EPS) estimate at Rs46 for KSB Pumps. At the current market price of Rs518, the stock quotes at CY2007E price/earnings ratio (PER) of 11.3x and at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.2x.
  • I maintain Buy recommendation on the stock with a price target of Rs650.

Stock Reco's - ITC - Buy

CMP = Rs. 162
Price Target = Rs. 220
Market Cap = Rs. 61,206 cr

  • ITC had been underperforming the market owing to fears of the implementation of the value-added tax (VAT) and a hike in the excise duty on cigarettes. Finally in this budget, the excise duty on cigarettes was increased by 5% and the hike was at the lower end of the expectations. Moreover with no change in the additional excise duty, the fear that VAT may be levied sometime in the near future has been allayed. The likelihood
    that the government may allow VAT on cigarettes through a separate amendment also appears low.
  • Cigarettes.excise duty increased by 5%
    The total excise duty on cigarettes has increased by 5% and the excise outgo currently forms 60% of the gross sales on cigarettes. In our view, ITC will effect a weighted average price hike of around 3% to pass on this tax increase to the consumer. The same, we believe, is on the lower side. It is likely that ITC will be able to maintain a 7-8% volume growth in cigarettes in FY2008.
  • Tax on bidis increased
    It appears that the government has tried to widen the tax net on tobacco by raising excise duty from Rs 7 to Rs 11 per thousand units for non-machine made bidis and from Rs 17 to Rs 24 per thousand units for machine made bidis. The government has also imposed stringent declaration norms for bidi manufacturers producing below 20 lakh bidis. In our view, this is likely to improve the long-term volume growth prospects for the cigarette industry.
    At the current market price of Rs162, the stock is attractively quoting at 18.4x its FY2008E earnings per share and 11.6x FY2008E enterprise value/earnings before interest, depreciation, tax and amortisation.
  • I maintain our Buy recommendation on ITC with a price target of Rs 220.

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