Ladies and gentlemen, good day and welcome to the TTK Prestige Q2 FY23 earnings conference call hosted by Ambit Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star 100 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Yash Jain from Ambit Capital. Thank you and over to you, sir.
Thank you, Renju. Good afternoon, everyone. On behalf of Ambit Capital, I welcome you all to the Q2 FY23 earnings conference call of TTK Prestige Ltd. From the management side today, we have with us Mr. T.T. Jagannathan, Chairman, Mr. Chandru Kalro, Managing Director, Mr. K. Shankaran, Full-Time Director, and Mr. R. Saranyan, Chief Financial Officer for TTK Prestige Ltd. Now, I hand over the call to the management for their opening remarks, and then we will open the floor for question and answer. Thank you and over to you, sir.
Good afternoon. This is Chandru Kalro here and thank you for coming to the call. As you remember, in the last conference call when we went, we told you all that Q2 was on a very high pace given this pre-COVID, COVID, etc., issues of last year, and we had said that we are confident that we will come close to those figures and which we have. We have achieved our objectives for the quarter. We've had a reasonably good season as we have spoken. The growth has to be looked at from a half perspective rather than a quarter perspective because there was a pre-COVID and COVID last year. I mean, COVID and post-COVID last year and this year there is on that pace, so I think we've done what we set out ourselves to do for the half. We are at 20% growth in top line.
We've either matched or outstripped our competitors, and our margins are in line with our stated objectives on the margins. So overall, the quarter has been reasonably good, and we look forward to a reasonable second half. Over to you all for second questions. Hello?
Hello. Should we begin the questions?
Yes, please.
Thank you, sir. Thank you, and we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question comes from the line of Sameer Gupta from India Infoline. Please go ahead.
Hello. Good afternoon, sir, and thanks for taking my question. Two from my side. So first of all, when I look at the sequential gross margin movement, I see a 230 basis points contraction. Now, aluminum steel, both prices have seen only correction in the last six, eight months. And only thing here which I can think of is either there have been price drops that have been taken or it is the mix. So maybe higher mix of appliances. Any other reason or is there a reason completely different from this why this margin has contracted sequentially and how we should look at it going forward? That is the first question, sir.
Okay. The answer to that is very simple. The inventories of raw material and other inventories which we were carrying have been progressively averaging upwards because of the way the inventory carrying cost was. So the quarter began with a higher cost inventory as opposed to the first quarter. And based on our buying arrangements with our suppliers, this quarter our buying was at a higher price than the Q1. And we continue to carry some inventory at the high cost as we go into the Q3 also. However, if you look at this quarter with respect to Q2 of last quarter, our material costs have remained almost similar to the Q2 of last year. So that is how you must look at it.
Most of the companies have had this issue because they've had an opening inventory and closing inventory, and that is just going to normalize as we go along after a single quarter from now.
Yes, please. And my issue is right now.
We got it, sir. So it's next quarter. Okay. Okay. Great, sir. That's helpful. Secondly, just wanted a bookkeeping question. The CapEx guidance for this year and going forward and how much you have done in the first half?
So we have given a CapEx guidance of between INR 50 crores and INR 75 crores, and I think in the first half we've done about 30, around INR 30 odd crores, and we will complete the balance in the second half.
Got it, sir. That's all from me. Thanks a lot.
Thank you.
Thank you. Next question comes from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead.
Thank you. Hello, sir. I just wanted a basic understanding on three elements. One is how much would have been the RM inflation compared to our normal base quarter of FY20. Number two, how much would have been the price hike compared to the same quarter. And number three, only the implied.
Can you repeat the question, please? Sorry.
Hello?
Yeah. Can you repeat the question, please?
Yes, sir. So I just wanted a basic understanding on how much would have been the RM price inflation compared to a normal base quarter of FY20, Q2 FY20. And number two, how much would have been the price hike we would have taken since then. And number three is the implied volume growth.
The raw material prices that have gone from FY 2020 to today would be in the region of at least 18%-20% if I'm right. I don't have that number readily available. We have almost taken matching price increases. We left out the final lot of price increases because we were seeing the prices coming down, as you remember. We took the last price increase in the last quarter of last year. There are no more price increases planned. We are seeing the raw material prices come down, and we believe that they will stay at the present levels or at the region of close band of this, what they are today. We are seeing, as Chairman just said, that our basic raw material costs, that our material costs could go in line with the previous year by the end of this year.
Sure, sir. That would more or less mean that volumes have also almost grown flat or something like that, right, compared to last year?
From a first-half perspective, there have been double-digit increases in volume growth because, as you can see, our turnover growth has been 20%. So there has been volume growth in the first half. And for the second half also, we are looking at growth, but as you know, given the inflationary situation as it is, volume growth hasn't been very robust as in the past. We are hoping that as things become better, the volume growth will come back to where they used to be as depending on which category you're talking about. But there have been volume growth even this year from a half percent.
Understood. Understood. Sir, last question from my side. Like you have already mentioned in the PPT on predatory pricing on online channels and by smaller players. So going forward, as our RM cost basically softens, do we plan to what is the strategy as such? Do we plan to pass it on to the customer, or do we plan to retain that benefit of on gross margin plan?
We will find predatory pricing as unsustainable pricing only made to get entry into a channel or to come out and hide the particular category. Now, that is a game we don't want to play. We are a branded player. We are the brand leader in the business, and we will continue to do that and continue to grow through our innovation. That is our strategy. We do not want to get into a price war or a commodity or aid this commoditization. And therefore, if it comes to that, we would rather stay away rather than get into such a game.
Understood, sir. That helps. Thanks a lot.
Thank you. Next question comes from the line of Resha Mehta from GreenEdge. Please go ahead.
Yes. I have two questions. So first is on the growth and demand. Okay. So while I do understand the difficult macro backdrop that we have, right, but if I just compare the first half three-year top line CAGR for us has been around 11%-12% versus for our peer, it's in the range of 19%-20%, right? So is this big divergence because and I'm saying the three-year CAGR because that takes into account the COVID-related disturbances, etc., right? So is this big divergence in the three-year H1 CAGR because in South, we have seen a more pronounced subdued demand, or is it because of the competitive pressures in South have increased? Or if you could just comment on a little bit more granular commentary on the demand in rural, urban, South, non-South, that would help.
Okay. I want to know who you define as the peers first. Who grew 18% in a year?
I was talking about Hawkins.
So you see Hawkins is only in pots and pans, which is a pressure cooker and cookware business, right? So their base has been small. We have also grown more than that. Our growth there also has been in that area. For example, if you look at the presentation which we have given you for this quarter, for this half, and if you look at our pressure cooker growth, which is there in our presentation, you will see that we have grown by what? For the quarter, we've grown for the first half, we've grown by 30% on pressure cookers. And if you look at Hawkins, their growth is actually lower than us in this year.
Who are you comparing us with, please?
We were talking about the divergence in the three-year H1 numbers.
But then it looks better than everybody else. What divergence? What number? Where do you get numbers from?
I would request you to look at annual numbers please and not look at the half because different companies have different strategies and different ways to look at various quarters during the year. If you look at the annual numbers, they're not divergent from them.
Right. Maybe if you could just maybe I can take this offline, but if you could just comment on that, was there a difference in demand that you saw across rural, urban, South, non-South, or was there a slowdown secularly across?
No. The trend that we are seeing is very similar. Since the inflation is more effective, I mean, it has affected the lower middle class, the business there has not grown as much as the upper end of the market. So the entry-level products have not done well. Now, that is true for us, and it is true for our peers also. If you look at the value-added segments in each of our categories, they have grown substantially during this year and during the previous two years. This year, particularly, the entry-level segment has suffered. You will see this in many other categories which are proxy categories to us, for example, in two-wheelers, etc., etc. So that is the only comment that I would like to make. In terms of the relative performance to our competitors, I don't think there is a divergence.
Right. And how would you say that our portfolio is, how much of that would be entry-level versus what we categorize as premium?
It varies from category to category. You see, in Hawkins case, the company which you mentioned, they have only two categories. We have at least 18 categories with us to deal with. So each category has helped me separately. Now, in the last one or two years, as you know, our entire pressure cooker portfolio has moved to Svachh. And within Svachh, we have recently launched the three-ply pressure cookers. We have launched the clip-on pressure cookers. There have been the entire stainless steel range has moved to Svachh. All of this has meant that we have been the thought leaders in the category, and we are doing extremely well in the value-added segment. The entry-level segment is struggling for obvious reasons, as I said.
Right. Right. And the second question is on Ultrafresh. So how big is the modular kitchen opportunity in India, and how big can Ultrafresh become for us? And what are the expansion plans there? And would our offerings be like, let's say, for example, this space, it offers modular kitchens on EMIs and some 10-year warranty, one-year service warranty. So how far Ultrafresh can grow, and what is the opportunity size here?
Very good question. Ultrafresh is a very large opportunity. The modular kitchen business in India is very large. INR 10,000 crores, as we know, growing. The real estate business is growing, and therefore, this business will also grow, and we see that in the next three years, both in Tier 1 and Tier 2, Tier 3 towns, the modular kitchen business is likely to grow. Ultrafresh, when we have invested in it, is a very small turnover, but we have got very substantial growth plans all the way up to INR 200 crores in the next three, four years, and the idea is that we use our strengths, and the strengths are very distinct from any competitor. This is the only player in the industry which has an end-to-end offering in terms of design, installation, and post-sale service.
We are using technology like virtual reality, etc., to have various presentations with the customer to actually score over them. Also, if you look at the last six months, we have added close to 50 new studios, which means that our retail presence on the ground is going as per plan. We have grown by almost 96% over last year's quarter for the same quarter in Ultrafresh. And that's the kind of growth ranges that we are looking at as we are going along. So Ultrafresh is a major opportunity, and we are also manufacturing, unlike most other players which are outsourcing many things. So the advantages of this brand are many. Coming to the warranty, we are offering, I think, a lifetime warranty and a free service right through, which is again a very big plus to them.
I'm not exactly sure what is the terms of that, but it's backed up by a very strong company-owned service network, which is not outsourced as well.
Right. And what would be the average size of the average ticket size of the modular kitchen that Ultrafresh sells? And would the studios be confined to South, or are they pan-India?
No. In fact, they are relatively stronger in the East and the North, and the South is just being recently added as an added presence, and the West is also started. Now, the synergistic thing in this is that we have 655-670 outlets which can become a funnel for their kitchens, and their 100-odd studios can become good outlets for our appliances within them. Our presence in Tier 2, Tier 3 is quite good as compared to most other brands.
The average ticket size?
Coming to the average price, ticket size is between INR 1.5 lakhs and INR 2 lakhs.
Got it. And so these would be customizable?
Yes, yes. Completely. Completely. These are not standard offerings. This is customized to customer needs.
Got it. All right. Thank you. All the best.
Thank you.
Thank you. Next question comes from the line of Digant Haria from GreenEdge Wealth. Please go ahead.
Yeah. So my question was just on the second half that the second half base was also quite high. Are we expecting any positive growth for the second half?
We don't give guidance, but there is no reason why we shouldn't continue to grow for the second half as a whole.
Okay. And the same trend should continue, right? The more premium products should probably do better than the entry-level. You don't see any change in that particular trend as yet, right?
Not in the second half. No. That is true. The same trend will continue.
Okay. Okay, sir. That's it from my side. All the best.
Thank you.
Thank you. A reminder to all the participants, please press star and one to ask a question. Once again, a reminder to all the participants, please press star and one to ask a question. Next question comes from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi, sir. Good afternoon. Thank you for the opportunity. So any update on inorganic opportunities that we are scouting for over the past couple of quarters? Any progress we've seen? Anywhere we are at advanced?
Question again. Can you repeat that? Sorry.
So any progress on the inorganic opportunities that we were scouting for over the past couple of quarters? Anything to highlight?
There are several opportunities available. We are evaluating. Nothing to report at this stage. Inorganic.
Sure. And just to refresh our memories, your INR 5,000 crore revenue target, the split is INR 3,500 crore organic domestic, INR 500 crore exports, and INR 1,000 crore inorganic. Is that correct?
Correct. Correct.
Okay. Thank you. Thank you.
Thank you. Next question comes from the line of Aakash Fadia from YES SECURITIES . Please go ahead.
Yeah. Thank you for the opportunity, sir. So now, under this geopolitical crisis going around the world, so how do you expect the export to trend now from here on?
We are still very bullish on exports. I mean, there are certain developed markets where there are certain hiccups. But given that we are constantly talking to newer customers, I think, which are likely to fructify in the next couple of quarters, we are still quite bullish on exports. And the geopolitical situation against China is quite prominent. Most of them are looking at the China Plus One, and we are one of the key players people would like to associate with when they come to India as a market, and that is happening. So we are quite bullish in the long run. Quarter-to-quarter or year-to-year, I don't think we should worry about, but I think the overall trends are very positive.
Okay, sir. That was very helpful. That is from my side. Thank you, sir.
Thank you.
Thank you. A reminder to all the participants, please press star and one to ask a question. Next question comes from the line of Indrajit Agarwal from CLSA. Please go ahead.
So thank you for the opportunity again. Just to check on the export market, how much would be white labeling and how much would be under the Dutch brand? And what is the strategy over there going forward? Do we focus more on the brand or white labeling?
It is currently between 50% and 60% branded exports under license, and the balance is white label. The white label is likely to grow faster than the branded exports.
Thank you so much.
Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Once again, a reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.
Pardon me if the question is repeated, I joined it a bit late, but could you help us with the outlook for the cookware as a segment? This was one of the fast-moving segments a couple of years. We have seen a bit of momentum slowing. So what's your view? What's the reason you will attribute to this one?
So don't look at it as a momentum slowing. You see, last year, during this period, because of COVID, there was a huge share of wallet moving here. People were locked up in the houses. People bought more cookware. This time, that share of wallet has gone to the luggage industry and the entertainment and the malls and etc., etc. So if you look at a trend line of four or five years in the cookware business, you have seen a positive growth. And we, as a company, have now managed in the last two, three years to cover so many subsegments within cookware. For example, we were large in non-stick cookware earlier. Within non-stick cookware itself, now we have added anodized and non-stick. We've got gold cookware. We've got cast aluminum cookware. We've got cast iron cookware, tri-ply cookware, stainless steel cookware.
So we've added so many subsegments, and we are looking at adding value to this category, and we are seeing this growing. So this outlier of last year in the Q2 should not worry us.
Okay. The second question is on the appliances. If you could give us a color on a couple of categories, especially the gas stoves and the mixer, how has been the growth in the first half, and what's the kind of growth that you are actually seeing for the current year?
See, in the gas stove, you are aware, we have launched Svachh gas stoves last year, and that has met with an excellent response, as we see. In the first half of this year, the premium segment within the gas stove category of Svachh, of the Schott Glass gas stoves, of the Edge gas stoves, of the hob-tops, etc., they have done very well. So as a proportion, they have gone to almost 50% of the total proportion. As I said, the entry-level is struggling. The entry-level is having problems, and therefore, that proportion has come down. As we go along, the gas stove market is a very stable market. It neither grows too fast nor falls too fast. Given that we have very innovative products coming out in the pipeline, we are very positive about this.
Sure, and mixer grinder as a category?
Again, mixer grinder, same kind of story. We have added so many models in the 750 and 1,000 watts in the premium end, and the same thing has happened in the mixer grinders also.
Sure. So what's been the, if one looks at first half, what's been the growth in these two categories, gas stoves and mixer grinder?
So gas stove and mixer grinder both have had double-digit growth in that sense.
Sure. Could you also help us about the online, which was growing significantly during the COVID times? What is the share now, and what is the kind of growth outlook that we are seeing on the online platform? And were there any disruptions which, according to you, were temporary, and are you seeing those corrected?
See, the online, we always said that there was a spike when there was a lockdown, and people have gone back offline with a vengeance. I think this you have read in every newspaper for several categories as we speak. And that has happened in our category. We also predicted it well in advance. Now, we have said that it will be between 16% and 20% for us, depending on the season, and that is where it is going. There is no difference there. The online, per se, as a platform has not grown because we are looking at a very large base of last year because we were having a very large base due to the lockdowns of last year.
Because they were not growing this year, there was a substantial amount of discounting that many people resorted to, which we decided that we were not going to be part of. That is the situation on the online business. Going forward, obviously, we expect online to continue to grow in a stable way, and we believe that our policy of maintaining equity between other channels is going to continue also. We will take a very balanced view on this.
Sure. The last question from my side is we were looking to enter into the premium category of hobs and chimneys. And for us, there was a small acquisition also that we had seen. So if you could just give us an outlook strategy about the kind of growth we are seeing and the Prestige Xclusive outlets that we have, what's the kind of re-merch we are doing so that we are able to kind of leverage these channels for us?
So some of these categories which you mentioned, we've got a lot of products on the anvil, which are in the design stage. Can't discuss that right now. We've also got a very aggressive retail strategy. I think we said last time to you that we have gone beyond just franchising. We have gone into company-owned outlets as well. And that we are using very strategically in most of the major cities where franchising may not be viable. So we've got stores now coming up in various towns in a larger format as opposed to a franchise outlet. And that's really helping with our retail. In fact, the first half, our retail stores have grown faster than any other channel of ours.
Okay. Any number that you would like to put across for that?
I wouldn't like to disclose that number because it is sensitive.
Fair. No problem. Yeah. Thank you so much for answering my questions.
Thank you.
Thank you. Next question comes from the line of Pranjal Garg from ICICI Securities. Please go ahead.
Thanks for the opportunity, sir. My question is regarding the exports business. I wanted to understand the exports business of the company as you are registering good growth there. Can you highlight the major markets the company is serving, and what is your outlook for the business?
So we are serving various parts of the globe, really. But primarily, we are looking at growth coming out of Europe and the U.S. And that's where our new customers are going to come in from. There has been a little bit of a delay in some of the things because of what's happening in those markets. But I think once these things stabilize, these will be our growth areas as we go along. We however supply to almost all continents in the world except South America, I think. Other than that, we supply everywhere else.
Sir, where do you see the business scaling next four-to-five years for the export business?
We have said that we want to come hit the INR 500 crore mark as we go along. In our INR 5,000 crore business, we have said we will scale up exports to INR 500 crore, and we stand committed to that objective.
The last question is, is the business having the same margins as the domestic, or is there a differential?
Certainly not. The business in exports is a lower-margin business because they are white label. All the growth is coming in the white label area. But the volumes are substantial, and also it helps us expand capacities and utilize our capacities much better, bringing its cost down.
Okay. Thank you so much, sir.
Thank you. Next question comes from the line of Aditi Bhatted from Niveshaay. Please go ahead.
Hello?
Yeah.
Yeah. Hi. Good evening, everyone. Sir, I wanted to understand the company's spend and advertisement and promotional expenses, the percentage to sales. So if you can share the number for the last quarter and if we have any plans of further investing into advertisement as such the percent.
What was the second question again?
I mean, if the company has any further plans of investing into the spend and advertisement expenses?
Basically, our advertising and promotion expenditure has been in the band of 6%-6.5%. I mean, that is something that we've constantly invested in. They are now good times and not so good times. That strategy continues. I don't think there is a need to go beyond that because we have the scale today of a high amount of money available.
Okay.
Yeah. So there's no other plans other than that. We are available on digital, on conventional media across the country, and across the year also, we are available.
Okay. Okay. That's it from my side. Thank you so much.
Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Rajith, an individual investor. Please go ahead.
Good afternoon, sir. I just had one question. You had mentioned about the growth in retail stores. I mean, I can understand if you don't want to share the exact numbers, but is it possible for you to understand the growth in terms of percentage over the last six months, and what is the growth that you foresee in the next six months?
So the growth in our retail stores is more than double the growth in the rest of the SEOs. Okay. I don't want, as I said, to give you a specific number there. And clearly, our strategy of going on exclusive retail is working. We are seeing that going forward with our other initiatives around this retail, I think this kind of growth, this can not just grow in the retail exclusive channel, but help us get a better share in the multi-brand outlet level also because typically, we have seen when the retail does well, the multi-brand outlets also fall in line.
Right. So overall, our reach, I mean, there is substantial growth in our reach, including our exclusive stores and the overall channel reach across the country?
Yeah. We have around 350-odd towns where we have our outlets. We have around 650-odd outlets, 655, I think, and our idea is to take that up to add 100 stores every year. That's what we have. Of course, this also comes where some stores churn out because they are not doing well or somebody wants to get out of the business. So that also happens, so there's a net addition that never matches that number, but I think our new store additions have been in the range of 50-75 stores a year, and we are trying to plan to increase that effort further to take it to closer to 100 stores a year for the next three years. That is why the company-owned store strategy has also come in so that we are not just dependent on franchising.
Right. Thanks a lot.
Thank you. Next question comes from the line of Rahul Ranade from Goldman Sachs Asset Management. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Just one question on the entry-level segment where you said there is sluggishness coming in because of the macro environment also. And I presume all the online competition also will be largely in the entry segment. So just wanted to understand what is our thought process if we don't want to participate in this kind of predatory pricing environment. How do we look at market shares in those entry-level products then?
There will be ups and downs initially. See, the point is that if you go and sit in that kind of market, you are aiding commoditization, which is not our strategy. The idea is to continue to innovate, continue to make sure that the value equation is positive, and get the customer back. Now, many of these products we have actually seen, if you are going to get a product that cheap, you're not going to get a product that is going to be as good as what a branded product would give. And I think sooner rather than later, even those customers will realize that they have not bought the right kind of product, and they'll come back. Replacement cycles have shortened, and we believe that if we wait this out, they will come back. And we focus on our strength, which is innovation, quality, distribution, service, etc., etc.
Sure. Sure. But in the interim, if from a macro standpoint, things get tougher, then obviously there is that angle of people continuing to downgrade, right, into the more entry-level kind of products. So would there be any plan for us? I know we have a kind of a brand called Judge, which is also at that entry-level kind of a tactical kind of a brand. Would we think something on those lines, or?
Absolutely right. You hit the nail on the head. We are having Judge as a tactical brand. And we are happy to tell you that we have opened our first exclusive Judge store during this quarter. We have a retail strategy for Judge. We are having a full-fledged strategy, which we are working out so that we can fight in these price points, not with Prestige, but with Judge.
Got it. Got it. All right. Thanks. Thanks for the reply.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Once again, a reminder to all the participants that you may press star and one to ask a question. Once again, a reminder to all the participants that you may press star and one to ask a question. As there are no further questions, we have reached the end of the question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you for that section of questions. Again, to reiterate, we are going largely to the plan that we had set out. Our margins are in line with the band that we had set out, and we're looking forward to a good second half. We continue to have a few remnants of the problems with the high-cost inventory, which I think will be over by the end of this quarter. After that, we get to more normalized margins. We hope to end the year in a good way. Thank you again, and see you soon, sometime.
Thank you. On behalf of Ambit Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines.