TTK Prestige Limited (517506) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the TTK Prestige Limited Q4 FY '20 Post Results Analyst Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Ashish Kanodia from AMBIT Capital. Thank you, and over to you, sir.

Thank you, Lizanne. Good afternoon, ladies and gentlemen. On behalf of AMBIT Capital, we welcome you all to the 4Q FY '20 earnings call of TTK Prestige Limited. We have with us Mr. T. T. Jagannathan, Chairman; Mr. Chandru Kalro, Managing Director; Mr. K. Shankaran, Director, Corporate Affairs; and Mr. V. Sundaresan, Chief Financial Officer of the company. Now I would like to hand over the call to the management for their opening comments, post which we can take the floor open for question and answers. Thank you, and over to you, sir.

Chandru?

Yes, Jagan. Good afternoon, and welcome to all of you, and thank you for being here. Well, the Q4 was different like for most companies, thanks to the lockdown and the COVID situation. And we unfortunately ended up losing quite a bit of revenue over the last month because of the last 10 days which are very crucial for most companies, especially in durables. And therefore, you would have seen that there is a drop in the top line. And this was particularly unfortunate because we had launched a whole Q-on-Q products for the quarter and we were hoping to do quite well during the quarter. And moving forward, we are looking at things quite positively. The company is well placed in spite of all the problems. We continue to have enough cash to sustain the business. And after the lockdown has opened, we have seen a renewed interest in the kitchen, and therefore, the retail has been pretty solid wherever the markets have opened. So we are looking at the business a little more optimistically, and we now leave the floor open for questions.

[Operator Instructions] The first question is from the line of Avi Mehta from IIFL.

Congratulations on this performance. I understand that the situation is weak, but it was encouraging...

Can you please speak up. We are not able to hear you clearly.

Sir, I had a few questions. One was on the exit run rate, especially in terms of sales. Now you had said that June till date was flattish but I wanted to understand the exact run rate because there could possibly have been pent-up demand, if you could kind of comment on that? And any category-specific comments that you could share?

For our understanding, see, wherever the markets have opened, thanks to the lockdown, you know that people have been cooking only at home, largely without domestic help, and therefore, the kitchen has been a large focus during the period of the lockdown. And what we're seeing is, as soon as the markets are opening, we have launched a large exchange promotion, as you know, probably by now, to help people change their old products which are tired to new ones, and we're seeing a very good response to that. And a lot of convenience products which are now required where people need to work without maids and domestic help are now being sold very well. We are seeing a renewed interest in even the cookware business. So wherever the business has happened -- so as the market has opened, we are looking at sales going up and then coming down slightly after the better demand is satisfied, but even the steady state demand seems to be quite good.

So how does this compare to pre-COVID levels?

In our own store, the sales is higher than pre-COVID level. It is about 10% higher.

Okay. And that's for our own stores, but, sir, for the remaining part of the business on an overall would you be able to share anything on that?

See, we're not able to estimate that because one day one market is open, another day, another market is open. This market is closed, for that day, that market is open. So how do you estimate that.

Okay. And sir, any category-specific things? You said cookware, for example, was doing well. Is this steady state healthy across the board? Or is there any specific categories to call out?

Across the board, we are seeing a renewed interest in brand. People now want to buy a good brand, which is supported by good aftersales service, and they have understood that there is better to pay a little premium for that and actually buy those products. They are also buying largely products which can help them save time and convenience because if you see a lot of people working from home these days, and therefore, time is an even more premium now because they are working and cooking.

Fair enough, sir. Fair enough. Sir, the second bit was on the cost-saving measures and the CapEx, if you could kind of share that? And any -- how are we looking at CapEx given our target of -- focus on ROCE?

We have got enough capacity for what we require for this year. So the CapEx should largely be maintenance CapEx. And I don't understand the word cost savings. How we're going to save cost? We have paid all our labors 100%, all our staff, 100% during the lockdown.

Sir, no, I didn't mean labor, I mean fixed costs, sir...

I'll try to supplement that. We haven't laid off any person, like the Chairman just said to you. But what we are doing is a whole lot of digitization initiatives across the company to make us more efficient and more cost efficient, particularly. So a lot of processes that include sales processes, that include normal communication, that include HR processes and all that are now getting digitized, and of course, more efficient in terms of costs. We are looking at a benign commodity situation luckily for us even now. And we are in the process of even relooking that and seeing if there are any possibilities there.

And going forward, we are very positive, so there's no need to reduce fixed costs.

Okay, sir. Sir, maintenance CapEx, what number should I kind of -- what is the number that it typically is, maintenance CapEx, sir?

INR 30 crores.

INR 30 crores.

Which is less than depreciation.

The next question is from the line of Mayank Bhandari from B&K Securities.

Sir, I wanted to know what was our direct rural sales in FY '20?

Direct rural sales was about INR 115 crores.

Okay. And within Appliances category, can you just give how different categories have done, like kitchen appliances, cleaning solutions and...?

So we've given you that in the release, I think, there. The presentations are...

No. No. In terms of mixer grinder, individual...

In the director's report, it is there. [indiscernible]

The director's reported extract will give you all those details.

Okay. And sir, in terms of liquidity conditions, you highlighted that there is some stress in general trade as well as in the modern format. So sir, can you give some color around this? Like, how is the liquidity conditions stressful for general trade and for both modern format?

So the way things are panning out are that we are not in the mood to take any risk unless we see the money coming in for the past receivables. And we are being very careful and very conservative on that. The general trade is paying us, we are able to get money. The collections have been healthy as soon as the markets have opened. The modern trade, of course, hasn’t even opened up, as you know, and the malls are not opened up and many of the other things have not opened up. So there, we are stuck and that part of the market is not really operational.

Okay. Sir, in -- particularly in the last 3 months, how is the e-commerce contributed to your overall sales? I mean, as a -- I mean, it's like about 16%, 17% of your total sales. So can you just give some -- like, has it increased significantly?

It has significantly increased in contribution to the total because as I told you the large formats have not yet opened, and also people are not wanting to come out and shop if they can avoid it. So the e-commerce sales is, as we speak, in June, it has more than doubled of what it was last year for the same month.

The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

Sir, firstly, I'm sorry, I just joined a little late. Did you make any comments in terms of how has been the demand trajectory in the month of April, May, June? Or...

Can you come closer to the phone, please? We're not able to hear you properly.

I am sorry. Is it audible now?

Now better.

Sure. Sorry, I said I just missed out a comment if you made anything on how have the demand trends been once the lockdown has opened up? So if you could just give us some sense in terms of how has May and June been in terms of activity?

Chandru?

Yes. In May, as you know, it has opened partially. And wherever the markets have opened and even continuing in June, wherever the markets have opened, the demand for kitchen appliances has been very robust. In fact, they have been seen to be seeing a pent-up demand, and though there is an initial spike coming down slightly to a level which is probably even better than what it was last year. The reason why we are not seeing an overall sale that is better than last year is because many parts of the markets are closed, many channels are still not opened up. But where they are opening, we are seeing a very renewed interest in kitchen appliances and the sales are very good.

Any number to quote, sir, for example, what would be at, let's say, May or June in terms of -- versus last year?

In fact, June, up to now, is about 10% ahead of last year.

Okay. Sir, second question is on the alternative channels, which -- you just said that many channels are closed as well. How is the e-comm channel performing? And how much was it -- how much was e-comm for us in 2020? And what's the outlook for e-comm business in 2021?

So the e-comm business was between 12% to 14% last year in FY '20. The e-comm business that we are seeing in June compared to the June of last year is probably more than double, as we speak.

Okay. So this is one of the big drivers for online?

Yes. Considering the fact that large formats are closed and people don't want to come out and shop, they are preferring to shop online.

Remember, that half the market is still closed, and we're still doing better than last year, thanks to e-commerce.

Okay. Okay. Also, sir, when you said half the markets are closed, the markets which are opened up, are there any trends, like, which of the markets which are opened up and doing well? Any sense on that?

Karnataka, for instance, has opened up fully and is doing brilliantly and Kerala is doing well. Parts of Andhra are doing well. East is not doing well. First, of course, was COVID and then Amphan, and then Maharashtra is not doing so well. Delhi is also not doing so well. Parts of Uttar Pradesh is also not doing well.

Okay. So you said Kerala, Karnataka are doing well?

Yes.

Okay. And my last question, sir, you said direct rural has been about INR 115 crores in 2020. Again, we've been hearing the rural demand has been better in the last 2 months, is there a similar trajectory which you are also kind of -- or similar kind of commentary which you're also getting? And how would have rural seen in the last 2 months?

You see, our rural is divided into 2 parts. One is what we sell through the tertiary stores, in the tertiary towns. The other is through MFIs. MFI sales is 0. Because of the government moratorium, they are not able to lend on the appliances. But we are not able to measure how much of the Tier 4 sales is rural. What we gave you the number INR 115 crores was purely through MFIs.

The next question is through the line of Achal Lohade from JM Financial.

Pardon me, if I am repeating the same question. So with respect to the rural, earlier, you had indicated that we're trying to set up new distribution, so to say. So one is the MFI and there have been some changes in that, as you said, so have we been able to recoup the entire -- the rejig is over. And B, if there is any alternate rural distribution channel we are setting up?

See, actually, we recouped 100% of our distribution by end of last quarter last year. And then the COVID came and the bottom dropped out. With the Reserve Bank saying moratorium on all loans, the MFIs are not able to give loans to buy appliances. So currently nothing is happening with MFI. We believe it will revive in July.

Right. And against this INR 115 crore in FY '20, how much was the number in FY '19, sir?

Chandru?

See, we lost about INR 40-odd crores last year.

So INR 155 crores, INR 160 crores.

Understood. Understood. And secondly, with respect to the sales mix, could you help us with FY '20 in terms of the mix in terms of GT. You have talked about 12% to 14% for e-comm, but how much was the GT, how much was the Prestige exclusive and Other segments?

Sorry, come again.

I'm trying to understand that sales mix in terms of the channel mix. So you've talked about e-comm being 12% to 14%...

I will tell you the whole thing, you don't have to deduce it. The GT accounts for about 50% of our sales. The PSK account for about 14%, 15% of our sales. The large format account for about 15%, 18% of our sales. E-comm accounts between 12% and 14% of our sales. The rest is institution.

That is last year.

That is last year.

Understood. Understood. And...

And the rural business last year was INR 85 crores through the MFI channel.

Understood. Understood. My other question was, with respect to the new categories, now would it be possible to talk about like what you had indicated about Svachh range of cookers. So could you highlight some of these, which could have come in last 2, 3 months? Have we done anything? Or are we planning anything in next 1 or 2 quarters?

Chandru?

So what we've done in the Q4 -- end of Q3 last year and Q4 of last year was to transform our entire range of pressure cookers to move on to the Svachh platform, which meant that literally about 200 SKUs have been transformed into being in the Svachh platform. The idea is that we are now tackling a huge problem in the kitchen, which was never tackled before, and this provides a solution. We believe that this is going to golden standards in very good -- as we go along in this coming year. Apart from that, we've got a slew of new products this year in all product categories. And most of them, we want to make sure that we put into the market in the first half of this year.

Understood. Understood. And just last question, if I may, with respect to sourcing? At an aggregate company level, how much is in-house and how much is outsourced, sir?

It's about 50-50.

And would it be possible to highlight given the -- what we are hearing about imports from China substitution? So a, what is the mix from China in terms of the imports? And b, is there any work we've already initiated with respect to import substitution?

So we started embarked on a journey of reducing dependence on China 5 years ago when the first skirmish in Doklam happened, just for so you know. So from then to now, we have constantly indigenized and moved to India sourcing and actually brought it down to a level which is between 10% and 11%. After the current situation has happened, we are very clear, we are now fast-tracking that India sourcing. In fact, by putting pressure on ourselves, we are actually putting a hard stop on September. After September, you will not find TTK Prestige import anything from China. Everything will come from India, and we are not expecting it to impact our supply chain or our ability to do the business for this current year, it will not impact us.

And any impact on the margins on account of this?

No.

We'll move on the next question, that is from the line of Arnab Mitra from Crédit Suisse.

The first question was on the competitive intensity where in the past few quarters, you have seen some intensity from lower cost price players. Now post the lockdown opening, has that intensity reduced? How is the kind of promotional intensity in the market in May and June?

Well, I don't think any of our competitors are as well placed as us, in the first place, both in terms of our cash position and our brand and our ability to promote, et cetera, et cetera. So you will find that at this moment, we are probably the only brand, which is advertising aggressively in all print and TV medium in the industry. And we believe that this is the time we can actually garner share because of our superior position in the market. Added to that, we are, as I said, keeping our new product pipeline fully activated, and you will see a lot of new products coming into the next 3, 4 months.

Okay. The second question was, obviously, e-commerce has now become much bigger, and it's now a very sizable channel for you. So in terms of market share, how do you do in e-commerce versus overall all-India shares? And in general, is competitive intensity, pricing margins better off or worse off from the overall business that you have?

So in the e-comm platforms, we are clear leaders, which are being confirmed by both the 2 major platforms in the country because we've had our annual business plans with them. The pricing pressures are not there because our realizations are roughly the same as what we get from our large-format business. So we are not expecting this to adding a -- negatively impacts our margins. In fact, if anything, because of our ability to come out with exclusives and we have been early adopters and first of the class in doing everything that is e-commerce friendly. We today have 4 warehouses across the country, which are fulfillment centers for e-commerce. We are expanding that. And as we speak, we are the preferred partner for these 2 partner platforms. So the share, if anything, would be better on the e-commerce platforms.

[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Good performance despite the uncertainties. Sir, my first question is, if you could help us with the market share in cooker, which cooker and cookware? Sir, last time you mentioned cooker market share in fiscal '19 was 36% on value, and in the cooker, our market share -- cookware, our market share was 38%. So I would appreciate what would be these updated numbers?

It's in the similar lines as we speak. Because also, we haven't got our latest estimates that have come. So we want -- going to next quarter, we'll be able to answer that question better. See, also remember, what is happening in this market share estimate, the market share agency is covering large formats and GT. They do not cover our own BXL. They do not cover e-commerce, rural, et cetera, et cetera. So the numbers we give you are on that basis. And I don't think our shares have gone up or gone down too much because we've just come out of the lockdown.

Sure. But for the year fiscal '20, as a whole, would -- nationally, would we have gained market share or retained market share?

We would have probably retained market share.

Understand. Second is, if you could help us with the breakup of the Appliances segment, where -- I mean, in terms of gas stoves, mixer grinders, induction cooktops, rice cookers?

If you look at the Director's report, the breakup is given there. We've given you an abstract of that. We've carried those numbers.

Okay. Sure. Fair enough. I'll look into it. And -- so just a question again on the Appliances segment. When you look at last 10 years, the growth has been pretty exemplary around 23%, 24%. In your view over the next 3 to 4 years, taking a slightly longer-term picture and just taking out the current uncertain period, what in your view is the growth rate that you could achieve in the Appliances segment? And if you could give some softer aspects on the color in terms of new categories that you're adding some newer product or innovation, something that you have spoken about in your press release?

So in the Appliances, we are continuing to grow in double digit. And I think in the next 3, 4 years, I mean, this year, you keep it as an aberration because we really don't know how to look at this year until it evolves. But I think we are in a good position to continue with that double-digit growth, as we speak. Our innovation pipeline is full. We are coming out with exciting new products in all our core categories. When I say core categories, in appliances, there are gas stoves; mixer grinders; small appliances, which are convenience appliances; rice cookers; and even in chimneys, et cetera. So that new product introduction speed is going to be maintained, and we believe our growth rate will be maintained.

Sure. I guess last -- so we had started with a new initiatives on the luxury side of chimneys and cooktops, where we are starting with exclusive stores. If you could throw more light? That's my last question.

We've just introduced a new store format called Prestige Lifestyle, which we are focusing for this financial year only in the city of Bangalore because we picked Bangalore because, a, we are located here and Bangalore is probably one of the most versatile cities in the country. The kind of products that you will see in these stores, you will not see in our regular stores. So you will see a huge range of chimneys. We've got a new range of built-in appliances, which are ovens, et cetera. We've even got a countertop dishwasher there. And all our exclusive products, like, for example, we launched a grain grinder, which is called down-the-top grain grinder, which you'll see that. So it's called Lifestyle because we want this to address people who have a better lifestyle at home and who believe their kitchens are probably the most important room in the house. So as we go along, we will then expand the footprint of these lifestyles stores from next financial year onwards.

We'll move on to the next question that is from the line of Chirag Lodaya from Valuequest.

Sir, my first question is, so in last few quarters, we are focusing on broad basing our modern trade large formats store part of the business. So this full year, if you can help us understand what's the contribution towards the major customer versus others? So how broad basing has happened this year?

So what we meant by saying broad basing was we were having one very large customer and the other were reasonably okay. Now that kind of dependence has been reduced last year. And as we go along, that is something that we will do make sure that we are not dependent on any one single customer too much. We are also seeing, as you probably already know, there is a churn in the large-format area, the modern-format area, and we also have to wait for that to pan out before we can say anything more on this.

Okay. Okay. Secondly, sir, when it comes to rural sales, our dependence on MFI channel is pretty high today. And currently with this COVID, this channel has impacted the most. So are you planning to build any alternate channel in this area or MFI will be only the channel to get us through this 3 months?

See, as our Chairman said, the rural is split into 2 large parts. One is directly through the MFI. There is a substantial sale that happens through our Tier 4 towns, which are bigger towns into rural areas. Now we can't tell you how much is going into rural because we can't measure it. Clearly, our distribution expansion plan towards that end of the market is very aggressive this year, given the fact that there is so much reverse migration that has happened in the last few months -- in the last 1 month. We believe -- and also the fact that the onset of the monsoon has been bang on time, we believe the rural demand will be quite robust. So our effort is to make sure that the Tier 4 towns, our distribution is further strengthened, our products are reaching there in a better way, and also, we are trying to promote in those areas.

Right. Right. Sir, just last one small clarification. So as Chairman said, overall demand in June is 10% higher to pre-COVID levels, it is for a company level or areas which are open?

It is for the areas and channels which are open.

[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Sir, in one of your answers that you gave to a participant on a 5-year growth and where you mentioned that appliances will grow double digit and you mentioned gas stoves also in it. So just my question is on gas stove and cooker's side. These both categories are largely penetrated, and there was a big growth also in one of the category driven by the Ujjwala Bharat Scheme. Despite that, do you see a double-digit growth rate in these 2 categories? Or is it fair to assume that here, these 2 categories should be a low single-digit and largely replacement-demand led?

No. The gas stoves that we addressed, too, are the replacement demand. We are not in the entry-level gas stoves at all, I mean, just to clarify.

We don't supply Ujjwala.

Yes. I know you don't supply to Ujjwala, but -- so is it fair to assume that -- so here, the demand has to be largely single-digit or you -- and since it's entirely replacement at a fully penetrated product or do you still think it can be double-digit growth? And if it is a double digit, what are the drivers to it?

The drivers are the new products that we are bringing in.

And it is not fully penetrated if you look at the kind of products we are bringing in. We are bringing in superior products, products with innovation. So people will throw away their old gas stoves and buy ours.