TTK Prestige Ltd. is looking to double the contribution of rural market to its top line growth in the financial year ending March 2019 and also plans to grow via acquisitions.
“We are targeting 10 percent rural market contribution to the top line from 5 percent,” Chairman TT Jagannathan told BloombergQuint in an interview today. He said rural markets are growing faster compared to other markets but contribute marginally to revenue and hence benefits of higher growth are as yet limited.
Overall volume growth, Jagannathan said, is likely to be in ‘upper teens’ by the end of this financial year. “ For FY19, we think we can do upper teens. For FY20, I don’t know. If the economy grows at 8 percent, we should grow at 20 percent which is 2.5 times the GDP growth.”
The company better known for its pressure cookers has in recent years expanded into home appliances and cleaning solutions as well. Appliances contributed 47 percent to revenue in financial year 2017-18, cookers made up 34 percent, cookware and other products contributed the rest. It has now earmarked Rs 500 crore for acquisition opportunities. “It could be in India, it could be in the branded space, in appliances or in cookware,” Jagannathan said.
In the last quarter of FY18 the company’s Ebidta margin increased 130 basis points to 13.9 percent, the highest in three years. Jagannathan said the margin improvement is sustainable despite challenges from high raw material costs and rupee depreciation.
Watch the full conversation here:
Here are the edited excerpts of the conversation:
You intend to look at inorganic expansion to make the most of the growth which you are seeing in verticals. Can you tell us the plan?
It is very preliminary. As an organisation we have decided that we have money in the bank. So, (we will look) to use the money for acquiring companies in a similar space. It could be in India or abroad. But it is very preliminary right now.
You have suggested that you are looking at a shopping budget of Rs 500 crore. Is that correct? India or abroad? In appliances, cookware or any new product category that you hope to add to your portfolio?
We haven’t decided anything yet. It is still work-in-progress. It could be in India, it could be in the branded space, in appliances or in cookware. We have money in the bank and we will use it for inorganic expansion. That’s what we have decided.
How has growth been in the first three months of the fiscal year 2019?
For the fiscal year, growth has been reasonably good in the first quarter. Growth will be in the high teens. Considering the GST effect, it will be nearly 28-29 percent which we are very happy with. Bottom line growth is also good. Growth all around is good. It is good in appliances, pressure cookers, cookware and also good in urban and rural, in north and south.
What is the contribution of rural sales currently? Are you seeing more traction there? Are you looking at market and product expansion there?
The rural markets are growing faster than other markets. But the total rural market contribution for us is only 5 percent. So, even it grows at 100 percent, then that’s only 5 percent.
Do you hope to expand the contribution of rural markets to overall business substantially in the next couple of years? What’s the strategy?
Our market in the rural space is as good as it is in the urban market. Our strategy is to develop it very fast. From 5 percent this year, it should go to about 10 percent by FY19-end.
Is that mostly going to come from appliances space and cookware space? Will it impact margins?
It will come in from across the board and I do not believe that it will impact margins.
How is your ‘Judge’ brand fairing? Is that one big way to enter more markets within the country? Are you going to look at newer product categories or newer brands?
‘Judge’ brand is going slow because we want it to go slow. We don’t want it to cannibalise the ‘Prestige’ brand. It is expanding slowly, and that’s good so far. We will expand into the appliances zone. Judge is not a rural brand, but an urban brand.
Can you give us details on what will be the additions to your product portfolio this year and next, for urban and rural markets?
I can’t reveal as its a trade secret. As and when we launch it, you will know.
But which product category areas?
Pressure cookers, cookware, cleaning solutions, mixers, gas stoves.
In Q4 the Ebidta margin improved 130 basis points to about 13.9 percent. This is the highest in three years. Is it sustainable, especially in the face of higher raw material prices?
In the near term, in this fiscal, yes.
Do you think you will face margin pressure in the subsequent fiscal?
I don’t know what will happen in the next fiscal. It depends on so many things like oil prices, dollar, economy, GDP growth. I believe that in this fiscal, we will sustain the margins.
You outlined the capacity expansion plan for FY19. Do you hope to boost capacity in any specific product category or is it across the board?
Across the board.
What about the volume growth you hope to do in FY19 and FY20?
For FY19, we think we can do upper teens. For FY20, I don’t know. If the economy grows at 8 percent, we should grow at 20 percent which is 2.5 times the GDP growth.
What are the headwinds that potentially change your outlook on volume growth and margins with the exception of raw material prices which we are already familiar with?
If raw material prices grow substantially then it will slow down the growth. Also, if the GDP growth falters, then it slows down growth. If the dollar-rupee equation changes dramatically, then it will also slow down the growth.
Do you believe that impacts of GST, demonetisation are all behind us now?
They are completely behind us.