Because of huge competition in cooker/cookware items, pricing power is  restricted for TTK and Hawkins. In Tamil Nadu alone, there are ten local branded cookware items apart from Butterfly, TTK and Hawkins.

Edited by adityancs - 15/Jun/2010 at 8:25pm

1) From the Directors report there seems to have been a slew of new product launches but the key aspect to check out would be the kind of difference these products make to the topline. Sometimes there are minor improvements in existing products that make their way into their Annual Report but do not impact the topline as much as it appears at first glance.

It is true that no where there is any mention of the potential for the new products, but one thing for sure these are not just minor improvement of the old existing products. It is altogether on a different principle.

2) The company indicates that the share of organized brands is slightly more then 50% but that has been the case for a few years now.

Director was mentioning that the market for the Pressure Cookers has grown fron 500/600Cr to 1000Cr market

3) I would have liked the company to comment on what they feel would be the impact of GST. They should have provided their version of competitiveness of the organized players in the post single GST environment.

Very few companies know the effect of GST on their respective industries since Govt.is yet to clarify on so many issues.

4) a) Clearly the big volume driver isn’t Pressure Cooker which grew by only 12% in Value terms. In case of volumes it grew at 15.58% implying that discounts were higher and pricing was lower

Good observation. This needs to be checked up with the management during AGM but one thing for sure,they had one scheme or the other throughout the year. Most of the time it used to be like exchange of old cookers, cookwares or etc against any of the items available in the Prestige Smart Kitchen.

Looks like most of the time it is cooker from the house got replaced from the following data, hence more discount in the case of cookers.

Commission to Selling Agents : Rs. 153.53 Vs Rs.142.63

Discount : Rs.2960.33 Vs Rs.2414.74
(Rupees in Lakhs)

Financial Analysis:The debtors and inventory have grown at 23% and 22% respectively whereas sales and Cost of Goods sold have increased by 24% and 16% respectively.

Again good observation. But both Debtor days (43.3 Vs 44.36) and inventory days (84.58 Vs 80.8) are almost flat

4) The discussion of  Prestige Kitchen Boutique and Smart Kitchens network should have been indicated by value because in the absence of that one cannot make out whether the numbers are significant or not.

True. Needs more information like whether sales is growing in the old stores or not?.

On the face of it increasing Kitchen Boutique to 9 from 2 stores is immaterial in the overall context of things.

Looks like you have read it wrong. Other than Prestige Smart Kitchen, they have two more concepts viz, Prestige Kitchen Boutique (9 no.s) and Prestige Life Style (2 no.s). They have not added any new stores of these two formats during last year

Why would you set up new capacity when the existing is not used or if there is a change in product mix and the collective caption is cookers then they should mention it.

The new capacity has come up in Uttarakhand which enjoys Excise and Sales Tax benefits. Eventhough there is excess capacity at their current units in S.India which are located in Hosur & Coimbatore, it makes sense from the financial and logistics angle to have one unit in North to take care of the demand in North and West.

The increase in capital employed at 35% is lower then the increase in sales at 26%.

Money has already been invested but production started only after 20th of March. So it is too early to come to that conclusion.

Cash Flow:  The big increase in operating cash flow has come in the back of increase in Sundry creditors. It appears that the company has outsourced more of its work to third party manufacturers and hence the big increase in Creditors

Prestige has been outsourcing all their products except Cookers and Cookwares since long time. From current year, they would start manufacturing them at Uttarakhand plant. It is not that they have kept their capacities idle at their factories and outsourced from third party vendors like PSUs.

But if you strip out the Sundry Creditors (Rs 29.56 crores) the increase in Operating cash flow at 18.83 crores to Rs 61.65 crores from Rs 42.83 crores in Fy09 evaporates and the company has done worse off in terms of operating cash flow.

While it is true that cash flow gets affected due to capital investments but management claiming credit for nothing is not correct.

The total fixed assets is around Rs 40 crores and surprisingly the value of Buildings (Rs 14.23 crores) is as much as the Value of Plant and Machinery (Rs 14.22 crores). Value of Buildings increased by around 40% for the current year whereas Plant increased at 18%. Not sure why?

While this has to be checked with the management, but I feel ( which can be wrong) it can be either of the following two:

1) You have constructed civil structures at the new site, but bought machines may be only for half of that space
OR
2) They could have moved some machines from their old factories instead of procuring new one as the current plants are not running at the full capacity. It is also not expected to go up also as the North and west will get supplied from the new plant.

The Cash, Investments and loans in hand are Rs 43 crores enough to create another TTK (Total Capital Employed is Rs 116 crores as on date) with debt from Bank. Why then is it that the company chooses to hold cash and not distribute it amongst the shareholders?

Basantji, how did you get Rs.116Cr?? Is it Reserves + Loans?? Management is not revealing their plans. They say that nothing is planned as of now and if it is not used within a year or two, they may give it back to the shareholders

Properties and Investment: Why a company that generates free cash flow and is sitting pretty on its business competitiveness wants to go in for rental income?

The properties have not yet come and they are yet to get the approvals for their design. Nothing is decided about that whether to retain for rent or to sell off. So it is too early to make a comment on that issue.

I will not make any comments on the conclusion as it is for each individual to make his own assessment of the company.

My comments are based purely on my understanding of the Annual Reports as well as the information gathered during my interaction with the management.

Thank you very much sir for analysis .. This will help me to understand on what to look in AR overall.

Edited by EquityInv - 15/Jun/2010 at 1:44am

Basantji,

Some doubts,pardon me if they are stupid.Just trying to get a hang of accounting.
I was just reading up about Sundry Creditors.So here the idea is that you are just postponing paying the money and hence increasing your cash flow.If this is the case the money needs to paid out sometime in the future.Hence should it really be classified as free cash? Also logically shouldn't this be a part of cash flow from financing?