Techno Funda Pick – TTK Healthcare Ltd.

Techno Funda Stock Pick – TTK Healthcare Ltd.

16-January-2023
Fundamental Research Analyst Technical Research Analyst
Harsh Sheth Nagaraj Shetti
harsh.sheth@hdfcsec.com nagarajs.shetti@hdfcsec.com

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Techno Funda Pick – TTK Healthcare Ltd.

Stock Buying Band Adding band Targets SL * Time Horizon

TTK Healthcare Ltd. Rs 1000-1020 Rs 947-961 Rs 1122 and Rs 1185 Rs 857 6-9 months
Note: * Excluding Freak Trades lasting less than a minute. SL on closing basis

TTK Healthcare Ltd.

Technical Observations:
 The attached weekly chart of TTK Healthcare Ltd indicates medium term uptrend for the stock price over the
last many months.
 The stock price has moved up consistently as per the positive chart pattern like higher tops and bottoms over
the period of time.
 The stock price has also held above the immediate supports like weekly 10 and 20 period EMAs during its
intermediate uptrend.
 Presently, the stock has shifted into a narrow range movement with positive bias in the last one month. The
stock is also preparing to break above the crucial overhead resistance of ascending resistance trend line around
Rs 1120 levels. Hence, further upside from here could have a sharp positive impact ahead.
 The weekly 14 period RSI has turned flat around key upper levels of 60 and is likely to turn up from there. As
per the formulation of this momentum oscillator, its uptick from near 60 levels could mean resumption of strong
upside momentum for the underlying stock price.
 The volume has started to pick up gradually and the volume activity is likely to expand further while the stock
price witness upside breakout.
 The overall positive chart pattern of TTK Healthcare Ltd indicates long trading opportunity. One may look to
create positional buy as per the levels mentioned above.

Our Take:
Incorporated in 1958, TTK Healthcare (TTKH) is a part of the TTK group, a multi-product conglomerate with varied
business interests involving the manufacturing of kitchen appliances, contraceptives, consumer products and
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Techno Funda Pick – TTK Healthcare Ltd.

healthcare products. The group’s flagship company, TTK Prestige Limited, is one of the leading kitchen appliances
company in India. Over the years, TTKH diversified its presence across industries and its revenue sources were
distributed across many product categories including contraceptives, gripe water, cosmetics, medical devices,
home-care products, pharma and food products. TTKH has adopted an outsourcing model for manufacturing most
of its products, except for the foods and medical devices divisions.

TTK Group is one of the pioneers of Indian FMCG industry. In the 1930s, the TTK Group began its journey as a
market-making partner and introduced foreign products into the Indian market. It was among the earliest to
introduce western goods in India, building up a vast network of distributors. Close to 150 products (including Soaps,
chocolates, pens, clocks, cosmetics and condoms) of the major multinational companies of the time came to India
through TTK.

However, despite its illustrious past and strong potential of business segments it operates in, TTKH hasn’t been able
to build a business of sizeable scale. This can be blamed either on management’s conservative growth strategy or
lack of focus given its presence in multiple segments across TTKH and consumer appliance business of TTK prestige.
While there are tailwinds for growth across business segments, given its unimpressive performance in the past, we
are cautious about the company’s core growth capabilities. However, TTK has a very strong balance sheet with
negligible debt and effective cash reserves of ~ Rs 650 Cr (including ~Rs 596 Cr cash received as 74% of consideration
on recent sale of Human Pharma division, after adjustment for ~Rs 174 Cr LTCG) Additionally, as a part of remaining
26%, it has received equity shares (~Rs 210 Cr) in BSV Pharma which will be monetized in near future. Thus, the
(company’s cash + investments)/market capitalisation stands at whopping ~61%. The management hasn’t guided
on strategy for deployment of funds but given the track record of good corporate governance in TTK Group
companies, we don’t expect irrational allocation of funds. Thus, we present TTKH as tactical pick. Additionally, with
favourable technical outlook as discussed above, short term investors can build the position as per buying levels
specified above. Any announcement of special dividend or buyback can be an additional trigger.

Triggers:
Consumer Products Division:
Consumer Products Division is the FMCG wing of TTKH which caters to diverse needs of consumers across India via
its range of offerings. It markets and distributes; baby care (Woodward’s Gripe Water), personal care (Eva), home
care (Good Home) and sexual wellness (Skore).

Woodward’s Gripe Water: One of the oldest FMCG brands worldwide, Woodward’s Gripe Water is a market leader
in the Indian colic market. It has been marketed in India by TTK since 1928 and when it comes to baby care it is a
household name amongst mothers. In FY22, it achieved an all-time high sales volume in excess of 4,50,000 cases,
with a healthy growth. Going ahead, the company’s strategy in this segment includes (i) to sustain Southern markets
by driving consumption increase; and (ii) to grow the Non-South markets through appropriate promotional
investments.

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Techno Funda Pick – TTK Healthcare Ltd.

EVA: Eva is a teen grooming brand launched by TTKH in 1998. From the very beginning, it has been a leading player
in the women’s deodorant category. A few years ago, it diversified into talc’s and lip care. Post a challenging phase
in Covid induced lockdown which affected fragrance and beauty segments, the growth has recovered over past few
quarters. Going ahead, the company’s strategy includes (i) to increase trials for the brand through relevant and
effective marketing activations; (ii) to build stronghold in Modern Trade and e-Com channels; and (iii) to launch
strategic brand extensions under fragrances and personal enhancement categories.

Good Home: Launched in 2007 as a single-category brand for home care, Good Home currently operates across 6
categories - scrubbers, air freshener cakes, room freshener sprays, odour remover sprays, drain cleaners, kitchen &
appliance cleaners. In FY22, the company widened its portfolio through launch of Sponge Wipes and Ultra-
Scrubbers. Further, it re-launched Odour Remover in new packaging. Going ahead, the company’s strategy in this
segment includes (i) to transform Good Home into a stronger brand by introducing new packaging and positioning;
(ii) to build further volumes for Odour Remover, Aroma Air Fresheners, etc., (iii) to launch new products in Dish
wash / Home Cleaning Agent Segments, and (iv) to focus on e-Com / Modern Trade to exploit the untapped
potential.

SKORE: Skore, a sexual wellness brand was launched in 2012. Envisioned as a gender neutral brand it is the fastest-
growing condom brand in India and has taken on the mantle of a market challenger in the highly fragmented sexual
wellness market. In FY22, Skore brand has regained its momentum and managed to reach its pre-CoVID numbers
and the overall growth was satisfactory. Going ahead, the company’s strategy in this segment includes (i) to drive
distribution expansion; (ii) to further increase in the Skore retail reach in Tier-1 towns; (iii) to improve e-commerce
sales through D2C channels and digital marketing initiatives; and (iv) to capture and own pleasure space in India
through digital medium for the pleasure product range.

TTKH – A pioneer in Indian condom industry

TTK Group introduced condoms to the country way back in 1948 through the brand Durapac, which was later known
as Durex. They entered into a distribution arrangement with the London Rubber Company (LRC) of the UK, and then
got into a Joint Venture with LRC to manufacture condoms. LRC was renamed to LIG and the JV was called TTK-LIG.

It was the first company to setup a condom manufacturing plant in 1963 in India. TTK was responsible for
revolutionizing the ‘Kohinoor’ brand when it was launched in the 70’s. By 1997 TTK was taking care of ~40% of global
demand for Durex. LIG sold its stake in the JV (TTK – LIG) to SSL International in 1999. This was eventually taken
over by Reckitt Benckiser.

Reckitt Benckiser wanted to re-work all the existing commercial arrangements and the JV suddenly turned sour. In
2012, TTK lost to RB in a court battle by losing rights on the ‘Kohinoor’ and ‘Durex’ brands eventually buying out
RB’s stake (49.8%) in the JV for Rs.150 Cr. TTK launched their indigenous brand by going all in on their own – Skore.

Protective Devices: In addition to supplying of Skore Brand of condoms, TTKH has also been supplying condoms for
a leading International brands both for their India and Overseas requirements and has also won a contract for supply
of condoms to an International Aid Agency.

TTKH’s manufacturing plants across Virudhunagar and Pondicherry have requisite infrastructure to cater to leading
global brands. Its capabilities include:

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Techno Funda Pick – TTK Healthcare Ltd.

Pleasuremax – combination of ribbed, dotted & bulbous

Flavored condoms – Chocolate, Apple, Strawberry, Banana, Orange, Cherry, Pina Colada,
Vanilla
Colored Condoms – Brown, Orange, Red, Yellow, Green, Blue, Violet, Black
Fragrance Condoms – Jasmine, Rose, Lime.
Condoms with a combination of texture, flavor & color
PolyIsoprene condoms (Synthetic Rubber Latex Condom)
50 micron thin condoms
55 micron thin condoms for US market
Personal lubricants

Additionally, some more products both in the condoms and lubes range are in the process of development and a few
of those would be launched in coming quarters.

The company’s growth strategy here includes (i) to develop and strengthen relationships with third party contract
manufacturing customers for increasing the volumes; (ii) to work on cost optimization to be more competitive in the
domestic and international bid businesses; and (iii) to increase the production output by strengthening the existing
infrastructure and through automation, where feasible.

Foods business: TTKH’s foods division manufactures potato and cereal based pellets for domestic and international
markets (under the brand name Fryums). The cereal and potato based pellets come in various shapes, such as wheels
(mini & penta), tubes (mini, short, long & square), sticks, 3 rings, ribbed, star, checks, chips, drops etc besides onion
rings. The customer base for TTK ready-to-fry snack pellets includes multinationals and the trade in India. The exports
division services the foreign countries and the products are regularly exported to the overseas markets.

Ready-to-fry snack is highly fragmented industry and sustainable growth here would require higher investments in
brands to create requisite demand pull.

Animal welfare division: This division deals in pharmaceutical formulations in various therapeutic segments and
feed supplements, for veterinary use. The top ten brands including the flagship brands OTO (Orcal-P - Tefroli -
Ossomin) group contributed in excess of 60% to the division’s sales, recording double digit growth in FY22. The
subdivisions under AWD are Bovianim, Gallus, Companim & Aquanim. Particularly, the performance of Companim
(Pet) division has been quite noteworthy, with a growth of around 52%. The newly launched Aquanim division too
performed well and a few more products are lined up for extending the range. Going forward, the strategy would be
to sustain the current momentum and achieve a healthy growth from all subdivisions along with institution and
export businesses.

Medical devices: This has two sub-divisions; Orthopaedics and Heart Valves.

In Orthopaedics, it offers joint replacement portfolio including comprehensive range of products that cater to the
requirements of Knee and Hip replacements. Its products are offered under the brand name ‘Altius’. It has technical
collaboration with world’s leading healthcare companies including Buechel Pappas Trust, USA, Endolab Mechanical
Engineering GmbH, Germany, Orchid Orthopedic Solutions, UK, Orthoplastics Limited, UK, Lincotek Medical, Italy
(formerly Eurocoating) and EDGE International, USA. Going ahead, the company’s strategy here includes (i) to expand
the distribution and team footprint further in States mapped to potential; (ii) to build on relationships to improve
market share; (iii) to strengthen sales performance in Revision and Hinge surgeries; (iv) to improve manufacturing
productivity; and (v) to test launch the new Fixed Bearing Knee.

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Techno Funda Pick – TTK Healthcare Ltd.

In Heart Valve division, it manufactures and distributes indigenous heart valve prosthesis- the tilting-disc TTK Chitra
Heart Valve. It’s the first Indian made heart valve and one of the most affordable heart valves in the world. The TTK
Chitra Heart Valve is being used in over 300 cardiac centres across India.

Cardiamed Bileaflet Valves: TTKH has signed an agreement with an overseas manufacturer for direct import and
distribution of bi-leaflet valves. Additionally, TTKHL has signed an agreement for the manufacture and supply of
cardiology products like PTCA catheters and coronary stents for which the company has recently received regulatory
clearance for the same. The single centric clinical trials relating to new model TTK Chitra TC2 Titanium Valve is
progressing at the SCTIMST with ten valves implanted as of now. Going forward, the focus would be on growing the
volumes of TTK Chitra Valves, to gain further volumes through bi-leaflet valves and to venture into the cardiology
market through the launch of PTCA catheters.

Going ahead, the company’s strategy here includes (i) to grow the volumes of TTK Chitra Valves; (ii) to gain further
volumes through Bi- Leaflet Valves; (iii) to venture into the cardiology market; and (iv) to complete the Single Centric
Clinical Trial of TC2 Titanium Valve.

Long runway for growth in medical devices: In FY22, Ortho Division reported sales of Rs 33.7 Cr (150% YoY growth)
and Heart Valve division reported sales of Rs 17 Cr (30% YoY growth). Medical devices market in India continues to
be dominated by imported medical devices / implants. Since TTK manufactures high quality products and these are
priced competitively, this segment provides opportunity for exponential growth. These products also have export
potential. Additionally, The Central Government's Medical Insurance Scheme - Ayushman Bharat being implemented
to cover poor families is also likely to increase the number of treatment procedures which would, in turn, improve
the demand for reasonably priced medical implants.

Divestment of Human Pharma division: The Human Pharma Division of TTKH was transferred as a going concern, on
a slump sale basis, for a consideration of Rs. 805 Cr to M/s BSV Pharma Private Limited (part of Bharat Serums and
Vaccines- owned by PE player Advent), with effect from 9th May, 2022. As per the Business Transfer Agreement, the
company received 74% of the consideration in cash and the balance 26% of the consideration in the form for Equity
Shares in M/s BSV Pharma Private Limited.

Strong Balance sheet: TTKH has miniscule debt (~Rs 21 Cr) in its books. With sale of Human Pharma divison, the
company has cash reserves of Rs 743 Cr as of FY22. The tax liability on the sale stands at ~ Rs 174 Cr (Rs 80.76 Cr paid
as of September 2022). The company has received equity shares of BSV as 26% of sale consideration which will be
monetised in coming few months. Thus, the company has an effective cash and equivalents of Rs 860 Cr as of
September 2022. The management hasn’t given any guidance on the deployment of cash yet. However, higher cash
reserves will drag down the RoE till these are productively deployed.

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Techno Funda Pick – TTK Healthcare Ltd.

TTKH Revenue Mix - FY22 (in Rs Cr) TTKH Revenue Mix - Q2FY23 (in Rs Cr)
Protective Others, 0.5 Animal Animal Medical
Devices, Welfare, 99.1 Welfare, 27.1 Devices, 16.1
133.3 Medical
Devices, 50.9

Consumer
Protective Products
Human Consumer
Devices, 42.7 Distribution,
Pharma (Sold Products, 56.6
in Q1FY23), 217.4
198.0 Foods, Foods,
98.0 27.2
Others, 0.1

Consumer Products Sales (in Rs Cr) Protective Devices Sales (in Rs Cr)
133
217
184 190 181 103
175 101 100 95

FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22

Foods Sales (in Rs Cr) Medical Devices Sales (in Rs Cr)

102 98 51
88 43 45
75
67 33
27

FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22

Concerns
Conservative growth strategy: Despite being one of the pioneers of Indian FMCG industry, the company’s scale of
operations remains low. The growth over the years across the categories has been rather subdued. Given the lower
scale, the pressure is enhanced with intense competition in most of the product segments from both organised and
unorganised players as also the newcomers including D2C players. However, with divestment of human pharma
business, the management has enhanced the focus on its existing business and with cash at its disposal, a wise
investment can lay the ground for higher growth in future.

Sluggish growth in condom industry: Despite having the world’s largest young population it is rather surprising to
learn that the condom industry in India has only witnessed a CAGR growth in low single digits over last few years.
The industry remains fairly stagnant even as the country struggles with the third highest number of human
immunodeficiency virus (HIV) cases across the world, as estimated by a United Nation report. From supply side, it
appears that that current capacity utilisation of industry is less than 50%. This can be noticed in TTKH’s performance
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Techno Funda Pick – TTK Healthcare Ltd.

in Protective Devices division which has been reporting losses likely due to operating de-leverage in addition to
higher brand spends.

Foods and Protective Devices making losses: The Foods and Protective Devices divisions of the company have been
generating losses over the past few years. With the highest EBITDA contributing division of Human Pharma now
being hived off, the failure to revive the loss making divisions could significantly hamper the company’s overall
profitability.

Utilisation of cash reserves: Post sale of Human Pharma division, the company has effective cash reserves amounting
to ~Rs 649 Cr in addition to Rs 210 Cr worth of stake in BSV Pharma. The management hasn’t given the detailed plan
for the deployment funds. Poor capital allocation strategy could be detrimental for stock price of TTKH.

Higher advertisement spends yet to reap benefits: TTKH has been consistently spending on advertising to build its
consumer brands, however, it hasn’t resulted in strong sales growth. Over FY11-22, the company’s ad-spends have
increased at CAGR of 7.2% while its revenue has increased by ~9% (including revenues from Human Pharma hived
off in Q1FY23).

100 89 89 18%
90 80 16%
16% 77
80 16% 71 70 14%
70 66 15% 64 66
14% 14% 12%
13% 13% 55
60 12%
45 11% 11% 10%
50 42 11% 11%
8%
40
30 6%
20 4%
10 2%
0 0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22

Ad-spends (in Rs Cr) Ad-spends as % of total sales

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Techno Funda Pick – TTK Healthcare Ltd.

Financial Highlights
Income Statement Balance Sheet
Particulars (in Rs Cr) FY19 FY20 FY21 FY22 Particulars (in Rs Cr) - As at March FY19 FY20 FY21 FY22
Net Revenues 628 646 476 599 SOURCE OF FUNDS
Growth (%) 9 3 -26 26 Share Capital 14 14 14 14
Operating Expenses 578 617 457 577 Reserves 237 235 281 316
EBITDA 50 28 19 22 Shareholders' Funds 251 249 295 330
Growth (%) 16 -43 -32 13 Minority Interest 0 0 0 0
EBITDA Margin (%) 8 4 4 4 Total Debt 28 30 19 22
Depreciation 15 14 13 13 Net Deferred Taxes 0 0 0 0
Other Income 8 9 10 16 Total Sources of Funds 280 279 314 352
EBIT 43 23 16 26 APPLICATION OF FUNDS
Interest expenses 3 3 2 3 Net Block & Goodwill 98 89 86 80
PBT 39 19 23 25 CWIP 2 9 0 0
Tax 15 7 -14 6 Investments 13 9 13 15
PAT 24 12 37 19 Other Non-Curr. Assets 32 27 20 14
Adj. PAT 24 12 46 42 Total Non-Current Assets 144 134 120 110
Growth (%) 34 -49 277 -10 Inventories 55 72 70 79
EPS 17 9 33 29 Debtors 80 77 60 54
Cash & Equivalents 126 132 228 274
Other Current Assets 11 17 17 18
Total Current Assets 272 298 375 424
Creditors 73 87 98 103
Other Current Liab & Provisions 63 66 83 82
Total Current Liabilities 136 152 180 185
Net Current Assets 136 145 194 239
Total Application of Funds 280 279 314 352

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 Techno Funda Pick – TTK Healthcare Ltd.

Cash Flow Statement Key Ratios

Particulars (in Rs Cr) FY19 FY20 FY21 FY22 Particulars FY19 FY20 FY21 FY22
Reported PBT 39 19 37 58 Profitability Ratios (%)
Non-operating & EO items -1 -2 0 -2 EBITDA Margin 7.9 4.4 4.1 3.6
Interest Expenses -4 -5 -16 -11 EBIT Margin 6.8 3.5 3.4 4.3
Depreciation 15 14 14 13 APAT Margin 3.9 1.9 9.8 6.9
Working Capital Change -19 4 42 -4 RoE 10.1 4.9 17.1 13.3
Tax Paid -13 -11 20 -9 RoCE 15.2 8.1 5.5 7.7
OPERATING CASH FLOW ( a ) 17 20 96 45 Solvency Ratio (x)
Capex -4 -12 -2 -4 Net Debt/EBITDA -2.0 -3.6 -10.8 -11.5
Free Cash Flow 13 8 95 41 Net D/E -0.4 -0.4 -0.7 -0.8
Investments 0 0 0 0 PER SHARE DATA (Rs)
Non-operating income 14 -2 -76 -27 EPS 17.2 8.7 32.9 29.4
INVESTING CASH FLOW ( b ) 10 -13 -77 -31 CEPS 27.6 18.9 42.1 38.3
Debt Issuance / (Repaid) -19 2 -11 3 BV 177.9 176.2 208.5 233.3
Interest Expenses -3 -3 -2 -4 Dividend 5.0 3.0 6.0 10.0
FCFE 5 5 6 14 Turnover Ratios (days)
Share Capital Issuance 0 0 0 0 Debtor days 39 44 52 35
Dividend -9 -9 -4 -8 Inventory days 31 36 54 45
FINANCING CASH FLOW ( c ) -31 -10 -17 -9 Creditors days 46 45 71 61
NET CASH FLOW (a+b+c) -4 -4 2 5 Valuation (x)
P/E 58.5 115.6 30.7 34.3
One Year Price Chart P/BV 5.7 5.7 4.8 4.3
1100 EV/EBITDA 26.8 46.7 62.9 53.7
1000 EV / Revenues 2.1 2.0 2.6 2.0
900
Dividend Yield (%) 0.5 0.3 0.6 1.0
Dividend Payout 29.0 34.4 18.3 34.0
800 (Source: Company, HDFC sec)
700
600
Jul-22
Jun-22
Jan-22

Apr-22
May-22

Aug-22

Sep-22

Nov-22
Feb-22
Mar-22

Dec-22

Jan-23
Oct-22

(Sou
rce:
Com
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,
HDF
C
sec)

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Techno Funda Pick – TTK Healthcare Ltd.

Disclosure:
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NAGARA Digitally signed

by NAGARAJ S HARSH Digitally signed

JS SHETTI
RAJENDR
by HARSH
RAJENDRA SHETH
Date: 2023.01.16
SHETTI 08:58:51 +05'30' A SHETH
Date: 2023.01.16
08:56:34 +05'30'

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