{"id":1159,"date":"2021-02-03T20:03:00","date_gmt":"2021-02-03T20:03:00","guid":{"rendered":"http:\/\/oscillationss.blogspot.com\/?p=1159"},"modified":"2021-02-03T20:03:00","modified_gmt":"2021-02-03T20:03:00","slug":"ttk-healthcare-ltd-at-the-crossroads","status":"publish","type":"post","link":"https:\/\/oscillations.in\/?p=1159","title":{"rendered":"TTK Healthcare Ltd: At the Crossroads"},"content":{"rendered":"<\/p>\n

TTK Healthcare
\nLtd.<\/span><\/u><\/b><\/p>\n

Grade: TIER 3<\/span><\/u><\/b><\/p>\n

Value
\ntrigger: Level 3. Management is going to take certain decisions which will put
\nthe company on a strong growth path.<\/b><\/u><\/span><\/p>\n

<\/u><\/span><\/p>\n

<\/a><\/u><\/span><\/div>\n<\/p>\n\n\n\n\n\n\n\n\n\n
\n

Stock:
\n TTK Healthcare Ltd<\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

Description<\/span><\/b><\/p>\n<\/td>\n

\n

(Amt)<\/span><\/b><\/p>\n<\/td>\n<\/tr>\n

\n

CMP<\/span><\/p>\n<\/td>\n

\n

562<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Market Value <\/span><\/p>\n<\/td>\n

\n

794
\n cr<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

PE Ratio (Annualized)<\/span><\/p>\n<\/td>\n

\n

35<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Net worth (Sep-2020)<\/span><\/p>\n<\/td>\n

\n

275
\n cr<\/span><\/p>\n<\/td>\n<\/tr>\n

\n

Dividend Yield<\/span><\/p>\n<\/td>\n

\n

0.50%<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n


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TTK is a very confusing company-
\nNot for analysis point of view but as a company because somehow they don\u2019t seem
\nto be certain about their path. And in all this confusion they have created a
\nmess of products and divisions which are going nowhere. Their portfolio of
\npharmaceuticals, medical devices and protective devices looks good but I don\u2019t
\nunderstand what they are doing in deodorant and home care business (Good home
\nBrand-Drain Cleaner, Room Freshener, Scrubbers, Air Freshener Block and Odour
\nRemover) where there already is very stiff competition with established multinational
\nand national brands. I mean they could never spend on marketing and branding
\nlike other biggies and there is nothing great about their products. They are
\njust routine products. And then they are also in foods business selling ready
\nto fry snacks!!! It is surprising why management plans these half-hearted useless expansions where they stand nowhere against the competition-neither
\nin terms of product innovation nor in terms of marketing spending. Their
\ninvestments in these verticals have not shown good results and they are
\nincurring losses or lower profits in these two. On the surface, their consumer
\nbusiness earning PBT of around 18 cr on topline of 181 cr looks good but this
\nfigure in mar-2017 was 240 cr and 25 cr respectively. So they are not being
\nable to compete. Same is the fate of food business where turnover has grown at
\nvery slow pace from 72 cr in Mar-17 to 88 cr in Mar-20. So why to spend time,
\nenergy, efforts and money on such adventures when they have other business
\nverticals with very strong growth potential and where they have done well. <\/p>\n

And
\nwhere they have done well?<\/span><\/u><\/b><\/p>\n

Pharma and animal
\nhealthcare business: <\/u><\/b>They have done well here. Topline has grown from
\n190 cr in 2017 to 231 cr and PBT at 21 cr from 13 cr. But they need to expand
\ntheir product line and they need some path breaking products. They have herbal
\nproducts like male\/female fertility. In animal welfare division they offer
\nproducts like medicines, tonics and productivity boosters and if you ask me
\nthis one is a great high growth opportunity. I feel they should have gone for
\nsome acquisitions in pharma and animal welfare segments if they can\u2019t expand
\nthese businesses organically. Still, not a bad performance but they need to
\nfocus on complex products.<\/p>\n

Protective Devices and Sexual
\nwellness division:<\/u><\/b> They have done well in placing Skore in the sexual
\nwellness industry in India. They launched Skore condom in 2012-13 and with some
\npath breaking aggressive marketing and branding they achieved 3rd<\/sup>
\nposition in no time by 2016. In 2012, it had to break its long standing
\npartnership with Reckitt Benckiser for selling Kohinoor and Durex condoms in
\nIndia because both couldn\u2019t be able to reconcile their dispute. Due to this,
\nTTK lost the rights to Kohinoor (launched in 1979) and Durex (launched in India
\nin 1997). But TTK launched Skore condom with big heart in 2012 and within a
\nperiod of 4 years, it put behind both Kohinoor and Durex with wide margins. It
\neven outpaced the giant Kamasutra brand. It is now at 3rd place in India behind
\nManforce and Moods with 10% market share (Manforce has 32%, Moods with 12%).
\nAggressive marketing and advertising, is the main reason for this success. Its
\nadvertising & Sales Promotion expenditure is at 88 cr in 2020 vs 68 cr in
\n2017 and bulk of it is going towards Skore. Recently it has started spending
\nmore on the advertisement of Woodward\u2019s Gripewater (WGW) and it would be
\ninteresting to see the impact as WGW has not witnessed much revenue growth in
\nlast 4-5 years. At present it is selling around 15 cr condoms.<\/p>\n

Actually, although TTK lost the
\nbrands of Kohinoor and durex but it never lost its technical prowess in
\nmanufacturing high quality condoms. TTK was the first to establish condom plant
\nin India in 1963 and it was to first to install electric testing facility and
\nfirst to introduce subsidy free condoms in India in 1974. So with its decade
\nold marketing and distribution strengths, Skore was always going to make it big
\nand fast in Indian market.<\/p>\n

Recently,
\nSkore has forayed into sexual wellness products and has introduced innovative
\nproducts like lubes, sprays like pheromone-activated body sprays and gels,
\nVibrating rings with rechargeable and remote controlled variants (three
\nvariants, Skore Shiver, Skore Vybes and Skore Buzzz). These products are
\nselling fast at online portals and these are going to see high growth in India.
\nIn fact sexual wellness category is growing at 25% across the globe so one can
\njudge the scope of growth in India where people are opening up on sexual
\nwellness and experiments looking beyond the taboo. Most importantly, online
\nplatform are playing a vital role in the search, information, availability and
\ndelivery of sexual wellness products not only in urban but rural India also.
\nOnline sale of sexual wellness product is going to be the major differentiator
\nin the future high growth of this industry in India. In india condom
\npenetration is still way lower at 6% and a country with vast population the
\nvalue of condom industry is just around 1200-1300 cr. But this low value points
\ntowards a vast untapped market and this is the reason Skore is playing the game
\naggressively for the market share.<\/span><\/p>\n

TTK management may look confused
\nwhen it is about their Eva Deo, Home care and Foods business but in sexual
\nwellness industry their approach and strategy is just top notch. I really like
\nthe aggressiveness, strategy, product innovation, disruptive marketing and
\nbranding activities of TTK management in establishing and growing Skore brand.<\/p>\n

TTK has capacity to manufacture 2
\nbillion condoms a year at its three factories in southern India. Some people
\ncompare the performance of Skore with another listed condom player \u201cCupid Ltd\u201d
\n(female condoms) which is having high margins and profits. But they are not
\ncomparable. Cupid is catering to wholesale market supplying to export market
\nand orders from welfare agencies like WHO\/UNFPA. But Skore is focusing on
\nbranded consumer segment where a lot of investments is required initially in
\nestablishing a brand especially in premium segment. Indian sexual wellness
\nindustry is still in the initial phase with a long way to go and that\u2019s why one
\ncan see brands like Manforce, Durex, Kamsutra spending big on innovative
\nproducts and marketing. Most of these players are incurring losses as of now
\nbut accounting losses are different from business losses. In many cases,
\naccounting losses are business investments from business point of view for
\naccounting does not recognize or value strategy and brand establishment. So big
\nmarketing and advertising spend is responsible for the losses of Skore whereas
\nthe likes of Cupid does not spend much on these. Hence, over a period of time
\nwith growth in volumes and lower requirement of marketing the profits of Skore
\nwill see massive growth. TTK is also focusing on getting bulk orders for export
\nmarkets from agencies like WHO. <\/p>\n

Medical
\ndevice Business: The next big opportunity<\/span><\/u><\/b><\/p>\n

Indian medical device market is
\nquite large valued at some 40000-45000 cr but sad point is that we import
\naround 70-90% across various product categories. <\/span>Local manufacturing is very poor and it is
\nmainly catering to low tech class 1 (class A) devices. Class 1 devices are
\nthose which are having low to moderate risk to the safety and health of the
\npatient like stethoscopes, bandages, dental floss etc. The level of
\nmanufacturing complexity is very low so these are low value devices. Class 2
\nand 3 are relatively much more critical to the health and safety of the
\npatient. Class 3 (Class C) is the most complex with highest risk to the life of
\nthe patient. These are the devices which support or sustain the life of the
\npatient like the implantable pacemakers, prosthetic heart valve, ventilators, HIV
\ndiagnostic tests etc.<\/p>\n

It is shocking that with vast
\nhealthcare requirement for a large populous country like India we are importing
\n70-90% of our total requirements. This shows the neglect by the regulators and
\ngovernment in formulating policies to promote the local manufacturing and also
\na great opportunity missed by Indian manufacturers due to their own neglect. In
\nfact, this neglect and poor manufacturing prowess appears shameful if we see
\nthe highly advanced world class pharma industry in India where India is the
\nglobal powerhouse in medicine manufacturing. Most of the medical devices which
\nindia import from the global giants like GE, Siemens, Phillips are actually
\ncoming from China who realized the importance of medical device manufacturing
\nmuch earlier than India and focused on local manufacturing some 20-30 years
\nback. The current value of industry is Rs. 40000 cr but this is going to grow
\nmuch bigger in the future with high growth in healthcare industry and demand.
\nFor information, the value of chinese medical device industry is somewhere
\naround 4 lac cr to 5 lac cr!!! That\u2019s why I always say that India needs
\nbusinessmen everywhere not politicians (to make policies for poor people) and bureaucrats.<\/p>\n

One of the major drawbacks
\nhurting Indian medical device industry was that Indian medical devices industry
\nwas largely unregulated which hurt the investments and export opportunities. Now,
\nIndian government has released The Medical Device (Amendment) Rules, 2020 (\u201cMDR
\nAmendment\u201d) to regulate this market and they have approved stimulus package for
\npromoting the manufacturing in India. (Will
\ncover more on this topic in the next edition on medical device sector).<\/span><\/b><\/p>\n

TTK Chitra heart Valve:<\/u><\/b>
\nFor decades, India relied on imports of expensive artificial valve replacements
\nto meet domestic need, but many families whose children developed Rheumatic
\nHeart Disease (RHD) were also among the poorest in India, and could not afford
\neven the heavily discounted price tags of imported valves, which hovered around
\n$1,200 each. And so our children died, or lived drastically shortened and
\nunhealthy lives.<\/p>\n

Then TTK Chitra Heart Valve came
\nto their rescue, it was developed painstakingly over 12 years at the Sree
\nChitra Tirunal Institute for Medical Sciences and Technology in Trivandrum,
\nIndia, the device is now licensed for manufacture and marketing to TTK
\nHealthcare. TTK valve uses the highest quality materials, features genuine
\ndesign and material, blood flow resistance reduction, and durability. But in
\nspite of high quality product with 12 year product development cycle with
\nextensive clinical trials, TTK Healthcare still sells each valve for just
\n$315-$400 (Rs. 20000-25000), a price range it has maintained since 1995, even
\nwhen inflation is high in India. Due to TTK Chitra heart valve, all the MNCs
\nhad to lower their prices in order to stay in the Indian market.<\/p>\n


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TTK Chitra heart valve is the
\nonly Class 3 medical device produced in India which is a proof and a testimony
\nto the technical capability in India for manufacturing complex medical devices.
\nIn numerous studies conducted, TTK valve has performed equal to other heart
\nvalves manufactured by renowned global producers like St. Jude. One recent
\nstudy conducted in 2020 has established the efficiency of TTK Chitra heart valve
\nequivalent of an imported St Jude Mechanical heart valve at almost half the
\ncost making the prospect of cardiac surgery available to a large number of
\ndeserving poor patients. India is home to estimated 20-25 lacs patients with Rheumatic
\nHeart Disease (RHD) which is the leading cause of structural heart valve damage
\nin the country so there is a huge undiscovered and unmet market for heart valve
\nsurgery in India.<\/p>\n

\n

The Indian Government has
\ndesigned and working on a massive Medical Insurance Scheme to cover poor
\nfamilies and this is going to create big demand for cost effective products
\nlike heart valve and orthopedic implants made by TTK.<\/p>\n

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TTK healthcare is also into the
\nmanufacture of orthopedic implants under the brand “Altius” which is
\nlow priced option against costly imports. The products are very good with US
\nFDA cleared designs. As we can see, TTK has done well in medical devices but
\nsomehow the hard work is not reflected in the topline numbers and I think it
\nmay have been related to these products being looked down upon by Indian people
\nwho can afford costly products (doctors\/surgeons also don\u2019t take chance and opt
\nfor products with very slight medical benefits though at high costs) and then there are poor people with no
\ncapacity to even buy these cost effective products in the absence of no support
\nfrom government which as I have shared above is going to change and TTK may see
\nhigh growth for its medical devices.<\/span><\/p>\n<\/p>\n

\n

TTK\u2019s R&D expenditure was
\naround 4 cr (.6% of turnover) which is not bad keeping in view the fact that
\nits NP is meager 20 cr. <\/p>\n

So
\nwhat is going to be the catalyst event for TTK in medical devices business?<\/span><\/b><\/p>\n

They are having around 210 cr
\ncash and I feel time is good for them to deploy this into high growth business
\nof medical device. There is no better time to enter this sector than now. So I
\nthink TTK management is going to do something big in this segment this year-
\nmay be they will acquire a mid-size company or they are going to make
\ninvestments for expanding their medical devices business. And if they can do
\nthis then we will see high growth happening in this company finally. <\/p>\n

Why I feel they can do something
\nbig in medical device? Actually if we look at their performance in establishing
\nSkore as a national brand in just 4 years then there is no doubt that they have
\nthe capabilities to execute something big taking over the entire industry;
\nestablishing a product where marketing and branding is the key and they did it
\nskillfully so i think they can do something big in medical devices keeping in
\nview their vast experience in dealing with this industry for last 20-25 years.
\nThe only thing is that they also feel like doing something in this industry.
\nBut I feel they don\u2019t have any other choice and so soon we will be hearing something
\non this.<\/p>\n

TTK healthcare has not performed
\nat all in last 10 years and I think it has not given any returns at all but
\nstill good thing about them is that they have kept their business out of debt
\nand amid all this surficial non-performance has created a significant consumer
\nbrand in Skore which is going to see high growth in the future and even the
\nperformance by Skore may be sufficient for a big re-rating. But as most of the value
\nis coming from the future strategic actions taken by the management so treat
\nthis as a risky stock (Tier 3).<\/p>\n

Summary of Analysis levels Involved in the
\nstudy of TTK Healthcare:<\/span><\/u><\/b><\/p>\n

1.
\nLevel 1 (Lower relative valuation)<\/span><\/u><\/b> \u2013
\nNot cheap but not high also\u2026just adequate for the current scale.<\/span><\/p>\n

2.
\nLevel 2 ( Industry level growth and restructuring)<\/span><\/u>–<\/span><\/b> Sexual wellness
\nand Medical device industry will see high growth but scale is small for TTK in
\nthese and it is not a leader in these segments so no automatic <\/b>growth
\nfor TTK similar to industry growth.<\/span><\/p>\n

3. Level 3 (Forecasting of
\nmanagement decisions which may result in massive future growth and value
\nunlocking)<\/span><\/u> \u2013 <\/span><\/b>So the whole value is coming from the strategy and
\ndecision making of the management. Their strategy in growing sexual wellness
\nand acquiring or expanding medical device business are the key growth and
\nvaluation catalyst events.<\/span><\/p>\n

(This article is taken from the Monthly Newsletter of this Blog)<\/span><\/p>\n

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your own Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post. Reach me at oscillationss@yahoo.in).<\/span><\/p>\n

<\/span> <\/p>\n","protected":false},"excerpt":{"rendered":"

TTK Healthcare Ltd. Grade: TIER 3 Value trigger: Level 3. Management is going to take certain decisions which will put the company on a strong growth path. Stock: TTK Healthcare Ltd Description (Amt) CMP 562 Market Value 794 cr PE Ratio (Annualized) 35 Net worth (Sep-2020) 275 cr Dividend Yield 0.50% TTK is a very confusing company- Not for analysis point of view but as a company because somehow they don\u2019t seem to be certain about their path. And in all this confusion they have created a mess of products and divisions which are going nowhere. Their portfolio of pharmaceuticals,…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1159","post","type-post","status-publish","format-standard","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1159","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1159"}],"version-history":[{"count":0,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1159\/revisions"}],"wp:attachment":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1159"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1159"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1159"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}