TTK Healthcare-An Enigma

At the outset I must confess that I am neither a Sebi registered RIA, nor is this portal a place for making any investment calls or suggestions thereto. What I write about are basic things, which can be noticed by all but are not dwelt upon.

TTKH

This is a Rs 2000 crore market cap entity that belongs to the famed but utterly conservative South based TTK group. The Revenue pattern suggests this company could be considered an FMCG, a medicare entity or a Consumer goods company. They sell Skore condoms, Woodwards Gripewater, Heart Valves, Eva deodorants and some other food items.

In the past two decades or so, the management has made some formal and some informal attempts to de-list the company. They have failed always. The last such attempt was made two years ago at a discovered price of Rs 1200 or so. Over this period, TTKH has sold off it's animal care division, taken a 26 per cent stake in Bharat Serum and Vaccines, but the stock has moved merely upto Rs 1450 or so.

There could be many reasons for this underperformance. To an extent of 74.9 per cent of the 1.4 Crore shares outstanding belong to the TTK group, and it's varying constituents. There are two large investors on board, one of which is Sunil Singhania run Abakkus and one more, with negligible stakes. The rest of the near 22 per cent equity is possibly held by small investors.

The stock hardly trades in a day, the average being below 5000 shares except on certain days when it spikes to couple of lakh shares. That kind of a movement is hard to predict and may happen a few times in a year-blink and you miss it variety.

The positive part is that against an Equity of Rs 14 crore, TTK carries reserves of Rs 940 crore, of which as of March 2023 the cash component held in Bank accounts was Rs 800 crore plus. That is like 40 per cent of the current market cap in cash. There additionally some more investmens as well, possibly in group companies but which are definitely not bad investments.

FMCG, Medicare and Personal Care

The business segments in which TTKH operates, deos, heart valves, male contraceptives, baby food and so on are all Recession proof and scalable businesses in a nation with ironically 1.4 bn people.

Capital Allocation

The enigma is the capital allocation. For the past two years TTKH has distributed dividends of Rs 10 per share, of which very obviously 75 per cent approximately goes to the family. The Annual Report of 2023 claims that this distribution is in line with the declared dividend policy. That might be true and well correct.

Enigma

Now I have been a part of the team that set up Hero Motors in 1986 and then part of the team that led expansion at Apollo Tyres (Baroda plant and the Premier Tyres Acquisition). Post which I spent 6 years at Bennett Coleman, meeting the big and mighty of the Indian industry.

My notable meetings included the top brass of Reliance in 1994 when the stock struggled at Rs 60, FV Rs 10, and Sanjay Lalbhai of Arvind whose stock too traded sub Rs 20. There were other managements, one of which ran a Pharma unit in Waluj and the other who ran a huge pharma unit in Halol. One of these gentlemen was receptive to my ideas, the other was not quite so. That ofcourse is a management prerogative, but the markets are quick to realise which one to back and which one to forget.

Capital Creation & Wealth

Earning respect and adulation of investors is not an overnight excercise. It took almost 2 decades for Reliance post the split in the family, to recoup past market cap and then reach where they are today. Similar was the situation with Dilip Shanghvi, a huge run-up followed up by a massive collapse and then almost 15 years to reach where they are today. For a very long time both my previous employers at Hero and Apollo Tyres too had to face the brunt of investors shunning their stock. Pro-active managements with a clear path and sharing of opportunity with their investors is a huge positive. A mutual feeling that lasts and lasts.

Enigma

The TTKH enigma is insurmountable. I simply do not understand why an entity that reports an EPS of Rs 44 for FY2024 still continues to payoff a dividend of Rs 10 per share, and retains nearly Rs 800 crore in cash. A huge amount lying without purpose on the books, an massive in relation to the market cap.

I know there are many intelligent people on this portal-scholars and what not. TTKH should be a study for all such intellectuals, though it may do nothing for the company on the bourses. A stroke of luck would be if the management itself shows some moves, and then like TTK Prestige 20 years back a Rs 40 stock could move upto Rs 700 adjusted for a bonus and a split and a market cap of Rs 9700 crore. TTKH today is a mere Rs 2000 crore mkt cap with Rs 800 crore cash and supportive earnings.