Titan Industries: Q2FY11 - Another stellar quarter :: JPMorgan

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Titan Industries Limited
Neutral
TITN.BO, TTAN IN
Q2FY11 - Another stellar quarter



• Earnings beat expectations. Titan reported yet another strong quarter with
Sales, EBITDA and PAT growth of 34%, 61% and 65% respectively during
Q2FY11. While sales growth was in line with our estimates, EBITDA and
PAT growth was c15% above our estimates driven by better than expected
margin expansion across watches and jewelry portfolio. Management noted
that consumer sentiment has been buoyant and discretionary spending has
been good, supported by rising income and aspirational levels.
• Jewelry revenues rose 37% y/y aided by vol growth of c17-19%. Strong
SSS growth and better product mix improved overall jewelry margins by
190bp y/y. Studded jewelry accounted for over 30% of overall sales mix.
Company opened one new Tanishq store during Q2FY11 (3 in 1HFY11)
and we expect launch of 2-3 large format Tanishq stores in 2HFY11.
• Watch revenue growth of 21% y/y aided to some extent by favorable
base, was in line with our estimates. However, watch EBIT growth of 31%
y/y was ahead of our expectations aided by better product mix (sales growth
for Sonata was lower), favorable base (better fixed cost leverage) and strong
SSS growth. During 1HFY11 the company opened 12 World of Titan stores
and we expect launch of another 15-18 stores in 2HFY11.
• Eyewear Retailing witnesses aggressive retail expansion with 20
stores added in 1HFY11 and another 30 planned for 2HFY11. New store
openings contributed to overall EBIT losses of Rs47mn (including losses
for precision engineering) during the quarter.
• Earnings revision. We raise our EPS estimates for FY11-13E by 7-8%
to factor in higher margins for jewelry and watch business. We note that
the quantum of margin expansion witnessed in 1HFY11 (+250bp y/y)
will likely moderate in coming quarters as expenses related to new store
openings and marketing support increase. We estimate sales and earnings
CAGR of 24% and 29% respectively over FY11-13E supported by 1) strong
discretionary spending trends, b) management’s clear focus on profitability
enhancement via product mix improvement and lower losses for eyewear
retailing, and 3) growing distribution and expanding price points across
product categories. Our Sep'11 TP is now revised up to Rs3500.