Titan Industries - Retains sparkle. ADD :: Kotak Sec

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Titan Industries (TTAN)
Retail
Retains sparkle. Sales growth of 34% was led by 37% growth in jewelry (~13%
volume growth) and 21% growth in watches. Jewelry margins were the highest in the
past eight quarters – the shift to variable billing is likely aiding this, in our view.
Favorable macro-economic factors, mix improvement in favor of diamond jewelry
(higher gold prices are aiding uptrading to diamond), expanding reach to Tier-III towns
and achieving break-even in eyewear and precision engineering business are key factors



All is well
Titan reported net sales of Rs15.4 bn (+34%, KIE estimate Rs15.5 bn), EBITDA of Rs1.7 bn (+60%,
KIE estimate Rs1.6 bn) and PAT of Rs1,278 mn (+65%, KIE estimate Rs1,239 mn).
Jewelry business showed strong sales growth of 37% with likely volume growth of ~13%.
Margins expanded to 8.9%, the highest in the last 8 quarters likely on the back of mix
improvement, lower adspends (likely phasing out to wedding season) and shift in billing system to
variable billing (making charges as a % of gold value). Beginning of the festive and wedding
season from October will give further boost to this business, in our view.
Watches sales also grew strong by 21% and margins improved ~160 bps to 21.3% on the back of
mix improvement with consumers uptrading to premium–end watches (brands like Titan-Edge,
Titan-Bandhan, Nebula, Xylys).
While the watches business has higher margins, growth potential in the business is relatively lower
than jewelry business due to the higher level of penetration. Hence, we expect the company to
focus on the jewelry business which is growing at more than 30% levels, though margins are
lower at ~8% levels, on an average.
The relatively new eyewear and precision engineering businesses showed sales growth of 85%.
Loss improved to Rs47 mn against Rs111 mn in 2QFY10. The company has recently launched
Manhattan collection of eyewear targeting working professionals.
Key variables to watch: External factors, mix improvement in jewelry and reach
�� Favorable external factors. We believe that there is huge opportunity for penetration and
consumption-led growth with rising disposable income pushing up aspiration levels and
encouraging conversion from unbranded to branded jewelry and watches. We believe that with
sustaining consumer spending, discretionary spends will continue to be robust in the near term.
We expect jewelry sales to increase at a CAGR of 35% with volume growth of 21% between
FY2010 and FY2012E and watches sales to increase at a CAGR of 16% with 13% volume
growth.