Titan Industries -Stellar performance;‘Sector Outperformer’ :: Edelweiss

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Titan Industries - (TTAN IN, INR 3,287, Buy)
n Stellar performance; net profit jumps 65%; margins expand 187bps
Titan Industries’ (Titan) Q2FY11 revenues, at INR 15,360 mn, jumped ~34% Y- o- Y, in
line with our estimate of INR 14,909 mn. Titan posted a commendable EBIDTA of INR
1,736 mn for the quarter vis-à-vis INR 1082 mn for Q2FY10. EBITDA margin jumped 187
bps Y-o-Y to 11.3%. Lower COGS contributed 127bps Y-o-Y, Ad spend 49bps and
employee cost 32bps to margin expansion, which was partly offset by higher other
expenses of 22 bps. PAT catapulted 65% to INR 1278 mn, surpassing our estimate of
INR 1009 mn.
n Buoyant demand - Robust Jewellery volume growth of 19%
Buoyancy in consumer demand contributed to 19% growth in volumes. This
complemented by 18% price increase, Jewellery segment recorded robust growth of 37%
to INR ~11.2 bn. Margins ballooned 186bps in jewellery. Higher margins can be
attributed to improved product mix with studded jewellery contributed 30% of sales and
better operating leverage. Company pl ans to add to 3 self owned large format stores of
10000 sqft and 3-4 mid size franchise owned 2500 sqft.
n Watches - Continue to surprise on the upside
Watch segment grew at an astounding 21%, to INR 3.5 bn, led by volume growth of
12% and price hike of 9%. During the current quarter, low end watch segment, Sonata,
grew at a slower pace vis-à-vis premium segment watches thereby improving the
product mix. This led to 159bps Y-o-Y expansion in margins. Company plans to add 20
World of Titan; 33 Fast Track stores and 3 Helios stores by the end of FY11.
n Other segment- drag on profitability; potential driver for future growth
Others grew at 92% due to low base to INR 612 mn, however suffered PBIT loss of INR
46 mn in Q2FY11. This segment had posted positive growth Q1 as profitability of
sunglasses offset precision and engineering losses. However this is unlikely to be positive
in the coming quarters as recovery is not likely to be good in precision and engineering
which is US, Europe focused. Company plans to add 3 8 eyeplus stores by FY11 end.
n Outlook and valuations: Robust; maintain ‘BUY’
Jewellery business continued its robust performance in Q2FY11. Owing to better– than
expected numbers in watches and jewellery segments, we are now confident of further
uptick due to higher discretionary spending and improving consumer sentiment. However
in the absence of low base effect in the coming quarters, growth rate is unlikely to be
maintained.
We maintain ‘BUY’ recommendation on the stock and rate it ‘Sector Outperformer’ on
relative return basis