Visit http://indiaer.blogspot.com/ for complete details Titan Industries Ltd
Unleashing Full Potential for
Margin Expansion; OW
What's Changed
Price Target Rs3,330.00 to Rs3,832.00
EPS F11e/12e/F13e +18%, +11%, +12%,
Our new target price of Rs3,832 implies 17% upside:
We believe Titan is the best play on India’s income and
demographic story. In our view, the company’s ability to
deliver strong volume growth and margin expansion,
driven by product mix, will continue to surprise positively.
We raise our earnings estimates for F11-F13 by 11-18%
and our target price by 15% after Titan’s earnings beat
our expectations by 18% in 2QF11.
2QF11 results highlights:
1) Strong volume growth in
diamond jewellery (over 40%) and plain gold jewellery
(+7%) contributed to overall jewellery revenue growth of
37% for the quarter.
2) Jewellery operating margins
expanded by 210 bps to 8.9%, driven by product mix
improvement.
3) 21% revenue growth in the watch
segment for Titan was above our expectation of 10%
growth.
4) Watch segment EBIT growth of 31% was
driven by product mix improvement (Titan and Fastrack
grew by 22% and 30%, respectively, vs. flat growth for
Sonata).
5) As expected, the Others segment reported a
loss this quarter, as the pace of new store openings
increased. Losses in this segment will likely increase
over the next few quarters as this trend continues.
6) Capital employed in the jewellery segment declined 38%
during the year because of a significant improvement in
working capital management. Importantly, the asset
turns improved from 5.2x in 2QF11 from 3.4x in 1QF11.
Consensus earnings outlook likely to rise: We
expect Titan, a large beneficiary of improving consumer
disposable income, to enjoy estimate upgrades. The
Street remains relatively bearish (now 16% below
Morgan Stanley for F2011E).
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