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Titan Industries (TTAN)
Retail
Shining beacon. Amidst an earnings miss season in consumer products, TTAN beat
estimates handsomely. Positive surprises are (1) watches sales growth of 35% (aided by
late Diwali), (2) jewelry volumes growth of 25% (inflation in gold prices makes
diamonds relatively cheaper for the consumer) and (3) negative working capital in
jewelry. Inflation in gold is a tailwind for Titan as (1) it improves absolute EPS and (2)
every 10% increase in gold price raises Titan's jewelry margins by 50 bps. Key risk—any
potential government regulation to curb probable money laundering through gold.
‘Beat estimates’ is an understatement
Titan reported stellar results—net sales of Rs19.5 bn (+47%, KIE Rs17.1 bn), EBITDA of Rs1.9 bn
(+82%, KIE Rs1.6 bn) and PAT of Rs1.4 bn (+80%, KIE Rs1.1 bn).
Jewelry business registered strong sales growth of 50% (volume growth of ~25%) aided by (1) a
late Diwali (Nov 5 this year versus Oct 17 in base), (2) mix improvement (inflation in gold prices
makes diamonds relatively cheaper for the consumer) and (3) continuing buoyant consumer
demand. Jewelry margins expanded 200 bps to 9%, the highest in the last 16 quarters likely on
the back of mix improvement and shift in billing system to variable billing (making charges as a %
of gold value).
Watches sales also grew strong by 35% and margins improved 330 bps to 18% on the back of
mix improvement with consumers uptrading to premium-end watches (brands like Titan-Edge,
Titan-Bandhan, Nebula, Xylys). The better-than-expected growth in watches is a pleasant surprise
considering that it is much higher penetrated category compared with jewelry.
Negative working capital in jewelry segment of Rs1.85 bn was aided by higher consumer advances
under the ‘Golden Harvest’ scheme (consumer pays installments for 11 or 18 months and
company adds the last installment and consumer can buy jewelry in the 12th or 19th month). Higher
collections under the scheme is a significant positive as it locks in future sales.
Upgrade FY2011-13E estimates by 14%, our positive bias stays
We upgrade EPS estimates for FY2011-13E by 14% and retain our ADD rating with a revised TP of
Rs4,100 (Rs3,600 previously). Our EPS estimates are Rs107, Rs126 and Rs146 for FY2011-13E. Our
optimism stems from the fact that Titan had delivered EPS CAGR of 36% over FY2007-10, we
forecast EPS CAGR of 37% over FY2010-13E.
Key risks are (1) any potential government regulation to curb probable money laundering through
gold, (2) any slowdown in discretionary spending, (3) higher competitive intensity in the branded
jewelry market (Reliance’s venture, Rajesh Exports’ venture etc.), and (4) higher-than-estimated
losses in the eyewear business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Titan Industries (TTAN)
Retail
Shining beacon. Amidst an earnings miss season in consumer products, TTAN beat
estimates handsomely. Positive surprises are (1) watches sales growth of 35% (aided by
late Diwali), (2) jewelry volumes growth of 25% (inflation in gold prices makes
diamonds relatively cheaper for the consumer) and (3) negative working capital in
jewelry. Inflation in gold is a tailwind for Titan as (1) it improves absolute EPS and (2)
every 10% increase in gold price raises Titan's jewelry margins by 50 bps. Key risk—any
potential government regulation to curb probable money laundering through gold.
‘Beat estimates’ is an understatement
Titan reported stellar results—net sales of Rs19.5 bn (+47%, KIE Rs17.1 bn), EBITDA of Rs1.9 bn
(+82%, KIE Rs1.6 bn) and PAT of Rs1.4 bn (+80%, KIE Rs1.1 bn).
Jewelry business registered strong sales growth of 50% (volume growth of ~25%) aided by (1) a
late Diwali (Nov 5 this year versus Oct 17 in base), (2) mix improvement (inflation in gold prices
makes diamonds relatively cheaper for the consumer) and (3) continuing buoyant consumer
demand. Jewelry margins expanded 200 bps to 9%, the highest in the last 16 quarters likely on
the back of mix improvement and shift in billing system to variable billing (making charges as a %
of gold value).
Watches sales also grew strong by 35% and margins improved 330 bps to 18% on the back of
mix improvement with consumers uptrading to premium-end watches (brands like Titan-Edge,
Titan-Bandhan, Nebula, Xylys). The better-than-expected growth in watches is a pleasant surprise
considering that it is much higher penetrated category compared with jewelry.
Negative working capital in jewelry segment of Rs1.85 bn was aided by higher consumer advances
under the ‘Golden Harvest’ scheme (consumer pays installments for 11 or 18 months and
company adds the last installment and consumer can buy jewelry in the 12th or 19th month). Higher
collections under the scheme is a significant positive as it locks in future sales.
Upgrade FY2011-13E estimates by 14%, our positive bias stays
We upgrade EPS estimates for FY2011-13E by 14% and retain our ADD rating with a revised TP of
Rs4,100 (Rs3,600 previously). Our EPS estimates are Rs107, Rs126 and Rs146 for FY2011-13E. Our
optimism stems from the fact that Titan had delivered EPS CAGR of 36% over FY2007-10, we
forecast EPS CAGR of 37% over FY2010-13E.
Key risks are (1) any potential government regulation to curb probable money laundering through
gold, (2) any slowdown in discretionary spending, (3) higher competitive intensity in the branded
jewelry market (Reliance’s venture, Rajesh Exports’ venture etc.), and (4) higher-than-estimated
losses in the eyewear business.
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