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Titan Industries 4QFY11 results are below estimates with adjusted PAT of Rs839m (est. 1.2b). Sales increased by
35.6% to Rs17.8b (est. Rs17.4b); EBITDA margin contracted by 290bp to 6% due to lower watch margins; 5x
increase in other income to Rs243m boosted adjusted PAT.
Below expectation due to higher staff bonus; Growth momentum intact: The management indicated that
lower profits were due to (1) additional staff bonus equal to 4 months basic salary, (2) revisions in lease rentals, and
(3) higher tax rate due to lower profits in watch segment. While jewellery segment reported 86% EBIT growth and
230bp margin expansion; watch segment reported a sharp 81% decline in EBIT on 1180bp margin decline. We
believe that margin impact on watch segment is one time in nature as it accounts for nearly 2/3rd of staff costs. We
estimate an impact of Rs500m due to additional bonus, excluding which the overall results would have been in line
with estimates. The company has also announced bonus shares (1:1) and 10:1 stock split.
Margin decline in watches; Jewellery margin expansion of 230bp: 4QFY11 Watch sales increased 16.8%
YoY (~16% volume growth) to Rs3.3b; EBIT declined 81% to Rs77m; EBIT margin declined 11.8% to 2.3%. Jewellery
sales increased 39% to Rs13.7b; EBIT grew 86% to Rs1.2b; EBIT margin expanded 230bp to 8.7%.
Valuation and view: 33% PAT CAGR over FY11-13; outlook positive; Neutral: Although consumer demand
remains intact and volume growth is robust; higher base effect would impact the growth rates in the coming year.
Titan would gain from steady increase in gold prices as it’s making charges are linked to the gold prices, which props
up the margins in an inflationary gold price environment. However any softening of gold price can impact margins.
Eyewear is on a fast scale up although EBIDTA breakeven is likely by FY13 only; Precision Engineering is likely to
achieve breakeven in FY12. We are assuming additional bonus as onetime payment; change in strategy is a risk to
estimates. We are tweaking our estimates by 1-3% to factor in (1) Higher gold prices and (2) 50-100bp higher tax
rate. We are revising FY12 and FY13 EPS estimates to Rs136.3 (Rs131.8 earlier) and FY13 estimates to Rs173.6
(Rs171.8 earlier). The stock trades at 29.6xFY12E and 23.2xFY13E. Neutral.
Below expectation due to higher staff bonus; Growth momentum intact
Titan 4QFY11 results are below estimates with adjusted PAT of Rs839m (est. 1.2b).
However management indicated that lower profits were due to (1) additional staff
bonus equal to 4 months basic salary, (2) revisions in lease rentals and (3) higher tax
rate due to lower profits in watch segment.
While jewellery segment reported 86% EBIT growth and 230bp margin expansion;
watch segment reported a sharp 81% decline in EBIT on 1180bp margin decline. We
believe that margin impact on watch segment is one time in nature as it accounts for
nearly 2/3rd of staff costs. we estimate an impact of Rs500m due to additional bonus,
excluding with the overall results would have been in line with estimates.
Although consumer demand remains intact and volume growth is robust; higher base
effect would impact the growth rates in the coming year. Titan would gain from steady
increase in Gold prices as its making charges are linked to the gold prices, which props
up the margins in inflationary gold price environment.
Eyewear is on a fast scale up although EBIDTA breakeven is likely by FY13 only;
Precision Engineering is likely to achieve breakeven in FY12. We are assuming
additional bonus as onetime payment; change in strategy is a risk to estimates.
Decline in watch margins key surprise; Adjusted PAT flat at Rs839m
Sales increased by 35.6% to Rs17.8b (est. Rs17.4b); EBITDA margin contracted by
290bp to 6% to lower watch margins. 5x increase in other income to Rs243m boosted
adjusted PAT.
1:1 bonus and 10:1 stock split announced
In lieu of the strong performance of the company during the year, the company had
announced a 1:1 bonus as well as a 10:1 stock split which will be approved in the forthcoming
shareholders meeting.
33% PAT CAGR over FY11-13; outlook positive; Neutral
Although consumer demand remains intact and volume growth is robust; higher base
effect would impact the growth rates in the coming year. Titan would gain from steady
increase in Gold prices as its making charges are linked to the gold prices, which props up
the margins in inflationary gold price environment. However any softening of gold price
can impact margins. Eyewear is on a fast scale up although EBIDTA breakeven is likely
by FY13 only; Precision Engineering is likely to achieve breakeven in FY12. We are
assuming additional bonus as onetime payment; change in strategy is a risk to estimates.
We are tweaking our estimates by 1-3% to factor in 1) Higher gold prices and 2) 50-100bp
higher tax rate. We are revising FY12 and FY13 EPS estimates to Rs136.3 (Rs131.8
earlier) and FY13 estimates to Rs173.6 (Rs171.8 earlier). The stock trades at 29.6xFY12E
and 23.3xFY13E. Neutral.
Company description
Titan is one of the largest specialty retailers in India. The
company is a market leader in watches and a pioneer in
the branded jewelry market. The company’s economy
segment watch ‘Sonata’ is the largest selling watch in the
country. Titan entered the branded jewelry segment in 1996
with the Tanishq brand and continues to be the largest player
in this segment.
Key investment arguments
Titan is a market leader in the organized segment of
the domestic watch industry with ~60% market share.
The branded watch retailing segment is expected to
report strong growth given that 60% of the watch
retailing industry is dominated by the unorganized
segment.
Tanishq, Titan’s branded jewelry brand, is the largest
player in the Rs70b branded jewelry market in India.
Branded jewelry accounts for less than 10% of the total
jewelry market in India and is expected to report 40%
CAGR over the next 5 years.
Operating margins are expected to expand, as fiscal
benefits from units in backward areas and aggressive
cost cutting initiatives undertaken by the company yield
results.
Key investment risks
Rise in gold prices would impact volume growth in
Jewelry division impacting the margins.
Longer than expected break even period of Titan Eye+
is likely to strain profitability of the company.
Recent developments
During the quarter, the company added 12 stores in
watches and 20 stores in Eyewear.
Valuation and view
We estimate FY12 EPS at Rs136.3 and FY13 EPS of
Rs173.6. FY11-13 PAT CAGR works out to 33%.
Although long-term prospects are encouraging,
valuations at 30x FY12E and 23x FY13E are rich.
Maintain Neutral.
Sector view
We believe specialty retailers are better placed to ward
off the impact of the current slowdown. Ability to
generate cash flows to adequately finance expansion
plans put them in a better position.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Titan Industries 4QFY11 results are below estimates with adjusted PAT of Rs839m (est. 1.2b). Sales increased by
35.6% to Rs17.8b (est. Rs17.4b); EBITDA margin contracted by 290bp to 6% due to lower watch margins; 5x
increase in other income to Rs243m boosted adjusted PAT.
Below expectation due to higher staff bonus; Growth momentum intact: The management indicated that
lower profits were due to (1) additional staff bonus equal to 4 months basic salary, (2) revisions in lease rentals, and
(3) higher tax rate due to lower profits in watch segment. While jewellery segment reported 86% EBIT growth and
230bp margin expansion; watch segment reported a sharp 81% decline in EBIT on 1180bp margin decline. We
believe that margin impact on watch segment is one time in nature as it accounts for nearly 2/3rd of staff costs. We
estimate an impact of Rs500m due to additional bonus, excluding which the overall results would have been in line
with estimates. The company has also announced bonus shares (1:1) and 10:1 stock split.
Margin decline in watches; Jewellery margin expansion of 230bp: 4QFY11 Watch sales increased 16.8%
YoY (~16% volume growth) to Rs3.3b; EBIT declined 81% to Rs77m; EBIT margin declined 11.8% to 2.3%. Jewellery
sales increased 39% to Rs13.7b; EBIT grew 86% to Rs1.2b; EBIT margin expanded 230bp to 8.7%.
Valuation and view: 33% PAT CAGR over FY11-13; outlook positive; Neutral: Although consumer demand
remains intact and volume growth is robust; higher base effect would impact the growth rates in the coming year.
Titan would gain from steady increase in gold prices as it’s making charges are linked to the gold prices, which props
up the margins in an inflationary gold price environment. However any softening of gold price can impact margins.
Eyewear is on a fast scale up although EBIDTA breakeven is likely by FY13 only; Precision Engineering is likely to
achieve breakeven in FY12. We are assuming additional bonus as onetime payment; change in strategy is a risk to
estimates. We are tweaking our estimates by 1-3% to factor in (1) Higher gold prices and (2) 50-100bp higher tax
rate. We are revising FY12 and FY13 EPS estimates to Rs136.3 (Rs131.8 earlier) and FY13 estimates to Rs173.6
(Rs171.8 earlier). The stock trades at 29.6xFY12E and 23.2xFY13E. Neutral.
Below expectation due to higher staff bonus; Growth momentum intact
Titan 4QFY11 results are below estimates with adjusted PAT of Rs839m (est. 1.2b).
However management indicated that lower profits were due to (1) additional staff
bonus equal to 4 months basic salary, (2) revisions in lease rentals and (3) higher tax
rate due to lower profits in watch segment.
While jewellery segment reported 86% EBIT growth and 230bp margin expansion;
watch segment reported a sharp 81% decline in EBIT on 1180bp margin decline. We
believe that margin impact on watch segment is one time in nature as it accounts for
nearly 2/3rd of staff costs. we estimate an impact of Rs500m due to additional bonus,
excluding with the overall results would have been in line with estimates.
Although consumer demand remains intact and volume growth is robust; higher base
effect would impact the growth rates in the coming year. Titan would gain from steady
increase in Gold prices as its making charges are linked to the gold prices, which props
up the margins in inflationary gold price environment.
Eyewear is on a fast scale up although EBIDTA breakeven is likely by FY13 only;
Precision Engineering is likely to achieve breakeven in FY12. We are assuming
additional bonus as onetime payment; change in strategy is a risk to estimates.
Decline in watch margins key surprise; Adjusted PAT flat at Rs839m
Sales increased by 35.6% to Rs17.8b (est. Rs17.4b); EBITDA margin contracted by
290bp to 6% to lower watch margins. 5x increase in other income to Rs243m boosted
adjusted PAT.
1:1 bonus and 10:1 stock split announced
In lieu of the strong performance of the company during the year, the company had
announced a 1:1 bonus as well as a 10:1 stock split which will be approved in the forthcoming
shareholders meeting.
33% PAT CAGR over FY11-13; outlook positive; Neutral
Although consumer demand remains intact and volume growth is robust; higher base
effect would impact the growth rates in the coming year. Titan would gain from steady
increase in Gold prices as its making charges are linked to the gold prices, which props up
the margins in inflationary gold price environment. However any softening of gold price
can impact margins. Eyewear is on a fast scale up although EBIDTA breakeven is likely
by FY13 only; Precision Engineering is likely to achieve breakeven in FY12. We are
assuming additional bonus as onetime payment; change in strategy is a risk to estimates.
We are tweaking our estimates by 1-3% to factor in 1) Higher gold prices and 2) 50-100bp
higher tax rate. We are revising FY12 and FY13 EPS estimates to Rs136.3 (Rs131.8
earlier) and FY13 estimates to Rs173.6 (Rs171.8 earlier). The stock trades at 29.6xFY12E
and 23.3xFY13E. Neutral.
Company description
Titan is one of the largest specialty retailers in India. The
company is a market leader in watches and a pioneer in
the branded jewelry market. The company’s economy
segment watch ‘Sonata’ is the largest selling watch in the
country. Titan entered the branded jewelry segment in 1996
with the Tanishq brand and continues to be the largest player
in this segment.
Key investment arguments
Titan is a market leader in the organized segment of
the domestic watch industry with ~60% market share.
The branded watch retailing segment is expected to
report strong growth given that 60% of the watch
retailing industry is dominated by the unorganized
segment.
Tanishq, Titan’s branded jewelry brand, is the largest
player in the Rs70b branded jewelry market in India.
Branded jewelry accounts for less than 10% of the total
jewelry market in India and is expected to report 40%
CAGR over the next 5 years.
Operating margins are expected to expand, as fiscal
benefits from units in backward areas and aggressive
cost cutting initiatives undertaken by the company yield
results.
Key investment risks
Rise in gold prices would impact volume growth in
Jewelry division impacting the margins.
Longer than expected break even period of Titan Eye+
is likely to strain profitability of the company.
Recent developments
During the quarter, the company added 12 stores in
watches and 20 stores in Eyewear.
Valuation and view
We estimate FY12 EPS at Rs136.3 and FY13 EPS of
Rs173.6. FY11-13 PAT CAGR works out to 33%.
Although long-term prospects are encouraging,
valuations at 30x FY12E and 23x FY13E are rich.
Maintain Neutral.
Sector view
We believe specialty retailers are better placed to ward
off the impact of the current slowdown. Ability to
generate cash flows to adequately finance expansion
plans put them in a better position.
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