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Titan Industries Limited Neutral
TITN.BO, TTAN IN
Meeting Highlights : Optimistic on topline growth;
Margin gains to moderate
We recently met senior mgmt of Titan going over their strategy for expansion and
profitability across divisions. While we see upside risk to our revenue growth
estimates given higher gold/diamond prices, there is downside risk to margin
expectations on account of aggressive store roll outs and excise levy on jewelry.
Optimistic on consumer demand; impact of recent steep hike in diamond
prices to be keenly watched. Healthy demand trends are being witnessed for
jewelry despite higher gold prices. While recent steep price increase of 30% for
diamonds could impact demand in coming quarters, company’s medium term
target of increasing share of studded jewelry from 28-30% of jewelry revenue to
40% over next 3 years remains intact. In a scenario of gold price correction,
mgmt believes volumes will push up to compensate for price decline, thereby
not affecting their topline growth trends. Watch division continues to witness
steady volume growth of 10-12% coupled with price/mix benefits of 5-7%.
Store expansion to step up in FY12; large format Tanishq and high end
Helios watch stores to be key focus areas. Titan is likely to witness 0.23-
0.25mn sq ft retail space addition of which majority will be for jewelry (c80-
100Ksq ft) followed by watches (c70-80K sq ft) and eyewear (c75-80K sq ft).
While large format Tanishq stores will dominate jewelry expansion plans, watch
division will witness aggressive scale up of Helios format (10-12 stores) besides
steady expansion of World of Titan and Fastrack stores. Eyewear could see
addition of 80-100 stores in FY12. Capex for FY12 is likely to more than double
to Rs1.5bn from Rs0.65bn in FY11 as a result.
Profitability levels to sustain; incremental gains in FY12 likely to be
moderate vs FY11. During FY11 Titan achieved sharp 100bp EBITDA margin
expansion benefiting from improved sales mix and high inflation in gold prices.
In FY12 we expand margin gains will be moderated given aggressive store
expansion plans and 1% excise duty imposed on branded jewelry. However,
over medium term company expects jewelry EBIT margins to expand to double
digit from 8.5% currently driven by better mix, scale benefits and enhanced
contribution by large format stores (with higher productivity).
EPS CAGR of 30% over FY11-13E. While Titan remains one of the best plays
in India on lifestyle spending and consumer migration towards branded
products, current rich valuations of 35x FY12E and 28x FY13E P/E leave little
room for any disappointment. Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Titan Industries Limited Neutral
TITN.BO, TTAN IN
Meeting Highlights : Optimistic on topline growth;
Margin gains to moderate
We recently met senior mgmt of Titan going over their strategy for expansion and
profitability across divisions. While we see upside risk to our revenue growth
estimates given higher gold/diamond prices, there is downside risk to margin
expectations on account of aggressive store roll outs and excise levy on jewelry.
Optimistic on consumer demand; impact of recent steep hike in diamond
prices to be keenly watched. Healthy demand trends are being witnessed for
jewelry despite higher gold prices. While recent steep price increase of 30% for
diamonds could impact demand in coming quarters, company’s medium term
target of increasing share of studded jewelry from 28-30% of jewelry revenue to
40% over next 3 years remains intact. In a scenario of gold price correction,
mgmt believes volumes will push up to compensate for price decline, thereby
not affecting their topline growth trends. Watch division continues to witness
steady volume growth of 10-12% coupled with price/mix benefits of 5-7%.
Store expansion to step up in FY12; large format Tanishq and high end
Helios watch stores to be key focus areas. Titan is likely to witness 0.23-
0.25mn sq ft retail space addition of which majority will be for jewelry (c80-
100Ksq ft) followed by watches (c70-80K sq ft) and eyewear (c75-80K sq ft).
While large format Tanishq stores will dominate jewelry expansion plans, watch
division will witness aggressive scale up of Helios format (10-12 stores) besides
steady expansion of World of Titan and Fastrack stores. Eyewear could see
addition of 80-100 stores in FY12. Capex for FY12 is likely to more than double
to Rs1.5bn from Rs0.65bn in FY11 as a result.
Profitability levels to sustain; incremental gains in FY12 likely to be
moderate vs FY11. During FY11 Titan achieved sharp 100bp EBITDA margin
expansion benefiting from improved sales mix and high inflation in gold prices.
In FY12 we expand margin gains will be moderated given aggressive store
expansion plans and 1% excise duty imposed on branded jewelry. However,
over medium term company expects jewelry EBIT margins to expand to double
digit from 8.5% currently driven by better mix, scale benefits and enhanced
contribution by large format stores (with higher productivity).
EPS CAGR of 30% over FY11-13E. While Titan remains one of the best plays
in India on lifestyle spending and consumer migration towards branded
products, current rich valuations of 35x FY12E and 28x FY13E P/E leave little
room for any disappointment. Neutral.
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