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1QFY12: strong quarter
Titan’s 1QFY12 performance was above expectations with revenue
growth of 61% and net profit growth of 76%. The jewellery business
drove the positive surprise with revenue growth of 72% and 170bps of
margin expansion, helped by ~Rs100m of inventory gains. However, the
outlook is cautious with footfalls beginning to soften amidst worries of
slowing consumer spend. Whilst we have upgraded our estimates and
valuation by ~5%, our concerns on margin pressures from higher
diamond prices and excise duty remain. Retain SELL.
Jewellery volume growth surprises, some softening visible
Even as gold prices were 24% higher YoY and 7% QoQ, jewellery sales grew
by 71% YoY in 1QFY12 with grammage growing 35%+. Growth was lead by
strong sales in April-May, helped by a major ad campaign. However, things
began to normalise in June and discussions with management indicate that
there is some softness visible in July. Rising diamond prices put pressure on
sales of studded jewellery and their contribution declined to 23-24% against
28% in FY11, while inventory gains added Rs100m to the bottom line.
Jewellery PBIT margins improved 170bps YoY to 8.9% (8.3% ex-inventory
gains), supported by operating leverage benefits from the strong volume
growth. Looking ahead, we expect growth as well as margins to moderate.
Watch growth healthy, modest margins and outlook
Watch sales grew by 23% YoY while margins declined 180bps YoY. Whilst
growth during the quarter was healthy, the company has seen softness
emerging in footfalls, and at lower price points (where volume growth has
been below expectations) while spending among affluent customer remained
relatively steady. Margins are expected to seem some pressure through the
year as the company continues to invest in the Helios format.
Store growth on track, eyewear growing
Revenues in the nascent eyewear business grew over 60% YoY, driven by new
stores. In precision engineering, order inflow has been strong and the
business may break even this year. Losses for the two segments were Rs36m.
Upgrading earnings and price target, O-PF stays
Whilst performance for the quarter was impressive, the softening trend
highlighted by the company prevents us from extrapolating the growth seen
to subsequent quarters. Our worries around margin pressures from high
diamond prices and excise duty on branded jewellery remain, and we expect
jewellery margins to be weaker in subsequent quarters. There are downside
risks to growth expectations in watches, which is exposed to the consumer
environment. We have upgraded our forecasts and valuation by 4-5% given
the strong quarter. However, our worries on emerging pressures remain.
Retain SELL with a price target of Rs190 (24x FY13 PE), 17% downside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12: strong quarter
Titan’s 1QFY12 performance was above expectations with revenue
growth of 61% and net profit growth of 76%. The jewellery business
drove the positive surprise with revenue growth of 72% and 170bps of
margin expansion, helped by ~Rs100m of inventory gains. However, the
outlook is cautious with footfalls beginning to soften amidst worries of
slowing consumer spend. Whilst we have upgraded our estimates and
valuation by ~5%, our concerns on margin pressures from higher
diamond prices and excise duty remain. Retain SELL.
Jewellery volume growth surprises, some softening visible
Even as gold prices were 24% higher YoY and 7% QoQ, jewellery sales grew
by 71% YoY in 1QFY12 with grammage growing 35%+. Growth was lead by
strong sales in April-May, helped by a major ad campaign. However, things
began to normalise in June and discussions with management indicate that
there is some softness visible in July. Rising diamond prices put pressure on
sales of studded jewellery and their contribution declined to 23-24% against
28% in FY11, while inventory gains added Rs100m to the bottom line.
Jewellery PBIT margins improved 170bps YoY to 8.9% (8.3% ex-inventory
gains), supported by operating leverage benefits from the strong volume
growth. Looking ahead, we expect growth as well as margins to moderate.
Watch growth healthy, modest margins and outlook
Watch sales grew by 23% YoY while margins declined 180bps YoY. Whilst
growth during the quarter was healthy, the company has seen softness
emerging in footfalls, and at lower price points (where volume growth has
been below expectations) while spending among affluent customer remained
relatively steady. Margins are expected to seem some pressure through the
year as the company continues to invest in the Helios format.
Store growth on track, eyewear growing
Revenues in the nascent eyewear business grew over 60% YoY, driven by new
stores. In precision engineering, order inflow has been strong and the
business may break even this year. Losses for the two segments were Rs36m.
Upgrading earnings and price target, O-PF stays
Whilst performance for the quarter was impressive, the softening trend
highlighted by the company prevents us from extrapolating the growth seen
to subsequent quarters. Our worries around margin pressures from high
diamond prices and excise duty on branded jewellery remain, and we expect
jewellery margins to be weaker in subsequent quarters. There are downside
risks to growth expectations in watches, which is exposed to the consumer
environment. We have upgraded our forecasts and valuation by 4-5% given
the strong quarter. However, our worries on emerging pressures remain.
Retain SELL with a price target of Rs190 (24x FY13 PE), 17% downside.
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