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Titan Industries (TTAN)
Consumer products
Good 2Q, uncertain outlook. Titan’s 2QFY12 results were ahead of estimates.
Positive surprises are (1) jewelry margin expansion despite high gold and diamond prices
(reported 30 bps, proforma 110 bps) driven by operating leverage and (2) good volume
growth of 19% in watches. Negative surprises are (1) jewelry volume growth of just 3%
and same store volume decline of 3% and (2) significant gross margin pressure in
watches. While short-terms concerns on demand conditions remain, we like Titan’s
strategy of continuing to invest for the future (Helios, Eye Plus, large format stores and
expansion in Tanishq) even during times of uncertainty.
Good results at the margin, headwind of low consumer sentiment exists
Titan reported net sales of Rs21 bn (+36%, KIE Rs19.7 bn), EBITDA of Rs2.0 bn (+15%, KIE Rs1.8
bn) and PAT of Rs1.5 bn (+20%, KIE Rs1.4 bn).
Jewelry sales increased 45% yoy driven by volume growth of 3% (same store volume decline of
3%) and the balance being higher gold and diamond prices. During 2QFY12, gold prices were
higher by ~50% and diamond prices have been inflationary for the last six months to the extent
of ~30-40%. However, surprisingly, the price increases in diamonds seems to have not affected
its demand wherein the share of diamonds in the jewelry segment has been maintained at 28%
for 2Q (28% in FY2011 and 24% in 1QFY12). There appears to be limited impact of
implementation of producing the PAN card for bill value more than Rs0.5 mn, in our view.
Jewelry EBIT margin expanded 30 bps to 9.2% likely driven by increasing scale of operations
and better mix due to studded jewelry sales, in our view (80 bps impact due to excise duty).
Watches sales grew by 16% on the back of 19% volume growth. Average realizations were
lower due to faster growth in Zoop (watches for kids), Sonata super fiber (mass market
positioning) and Fastrack. Watches EBIT margin declined 520 bps to 16.1% due to (1) input
cost inflation not neutralized by price increases and (2) incubation costs of Helios venture. The
watches business continues to witness lower footfalls and higher conversions, in our view.
Takeaways from the call with management
While the drop in consumer sentiment has impacted jewelry volume sales, in 3QFY12E, it
expects a performance similar to 2QFY12 (~45% value sales growth).
Eyewear sales growth was lower yoy during 2Q due to promotions preponed to 1QFY12 (the
‘Others’ segment which includes eyewear had registered growth of 53% in 1QFY12). In our
view, this is a smart move as the company has avoided the crowded ‘off-season’ sales period of
July-August (a period when there is a higher competitive activity for consumer share of wallet).
The outstanding under 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) is ~Rs8 bn and it accounts for ~20% of jewelry sales. The cost of the ‘free
installment’ is accounted as a discount in the month of consumer purchasing the jewelry.
Input cost inflation (on watch movements and components which are typically imported
from Switzerland, Japan etc.) has impacted watches and eyewear margins during 2QFY12.
The company has taken ~7% price increase in watches in October which will likely help it
recover the cost inflation entirely. Price increases include steep increase in premium
brands like Nebula (gold plated watches) to the extent of ~27% as well.
While the jewelry margins expanded 30 bps during the quarter, the impact of excise duty
absorbed was ~80 bps. The proforma jewelry margins for 2QFY12 have expanded by
~110 bps yoy to ~10%.
The company is test marketing leather accessories under the ‘Titan’ brand in Bangalore.
It currently has accessories under the Fastrack brand targeted at the young population.
Retain ADD; our positive bias stays
Our earnings estimates are broadly maintained—we forecast EPS of Rs6.8 and Rs8.3 in
FY2012E and FY2013E, respectively. While short-terms concerns on demand conditions
remain, we like Titan’s strategy of continuing to invest for the future (Helios, Eye Plus, large
format stores and expansion in Tanishq) even during times of uncertainty.
Our optimism stems from the fact that Titan has demonstrated capability for ramping up
newer ventures and it has three such ventures at this point, (1) Helios top-end watch outlets,
(2) ramp-up of accessories business of Fastrack brand and (3) Titan Eye+ eyewear outlets. It
had delivered EPS CAGR of 42% over FY2006-11, we forecast EPS CAGR of 27% over
FY2011-14E. Key risks are (1) any potential government regulation to curb probable money
laundering through gold, (2) any higher-than-expected slowdown in discretionary spending,
(3) higher gold leasing costs, and (4) losses in the eyewear business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Titan Industries (TTAN)
Consumer products
Good 2Q, uncertain outlook. Titan’s 2QFY12 results were ahead of estimates.
Positive surprises are (1) jewelry margin expansion despite high gold and diamond prices
(reported 30 bps, proforma 110 bps) driven by operating leverage and (2) good volume
growth of 19% in watches. Negative surprises are (1) jewelry volume growth of just 3%
and same store volume decline of 3% and (2) significant gross margin pressure in
watches. While short-terms concerns on demand conditions remain, we like Titan’s
strategy of continuing to invest for the future (Helios, Eye Plus, large format stores and
expansion in Tanishq) even during times of uncertainty.
Good results at the margin, headwind of low consumer sentiment exists
Titan reported net sales of Rs21 bn (+36%, KIE Rs19.7 bn), EBITDA of Rs2.0 bn (+15%, KIE Rs1.8
bn) and PAT of Rs1.5 bn (+20%, KIE Rs1.4 bn).
Jewelry sales increased 45% yoy driven by volume growth of 3% (same store volume decline of
3%) and the balance being higher gold and diamond prices. During 2QFY12, gold prices were
higher by ~50% and diamond prices have been inflationary for the last six months to the extent
of ~30-40%. However, surprisingly, the price increases in diamonds seems to have not affected
its demand wherein the share of diamonds in the jewelry segment has been maintained at 28%
for 2Q (28% in FY2011 and 24% in 1QFY12). There appears to be limited impact of
implementation of producing the PAN card for bill value more than Rs0.5 mn, in our view.
Jewelry EBIT margin expanded 30 bps to 9.2% likely driven by increasing scale of operations
and better mix due to studded jewelry sales, in our view (80 bps impact due to excise duty).
Watches sales grew by 16% on the back of 19% volume growth. Average realizations were
lower due to faster growth in Zoop (watches for kids), Sonata super fiber (mass market
positioning) and Fastrack. Watches EBIT margin declined 520 bps to 16.1% due to (1) input
cost inflation not neutralized by price increases and (2) incubation costs of Helios venture. The
watches business continues to witness lower footfalls and higher conversions, in our view.
Takeaways from the call with management
While the drop in consumer sentiment has impacted jewelry volume sales, in 3QFY12E, it
expects a performance similar to 2QFY12 (~45% value sales growth).
Eyewear sales growth was lower yoy during 2Q due to promotions preponed to 1QFY12 (the
‘Others’ segment which includes eyewear had registered growth of 53% in 1QFY12). In our
view, this is a smart move as the company has avoided the crowded ‘off-season’ sales period of
July-August (a period when there is a higher competitive activity for consumer share of wallet).
The outstanding under 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) is ~Rs8 bn and it accounts for ~20% of jewelry sales. The cost of the ‘free
installment’ is accounted as a discount in the month of consumer purchasing the jewelry.
Input cost inflation (on watch movements and components which are typically imported
from Switzerland, Japan etc.) has impacted watches and eyewear margins during 2QFY12.
The company has taken ~7% price increase in watches in October which will likely help it
recover the cost inflation entirely. Price increases include steep increase in premium
brands like Nebula (gold plated watches) to the extent of ~27% as well.
While the jewelry margins expanded 30 bps during the quarter, the impact of excise duty
absorbed was ~80 bps. The proforma jewelry margins for 2QFY12 have expanded by
~110 bps yoy to ~10%.
The company is test marketing leather accessories under the ‘Titan’ brand in Bangalore.
It currently has accessories under the Fastrack brand targeted at the young population.
Retain ADD; our positive bias stays
Our earnings estimates are broadly maintained—we forecast EPS of Rs6.8 and Rs8.3 in
FY2012E and FY2013E, respectively. While short-terms concerns on demand conditions
remain, we like Titan’s strategy of continuing to invest for the future (Helios, Eye Plus, large
format stores and expansion in Tanishq) even during times of uncertainty.
Our optimism stems from the fact that Titan has demonstrated capability for ramping up
newer ventures and it has three such ventures at this point, (1) Helios top-end watch outlets,
(2) ramp-up of accessories business of Fastrack brand and (3) Titan Eye+ eyewear outlets. It
had delivered EPS CAGR of 42% over FY2006-11, we forecast EPS CAGR of 27% over
FY2011-14E. Key risks are (1) any potential government regulation to curb probable money
laundering through gold, (2) any higher-than-expected slowdown in discretionary spending,
(3) higher gold leasing costs, and (4) losses in the eyewear business.
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