Titan Industries -Dolat Capital

Net Sales at ` 30bn up 17% v/s our estimate of ` 28.7bn. Gross margin declined
by 40bps YoY to 23.1%. EBITDA at ` 2.8bn up 32.8% as EBITDA margins
expanded by 64bps to 9.4% (our estimate of 10.2%). Advertising cost to sales
ratio stood at 3.6% down 133bps YoY and down 70bps QoQ. PAT at ` 2bn up
24% v/s our estimate of ` 2bn.
Key Takeaways of the conference call
􀁺 Gold volume growth stood at 12% which was negative in Q1 and Q2 at (-
21%) and (-11%) respectively. Revenue grew by 27% on back of festive,
marriage season and space addition. Space addition during the quarter stood
at 55000 sq ft and total space at the end of quarter was 504,000 sq ft across
143 stores.
􀁺 Studded share declined during the quarter to 22% v/s 32% in Q2FY13 mainly
on account of marriage season. It has initiated the discount scheme of upto
20% off in diamond jewellery from Jan 2013 which would improve the mix for
Q4FY13. The company has a target to improve the share of diamond jewellery
to 40% in the coming years.
􀁺 Watches segment margin is expected to improve in the coming quarters.
The margin impact was largely on account of rupee depreciation.
􀁺 The company has presented its response with respect to the linking of gold
on loan with the base rate and believes that they have a strong case. Only
50tons of c.900-1000tons imports is utilized for gold loan.
􀁺 Currently the company is entering into gold loan with domestic bank which
has result in a 20-25bps increase in its interest cost.

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Watches business
Watches business grew by 11% YoY to ` 4.2bn and EBIT was up 6.5% to ` 512mn.
EBIT margin was at 12.1% v/s 12.5% in Q3FY12. Watches segment margin is
expected to improve in the coming quarters. The margin impact was largely on
account of rupee depreciation.
During the quarter the company added:
1) 6 World of Titan store with a space addition of 8000 sq ft.
2) 9 Helios store with a space addition of 10000 sq ft
3) 10 Fastrack stores with a space addition of 8000 sq ft.
Watches 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13
Vol growth 11 14 -3 4 4
Revenue growth 17 27 14 13 11
Other business
Other business reported a modest growth of 4.3% in revenue and EBIT declined by
67%. EBIT margin was at 1.7% v/s 5.4% in Q3FY12.
Eyewear segment grew by 21% during the quarter and for 9mFY13 post a growth of
10%. Lower growth was on account of precision engineering.
Valuation
We believe that revenue growth which has been impacted in FY13 to improve FY14
onwards. We believe aggressive store expansion to drive growth and marginal profile
to improve on back of improvement in watch business performance, mix improvement
in jewellery and breakeven in eye wear business. Premium valuation to sustained
on account of 1) strong medium term growth visibility, 2) best in class management
and 3) Single stock to play multiple themes. The stock trades at 25x FY14E EPS
of ` 10.7 and 19x FY15E EPS of ` 13.9. We recommend a BUY with a price target
of ` 347 (25x FY15E – EPS of ` 13.9).