Strong Q1 but regulatory uncertainty persists: HOLD TITAN :Religare research

Strong Q1 but regulatory uncertainty persists: HOLD
TTAN’s Q1 net sales/EBITDA/PAT grew by a strong 42%/15.6%/16.9% with
topline growth led by the jewellery business (+47% YoY; grammage up 67%
YoY) even as watches clocked a mere 11.4% growth. Jewellery margins
were hit by a lower studded share and inventory losses (~Rs 340mn). We
raise our FY14/FY15 earnings by 7%/9% and our Mar’14 TP to Rs 265 (from
Rs 225) due to reversal to the gold-on-lease scheme. However, gold
availability and further regulatory risks remain key stock overhangs. HOLD.

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 Net sales growth led by jewellery business: TTAN’s net sales grew 42% YoY to
Rs 26.1bn led by a strong 67% YoY grammage growth. Studded growth was flat
during the quarter as the share of studded jewellery dropped to 16% on (a) lower
discretionary spends (b) higher plain gold sales due to lower gold prices. The
performance of watches remained subdued, with the segment growing by just
11.4% YoY on 3% higher volumes YoY. The eyewear segment saw a strong 36% YoY
growth during the quarter.
 EBITDA margins down 180bps: EBITDA grew 15.6% YoY to Rs 2.45bn but TTAN
booked an inventory loss of Rs 340mn on one of its fixed-grammage schemes,
adjusting for which EBITDA growth would stand at 30%. Jewellery EBIT margins
were down 140bps YoY to 8.8% on a higher share of plain gold/lower share of
studded jewellery. Watches margins too plunged 370bps YoY to 10.3% on higher
employee costs (one-time wage settlement in 3 years) and INR depreciation. The
company took price hikes in watches and plansmore hikes in the near term. PAT
grew 16.9% YoY to Rs 1.82bn (but to Rs 2.1bn ex-inventory losses).
 Maintain HOLD with a revised Mar’14 TP of Rs 265: We upgrade our FY14/FY15
earnings by ~7%/9% on account of reversal to the gold-on-lease scheme, leading to
a revised Mar’14 TP of Rs 265 (from Rs 225). Maintain HOLD.