Titan Industries: Q3FY11 Result Update; Glitterati, ACCUMULATE; Emkay

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Titan Industries Ltd

Glitterati, Maintain ACCUMULATE

ACCUMULATE

CMP: Rs 3,465                                       Target Price: Rs 3,876

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n     Titan Q3FY11 performance surpasses expectations – APAT at Rs1.37 bn versus expectation of Rs1.18 bn

n     Jewellery continues to glitter (+49.7% yoy to Rs15.8 bn), Watches continue to tick (+34.9% yoy to Rs3.2 bn) and Eyewear saw pick-up in sales (+37.3% yoy to Rs553 mn)

n     High sensitivity to gold prices – 10% decline in gold price triggers 8-10% decline in earnings

n     Revised earnings by +10% and +2% for FY11E (Rs96.5/Share) and FY12E (Rs118.7/Share)  – Maintain ‘ACCUMULATE’ rating with revised target price of Rs3,876/Share

Titan’s Q3FY11 performance surpasses expectations – APAT at Rs1.37

bn versus expectation of Rs1.18 bn

Titan’s Q3FY11 performance surpasses expectations – APAT at Rs1.37 bn versus

expectation of Rs1.18 bn – implies 15% higher then expectations. Revenue growth at

46.6% yoy to Rs19.5 bn, had healthy contribution from Jewellery, Watches and

Eyewear segment. Titan gained from operating leverage and robust growth, resulting in

190 bps yoy expansion in Ebidta margins to 10.0%. The Ebidta grew by 81.7% yoy to

Rs1.95 bn, remain 15% ahead of our expectation. Buoyed by Rs150 mn other income

and robust operational performance, APAT grew 82.4% yoy to Rs1.37 bn.

Jewellery continues to glitter, Watches continue to tick and Eyewear saw

pick-up in sales

All business segments were on roll, buoyed by healthy volume growth and gains from

leverage.

§ ‘Watches’ segment reported 34.9% yoy growth in revenues to Rs3.2 bn & 65.4% yoy

growth in EBIT to Rs585 mn., EBIT margins expanded 330 bps yoy to 18.0%. YTD,

‘Watches’ has registered 13-14% volume growth.

§ ‘Jewellery’ segment reported 49.7% yoy growth in revenues to Rs15.8 bn & 91.5%

yoy growth in EBIT to Rs1.42 bn. EBIT margins expanded 200 bps yoy to 9.0%.

§ ‘Others’ segment that includes ‘Eyewear’ and ‘Precision Engineering’ registered

revenue growth of 37.3% to Rs553 mn. Even, EBIT loss was contained at Rs52 mnon

expected lines.

Jewellery business continues to drive earnings upgrade- draw attention

to high sensitivity to gold prices

Significant portion of earnings upgrades in Titan (flowing in last 4 quarters) can be

attributed to Jewellery segment. Since, Titan adopts a cost-plus percentage model in

Jewellery pricing; sensitivity to gold price is higher with significant impact on profitability.

For example, 10% decline in gold price triggers 8-10% decline in earnings and vice

versa. Similarly, 10% increase in volumes triggers 6-8% increase in earnings and vice

versa.

Taking cue from EMKAY alternative research on Gold, we have factored 5%

decline in gold price in FY12E

Our EMKAY alternative research forecasts decline in Gold prices in ensuing quarter.

Consequently, we have factored a 5% decline in average selling price of Gold jewellery and

5% decline in raw gold prices. We have factored gold realization of Rs2031/gm versus

Rs2138/gm i.e. 5% decline and gold input price of Rs1749/gm versus Rs1841/gm.

Revised earnings by +10% (Rs96.5/Share) and +2% (Rs118.7/Share) for

FY11E and FY12E respectively, Maintain ‘ACCUMULATE’ rating

We fine-tune our earnings to factor (1) higher volume growth in Watches and Jewellery –

Watches (revised from 7.8% to 13.0%) and Jewellery (revised from 20% to 30%) and (2)

gains from operating leverage. We revise our FY11E and FY12E earnings by +10% and 2%

to Rs96.5/Share and Rs118.7/Share respectively. We continue to maintain ‘Titan’ as our

preferred proxy-consumer play. We maintain ‘ACCUMULATE’ rating with revised target

price of Rs3876/Share (Rs3762/Share earlier).