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Titan Industries Limited
Neutral
TITN.BO, TTAN IN
4QFY11 : High employee costs led to subdued
earnings growth
• High employee costs led to subdued PAT growth in Q4FY11. Titan
reported Sales, EBITDA and adjusted PAT growth of 36%, 5% and 22%
respectively during Q4FY11. EBITDA/PAT disappointment was largely on
account of provision for employee benefits and incentives included in wage
costs. While sales performance for both jewelry and watch segment was
healthy, margins for watches suffered on account of higher employee costs.
Costs related to new store expansion also weighed on margins.
• Management noted that consumer sentiment has been buoyant and
discretionary spending has been robust during the quarter despite high gold
prices (for jewelry). Titan stepped up its retail expansion momentum adding
41 new stores (c40, 446 sq ft ). Titan’s plans to increase its reach (looking to
add c125-150K sq ft in FY12) coupled with expanding price points across
its portfolio should help it register 23% revenue CAGR over FY11-13E.
• Jewelry revenues rose 39% y/y aided by gold price increase of c22%
during the quarter. Diamond jewelry share was steady at c30%. Healthy
SSS growth and higher gold prices improved overall jewelry margins by
80bp y/y. Rising diamond prices (+30-40% over last 2-3 months) may pose
downside risk to mix and margin enhancement in coming quarters.
• Watch revenue growth of 17% y/y led by volume growth of 14-15% and
broad based similar growth across all three key brands – Titan, Fastrack and
Sonata. EBIT margins for this segment declined sharply to 3% (vs 13.7% in
Q4FY10) due to higher wage costs.
• Eyewear Retailing continues to witness aggressive retail expansion (+28
stores during Q4) which contributed to EBIT losses of cRs50mn during
Q4FY11. Precision Engineering had a challenging quarter posting nearly
similar losses as eyewear retailing during the quarter. Breakeven for eyewear
business is likely by FY12 as per management.
• Titan’s board approved issue of bonus shares (1:1) and stock split (1:10).
• Earnings revision. Our EPS estimates for FY12/13 remain broadly
unchanged. We roll forward our TP to Mar’12 at Rs4250 based on PEG of
1.3x and implying FY12 P/E of 33x. Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Titan Industries Limited
Neutral
TITN.BO, TTAN IN
4QFY11 : High employee costs led to subdued
earnings growth
• High employee costs led to subdued PAT growth in Q4FY11. Titan
reported Sales, EBITDA and adjusted PAT growth of 36%, 5% and 22%
respectively during Q4FY11. EBITDA/PAT disappointment was largely on
account of provision for employee benefits and incentives included in wage
costs. While sales performance for both jewelry and watch segment was
healthy, margins for watches suffered on account of higher employee costs.
Costs related to new store expansion also weighed on margins.
• Management noted that consumer sentiment has been buoyant and
discretionary spending has been robust during the quarter despite high gold
prices (for jewelry). Titan stepped up its retail expansion momentum adding
41 new stores (c40, 446 sq ft ). Titan’s plans to increase its reach (looking to
add c125-150K sq ft in FY12) coupled with expanding price points across
its portfolio should help it register 23% revenue CAGR over FY11-13E.
• Jewelry revenues rose 39% y/y aided by gold price increase of c22%
during the quarter. Diamond jewelry share was steady at c30%. Healthy
SSS growth and higher gold prices improved overall jewelry margins by
80bp y/y. Rising diamond prices (+30-40% over last 2-3 months) may pose
downside risk to mix and margin enhancement in coming quarters.
• Watch revenue growth of 17% y/y led by volume growth of 14-15% and
broad based similar growth across all three key brands – Titan, Fastrack and
Sonata. EBIT margins for this segment declined sharply to 3% (vs 13.7% in
Q4FY10) due to higher wage costs.
• Eyewear Retailing continues to witness aggressive retail expansion (+28
stores during Q4) which contributed to EBIT losses of cRs50mn during
Q4FY11. Precision Engineering had a challenging quarter posting nearly
similar losses as eyewear retailing during the quarter. Breakeven for eyewear
business is likely by FY12 as per management.
• Titan’s board approved issue of bonus shares (1:1) and stock split (1:10).
• Earnings revision. Our EPS estimates for FY12/13 remain broadly
unchanged. We roll forward our TP to Mar’12 at Rs4250 based on PEG of
1.3x and implying FY12 P/E of 33x. Neutral
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