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Stellar performance (ex one offs); net profit up 63.3%
Titan Industries’ (Titan) Q4FY11 revenue, at INR 17.77 bn, jumped ~35.6% Yo-
Y, above our estimate of INR 16.5 bn. EBIDTA was at INR 1.05 bn vis-à-vis
INR 1.00 bn in Q4FY10. EBITDA margin declined 168bps Y-o-Y to 6%. COGS
declined 226bps Y-o-Y, employee cost increased 221bps, ad spending increased
86bps, and other expenses jumped 87bps, following margin compression. The
company’s PAT catapulted ~63.3% to INR 838 mn following higher other income
(up 398% to INR 244 mn).
Jewellery: Volume growth of ~15%; mix improvement continues
Buoyant consumer demand contributed ~15% to volume growth. Price hike
contributed 23.5% to growth, further buoyed by mix improvement. Jewellery
grew a robust 38.5% to INR ~13.7 bn, with margins ballooning 146bps on back
of improved product mix and better operating leverage. Higher consumer
advances under ‘Golden Harvest’ scheme further enhanced the return profile.
Watches: One offs dent margin; eyewear potential growth driver
Titan’s watches business grew at 16.8% to ~INR 3.3 bn, while margins declined
476bps to INR 97 mn following one offs in bonus payouts. The others segment
grew at 79.4% Y-o-Y to INR 711 mn; it, however, posted PBIT loss of ~INR 98.8
mn in Q4FY11. The eyewear business has grown its retail presence to over 44
towns through Titan Eye+ stores.
Well timed bonus issue; excellent dividend payout continues
A dividend of 250%, viz. INR 25 per share (previous year: 150%) was declared
for FY11. The board also approved the issue of bonus shares in the ratio of one
equity share for every one existing equity share held. The board has also
approved the sub-division of the company’s equity share of face value of INR 10
each into 10 equity shares of INR 1 each.
Outlook and valuations: Robust; maintain ‘BUY’
With an improving margin profile due to gradual shift from plain gold jewellery to
studded jewellery and expansion in retail space, we are bullish on Titan. Though
Q4FY11 results were impacted by higher staff costs in watches, higher lease
rentals and tax rates, Titan has displayed good buoyancy in recent quarters. We
maintain ‘BUY’ recommendation on the stock and rate it ‘Sector Outperformer’
on relative return basis.
Company Description
Titan was incorporated in 1984 as a joint venture between the TATA Group and Tamil
Nadu Industrial Development Corporation (TIDCO), a Government of Tamil Nadu
undertaking. The company manufactures and markets quartz watches since 1987 and is
now India’s leading watch manufacturer and retailer. Gradually, jewellery, precision
engineering, accessories, and licensed products were added to the watches portfolio to
leverage on the premium positioning that was assiduously achieved and the success of
the Titan brand was extended to Tanishq and other retail businesses. Its watch brands
include Titan, Edge, Fastrack, Nebula, Raga, Steel, Regalia, Bandhan, Zoop, and Sonata.
The company has also acquired a license for marketing global brands Tommy Hilfiger and
Hugo Boss in India.
Investment Theme
The Indian retail landscape is evolving with interplay of several demographic and
economic factors. The long-term prospects backed by changing consumer behaviour in
favour of larger discretionary spending, has set the stage for a healthy growth in the
retail space over the next five years. The big opportunity lies in the growing share of
organised retail with growing trend among consumers to allocate a larger share of
income to consumption and gradual improvement in lifestyle.
Titan has assiduously positioned itself in the premium watch and designer jewellery
space. With constant product innovation it has become the largest organised player in
both these segments. Given its well established brand and sound management we
expect Titan to replicate this success in its new eyewear venture as well. We believe
Titan has the ability to create significant value with its large distribution presence, strong
brand, designing skills and proven execution track record.
Key Risks
Deterioration of macro conditions: Poor macro outlook could lead to prolonged
slowdown in the company’s growth as the company’s revenues depend on discretionary
spend.
Volatility in gold prices: Gold prices have a significant bearing on gold demand. Any
steep rise in prices results in lower demand, and investment buying that comes in is low
margin.
Margin pressure due to deterioration in product mix and investment buying:
Down trading in watches and jewellery divisions on account of fall in discretionary
spending and higher growth in tier II and IV towns could impact margins.
Sustained losses in new initiatives: New initiatives like Eye+ and the precision
engineering division are currently a drain on profitability. With the slowdown in
consumption these are unlikely to turn around in the next couple of years. Prolonged
losses in these divisions will impact overall profitability.
Business seasonal, restricted to marriage season and festivals: The jewellery
segment is seasonal with respect to marriage season and festivals. Additionally, the
number of wedding dates varies in a year. This could impact the company’s revenue
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Stellar performance (ex one offs); net profit up 63.3%
Titan Industries’ (Titan) Q4FY11 revenue, at INR 17.77 bn, jumped ~35.6% Yo-
Y, above our estimate of INR 16.5 bn. EBIDTA was at INR 1.05 bn vis-à-vis
INR 1.00 bn in Q4FY10. EBITDA margin declined 168bps Y-o-Y to 6%. COGS
declined 226bps Y-o-Y, employee cost increased 221bps, ad spending increased
86bps, and other expenses jumped 87bps, following margin compression. The
company’s PAT catapulted ~63.3% to INR 838 mn following higher other income
(up 398% to INR 244 mn).
Jewellery: Volume growth of ~15%; mix improvement continues
Buoyant consumer demand contributed ~15% to volume growth. Price hike
contributed 23.5% to growth, further buoyed by mix improvement. Jewellery
grew a robust 38.5% to INR ~13.7 bn, with margins ballooning 146bps on back
of improved product mix and better operating leverage. Higher consumer
advances under ‘Golden Harvest’ scheme further enhanced the return profile.
Watches: One offs dent margin; eyewear potential growth driver
Titan’s watches business grew at 16.8% to ~INR 3.3 bn, while margins declined
476bps to INR 97 mn following one offs in bonus payouts. The others segment
grew at 79.4% Y-o-Y to INR 711 mn; it, however, posted PBIT loss of ~INR 98.8
mn in Q4FY11. The eyewear business has grown its retail presence to over 44
towns through Titan Eye+ stores.
Well timed bonus issue; excellent dividend payout continues
A dividend of 250%, viz. INR 25 per share (previous year: 150%) was declared
for FY11. The board also approved the issue of bonus shares in the ratio of one
equity share for every one existing equity share held. The board has also
approved the sub-division of the company’s equity share of face value of INR 10
each into 10 equity shares of INR 1 each.
Outlook and valuations: Robust; maintain ‘BUY’
With an improving margin profile due to gradual shift from plain gold jewellery to
studded jewellery and expansion in retail space, we are bullish on Titan. Though
Q4FY11 results were impacted by higher staff costs in watches, higher lease
rentals and tax rates, Titan has displayed good buoyancy in recent quarters. We
maintain ‘BUY’ recommendation on the stock and rate it ‘Sector Outperformer’
on relative return basis.
Company Description
Titan was incorporated in 1984 as a joint venture between the TATA Group and Tamil
Nadu Industrial Development Corporation (TIDCO), a Government of Tamil Nadu
undertaking. The company manufactures and markets quartz watches since 1987 and is
now India’s leading watch manufacturer and retailer. Gradually, jewellery, precision
engineering, accessories, and licensed products were added to the watches portfolio to
leverage on the premium positioning that was assiduously achieved and the success of
the Titan brand was extended to Tanishq and other retail businesses. Its watch brands
include Titan, Edge, Fastrack, Nebula, Raga, Steel, Regalia, Bandhan, Zoop, and Sonata.
The company has also acquired a license for marketing global brands Tommy Hilfiger and
Hugo Boss in India.
Investment Theme
The Indian retail landscape is evolving with interplay of several demographic and
economic factors. The long-term prospects backed by changing consumer behaviour in
favour of larger discretionary spending, has set the stage for a healthy growth in the
retail space over the next five years. The big opportunity lies in the growing share of
organised retail with growing trend among consumers to allocate a larger share of
income to consumption and gradual improvement in lifestyle.
Titan has assiduously positioned itself in the premium watch and designer jewellery
space. With constant product innovation it has become the largest organised player in
both these segments. Given its well established brand and sound management we
expect Titan to replicate this success in its new eyewear venture as well. We believe
Titan has the ability to create significant value with its large distribution presence, strong
brand, designing skills and proven execution track record.
Key Risks
Deterioration of macro conditions: Poor macro outlook could lead to prolonged
slowdown in the company’s growth as the company’s revenues depend on discretionary
spend.
Volatility in gold prices: Gold prices have a significant bearing on gold demand. Any
steep rise in prices results in lower demand, and investment buying that comes in is low
margin.
Margin pressure due to deterioration in product mix and investment buying:
Down trading in watches and jewellery divisions on account of fall in discretionary
spending and higher growth in tier II and IV towns could impact margins.
Sustained losses in new initiatives: New initiatives like Eye+ and the precision
engineering division are currently a drain on profitability. With the slowdown in
consumption these are unlikely to turn around in the next couple of years. Prolonged
losses in these divisions will impact overall profitability.
Business seasonal, restricted to marriage season and festivals: The jewellery
segment is seasonal with respect to marriage season and festivals. Additionally, the
number of wedding dates varies in a year. This could impact the company’s revenue
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