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Titan Industries Limited Underweight
TITN.BO, TTAN IN
Strong Q1FY12 performance but concerns on growth
ahead
A strong quarter. Titan reported sales, EBITDA and adjusted PAT
growth of 61%, 66% and 77%, respectively, during Q1FY12, significantly
ahead of our and consensus estimates. Earnings surprise was largely on
account of strong jewelry revenue growth.
Jewelry revenue rose 72% y/y led by volume growth of ~35% and gold
price increase of ~24% during the quarter. Higher diamond prices also
contributed to the growth. Q1FY12 benefited from strong festive and
wedding-related demand. Diamond jewelry share, however, declined below
25% (vs. 28-30% in prior quarter) as sharp increase in diamond jewelry
prices (~90%) impacted offtake. During the quarter, jewelry segment saw
non-recurring inventory gains (for diamond jewelry) amounting to ~Rs100-
150mn, adjusting for which margins for jewelry would have been ~8%
(+80bp y/y, -70bp q/q). Capital employed rose qoq for jewelry division
increased qoq on account of higher inventory.
Watch revenue growth of 23% y/y led by volume growth of 15-16%
and faster growth for Titan and Fastrack brands. EBIT margins for this
segment declined 180bp y/y on account of store opening expenses
particularly for Helios (high end) format.
Concerns on growth rates ahead? In our discussions, management
noted that demand for jewelry has moderated in recent weeks on account
of rising gold/diamond prices. Lower offtake for diamond jewelry is a
key challenge and the company may look to sacrifice some margins to
spur growth for diamond jewelry. Recent notification to quote PAN for
purchase of jewelry (against a bill of Rs0.5mn or more) could further act
as a deterrent for jewelry sales for Titan (vs unorganised segment).
Management noted that the rising interest rate environment is posing
downside risk to disposable income which, in turn, impacts discretionary
spend on jewelry and watches.
Eyewear retailing continues to witness aggressive retail expansion
(+19 stores during Q1), which contributed to EBIT losses of Rs36mn
during Q1FY12. Breakeven for eyewear business is likely by FY12E, as
per management.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Titan Industries Limited Underweight
TITN.BO, TTAN IN
Strong Q1FY12 performance but concerns on growth
ahead
A strong quarter. Titan reported sales, EBITDA and adjusted PAT
growth of 61%, 66% and 77%, respectively, during Q1FY12, significantly
ahead of our and consensus estimates. Earnings surprise was largely on
account of strong jewelry revenue growth.
Jewelry revenue rose 72% y/y led by volume growth of ~35% and gold
price increase of ~24% during the quarter. Higher diamond prices also
contributed to the growth. Q1FY12 benefited from strong festive and
wedding-related demand. Diamond jewelry share, however, declined below
25% (vs. 28-30% in prior quarter) as sharp increase in diamond jewelry
prices (~90%) impacted offtake. During the quarter, jewelry segment saw
non-recurring inventory gains (for diamond jewelry) amounting to ~Rs100-
150mn, adjusting for which margins for jewelry would have been ~8%
(+80bp y/y, -70bp q/q). Capital employed rose qoq for jewelry division
increased qoq on account of higher inventory.
Watch revenue growth of 23% y/y led by volume growth of 15-16%
and faster growth for Titan and Fastrack brands. EBIT margins for this
segment declined 180bp y/y on account of store opening expenses
particularly for Helios (high end) format.
Concerns on growth rates ahead? In our discussions, management
noted that demand for jewelry has moderated in recent weeks on account
of rising gold/diamond prices. Lower offtake for diamond jewelry is a
key challenge and the company may look to sacrifice some margins to
spur growth for diamond jewelry. Recent notification to quote PAN for
purchase of jewelry (against a bill of Rs0.5mn or more) could further act
as a deterrent for jewelry sales for Titan (vs unorganised segment).
Management noted that the rising interest rate environment is posing
downside risk to disposable income which, in turn, impacts discretionary
spend on jewelry and watches.
Eyewear retailing continues to witness aggressive retail expansion
(+19 stores during Q1), which contributed to EBIT losses of Rs36mn
during Q1FY12. Breakeven for eyewear business is likely by FY12E, as
per management.
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