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Titan: Continuing to build its brands - Views on News from Equitymaster
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Titan: Continuing to build its brands
Jan 28, 2015

Titan Industries declared its results for the third quarter of financial year 2015 (3QFY15). The company reported 9% YoY growth in sales, while net profit grew by 15% YoY for the quarter. Here is our analysis of the results.

Performance summary
  • Net sales grew by 9.4% YoY during the quarter.
  • Operating expenditure grew 8.9% YoY, slower than the pace of revenue growth. This led to operating profits growing by only 14.4% YoY, and a consequent rise in operating margins from 8.3% in 3QFY14 to 8.7% in the current quarter.
  • The bottomline grew by 15.2% YoY during the quarter.

Financial performance snapshot
(Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Net sales 26,505 28,983 9.4% 80,283 93,166 16.0%
Expenditure 24,306 26,467 8.9% 73,606 85,238 15.8%
Operating profit (EBDITA) 2,199 2,516 14.4% 6,677 7,928 18.7%
EBDITA margin (%) 8.3% 8.7%   8.3% 8.5%  
Other income 514 358 -30.4% 1,788 1,451 -18.8%
Interest 274 211 -23.0%  644  669 4.0%
Depreciation & amortisation 157 232 48.2%  452  674 49.3%
Profit before tax 2,282 2,431 6.5% 7,370 8,036 9.0%
Tax 627 523 -16.5% 2,023 1,957 -3.3%
Profit after tax 1,656 1,907 15.2% 5,347 6,080 13.7%
Net profit margin (%) 6.2% 6.6%   6.7% 6.5%  
No. of shares (m)         888.7  
Reported earnings per share (Rs)*         9.2  
P/E (x)*         47.2  
(*trailing twelve months)

What has driven performance in 3QFY15?
  • Segment wise, jewellery revenue grew by 11% YoY, Watches segment de-grew by 2% YoY. 'Others' segment which includes precision engineering, eyewear and accessories grew by 15% YoY. Since the jewellery business contributes a large 80% to the topline, it is this segment that led the growth in topline during the quarter.

  • It is worth remembering that 2QFY15 had seen high revenue growth with the jewellery business seeing redemption of the Golden Harvest accounts of its existing customers which had to be closed due to regulatory changes. Most of the company's customers chose to redeem their accounts by way of jewellery purchases rather than cash refunds. This factor was absent during the current quarter.

  • The positives of lower interest costs and a lower tax rate during the quarter were offset to some extent by lower other income and higher depreciation charges. The net result was a 15% YoY rise in the bottomline.

    Standalone segment wise break up
      3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
    Watches
    Revenue (Rs m) 4,513 4,426 -1.9% 12,890 14,100 9.4%
    % of total revenues 16.8% 15.1%   15.9% 15.0%  
    EBIT margin 10.4% 9.7%   10.0% 11.2%  
    Jewellery
    Revenue (Rs m) 21,107 23,474 11.2% 64,747 76,020 17.4%
    % of total revenues 78.8% 80.3%   79.8% 80.8%  
    EBIT margin 9.5% 9.6%   9.6% 9.4%  
    Others
    Revenue (Rs m) 1,164 1,337 14.8% 3,536 3,994 12.9%
    % of total revenues 4.3% 4.6%   4.4% 4.2%  
    EBIT margin -0.2% 0.2%   0.2% 0.4%  
    Total* 26,784 29,237   81,174 94,115  
    * Excluding unallocated items
What to expect?

The company's jewellery brand Tanishq ran two successful campaigns during the quarter, the 'affordable Tanishq' and a new 'wedding' campaign. Both these campaigns helped in addition of new customers.

The overall company's retail chain is now 1172 stores strong, with the retail area crossing 1.5 m sq. ft. nationally for all its brand put together. A total of 151 stores were added by the company during 9mFY15.

As per the management, the festival period which is a part of the December quarter was a bit damp. The improved consumer sentiment is yet to translate into higher spends. This period also faced heightened activity from e-commerce players as a channel for distribution. Going forward, the management is of the opinion that the market sentiment is looking good, with the budget from the new Government coming up, drop in inflation and positive global factors like the slump in oil prices.

The company is gearing up for the last quarter of the fiscal with launches of new products and advertising campaigns that are lined up.

At the current price of Rs 433, the stock is trading at 32.9 times our FY17 earnings estimates. Considering these valuations, we recommend investors avoid buying the stock at these levels.

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