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Titan: Festive season led growth - Views on News from Equitymaster
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Titan: Festive season led growth
Jan 30, 2010

Performance summary
  • Titan Industries report 30.3% YoY growth in revenues in 3QFY10, backed by festive season and new store openings.
  • Operating profits report robust growth of 81.4% YoY as costs grow at a slower pace compared to growth in topline.
  • Good show at the operating level, lower interest costs and tax expenses leads to more than five-fold growth in net profits.


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 10,238 13,336 30.3% 29,227 33,632 15.1%
Expenditure 9,647 12,264 27.1% 26,814 30,686 14.4%
Operating profit (EBDITA) 591 1,073 81.4% 2,413 2,947 22.1%
EBDITA margin (%) 5.8% 8.0%   8.3% 8.8%  
Other income 14 30 121.9% 37 72 92.8%
Interest 116 29 -75.0% 219 155 -29.2%
Depreciation & amortisation 79 91 15.5% 235 270 14.9%
Profit before tax 410 983 139.6% 1,996 2,594 29.9%
Tax 284 229 -19.6% 665 603 -9.3%
Profit after tax 126 754 498.7% 1,331 1,991 49.6%
Net profit margin (%) 1.2% 5.7%   4.6% 5.9%  
No. of shares (m)       44 44  
Diluted earnings per share (Rs)*         50.7  
P/E (x)         29.6  

What has driven performance in 3QFY10?
  • In 3QFY10, Titan Industries’ revenues grew by 30% YoY on account growth across its mature business segments – time products and jewelry. The jewelry segment that accounts for more than 75% of the total revenues reported 33.7% YoY growth in revenues. The growth in revenues of time products (contributes over 15% to total revenues) stood at 24.8% YoY. The remaining 3% to 5% of revenues come from the other business that includes that include eyewear, precision engineering, etc. This segment reported decline in revenues of 6.8% during the 3QFY10 on account of postponement / cancellation of orders from overseas customers in the Precision Engineering division.

  • Thus, the growth in revenues was driven by its mature business segments – jewellery and time products. The growth of the Titan’s business is linked to discretionary spending by consumers. The recovering economic scenario, new store openings and festive boosted consumer spending. Additionally, Titan Industries’ ability to understand changing consumer preferences and accordingly streamline its products enabled to push sales in an increasing competitive scenario.

  • The operating profits operating have reported robust growth of 81% YoY during the 3QFY10. Apart from double digit growth in net sales, cost control initiatives implemented by the company supported growth in profits. The operating margins have expanded by 2.3% in 3QFY10 to 8%. As a percentage of sales, the cost of raw materials remained stable at around 76%, while the staff costs and advertising expenses were lower. All of this resulted in higher profitability.

  • On account of good show at the operating level and lower interest costs, the company has reported more than two-fold growth in profit before tax. The interest expenses in 3QFY09 were on a higher side as it includes nearly Rs 67 m relating to interest on income tax of earlier years.

  • Apart from the whopping growth at the PBT level, incidence of lower tax expenses led to more than five-fold growth in net profits. During the same quarter last year, tax expenses were on a higher side as it includes income related to earlier years.

What to expect?
Titan, on account of its strong brand portfolio, its ability to understand changing consumer preferences and ability to accordingly streamline its products has been able to withstand the difficult situation better than others. In future too we expect the company to continue to grow on the back of its strong position and its new initiatives. The sector provides immense potential on account of low penetration levels and on account of rising aspiration levels of Indian consumers. The company’s new initiatives, (prescription eyewear and precision engineering) taken with a view to sweat assets and sustain profitability are expected to improve shareholder returns in the future. While these two segments are not expected to contribute significantly to the topline in the coming two to three years, it will help the company sustain profitability going forward.

At the current price of Rs 1,499, the stock is trading at a multiple of 18.4 times our estimated FY12 earnings and leaves limited scope for upside potential. On topline front the company is likely to end the year in line with our expectations. However, on the bottomline front it is likely to outperform our expectations owing to adoption of new principles for more accurate presentation of operational performance and tax adjustments for earlier years and interest there on. We shall shortly be reviewing our research report on the stock.

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