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Titan: Festive demand boosts sales - Views on News from Equitymaster

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Titan: Festive demand boosts sales
Jan 30, 2013

Titan Industries declared the results for the third quarter of financial year 2013 (3QFY13). The company reported 23.7% YoY growth in sales, while net profit has risen by 24.3% YoY for the quarter. Here is our analysis of the result.

Performance summary
  • Net sales increased by 23.7% YoY during the quarter and by 14.4% YoY during the 9 month period ended December 2012
  • Jewellery segment grew by 27% YoY led by festive demand for the same. Sales of watches too were up by 11% YoY as compared to the same quarter last year. Overall improvement in consumer sentiments helped the company.
  • Operating expenditure also rose in line with the growth in sales. Operating profit rose by 25.7% YoY during the quarter and operating profit margins remained consistent at 9% levels.
  • Titan was able to contain finance costs which fell by 9.7% YoY. However, other income too was down by 11% YoY.
  • Net profits increased by 24.3% YoY as compared to the same quarter last year. Net profit margins continued to be around 6.8%.

Standalone financial performance
(Rs m) 3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
Net sales 24,401 30,178 23.7% 65,570 74,994 14.4%
Expenditure 22,152 27,351 23.5% 59,311 67,553 13.9%
Operating profit (EBDITA) 2,249 2,828 25.7% 6,259 7,441 18.9%
EBDITA margin (%) 9.2% 9.4%   9.5% 9.9%  
Other income 247 220 -11.0% 686 710 3.6%
Interest 129 117 -9.7% 306 364 19.1%
Depreciation & amortisation 119 142 19.0% 324 395 22.0%
Profit before tax 2,247 2,789 24.1% 6,315 7,392 17.1%
Tax 608 752 23.5% 1,756 1,992 13.5%
Profit after tax 1,639 2,037 24.3% 4,559 5,400 18.4%
Net profit margin (%) 6.7% 6.8%   7.0% 7.2%  
No. of shares (m)           887.78
Diluted earnings per share (Rs)*           7.71
P/E (x)           35.68
* on a trailing 12 months basis

What has driven performance in 3QFY13?
  • Net sales increased by 23.7% YoY during the quarter and by 14.4% YoY during the 9 month period ended December 2012. Overall improvement in consumer sentiments helped the company.

  • Segment wise, the jewellery segment grew by 27% YoY led by festive demand for the same. Also, the quarter witnessed wedding season demand. Sales of watches too were up by 11% YoY as compared to the same quarter last year. Others including eye wear, precision engineering and accessories grew by 4.3% YoY during the quarter.

    Standalone performance snapshot
      3QFY12 3QFY13 Change 9MFY12 9MFY13 Change
    Watches
    Revenue (Rs m) 3,831 4,235 10.6% 11,159 12,560 12.6%
    % of total revenues 15.6% 13.9%   16.9% 16.6%  
    EBIT margin 12.5% 12.1%   14.6% 12.4%  
    Jewellery
    Revenue (Rs m) 19,859 25,152 26.7% 52,645 60,147 14.3%
    % of total revenues 80.6% 82.8%   79.6% 79.6%  
    EBIT margin 9.6% 9.8%   9.8% 10.7%  
    Others
    Revenue (Rs m) 942 983 4.3% 2,368 2,853 20.4%
    % of total revenues 3.8% 3.2%   3.6% 3.8%  
    EBIT margin 5.4% 1.7%   0.1% -1.5%  
    Total 24,632 30,370   66,173 75,560  

  • Raw material costs were higher resulting in operating expenditure increasing by 23.5% YoY in December quarter.

  • Operating profits were up by 25.7% YoY during the quarter. Operating profit margins were stable at around 9 % (marginal rise of 20 basis points). The share of studded jewellery was lower at 22% on account of lower demand for diamond jewellery as compared to gold jewellery which is considered as investment too.

  • Titan was able to contain finance costs which fell by 9.7% YoY. However, other income too was down by 11% YoY.

  • Net profits increased by 24.3% YoY as compared to the same quarter last year. Net profit margins were at 6.8% as compared to 6.7% in same quarter last year.

What to expect?
Titan is rapidly expanding across the country resulting in good growth in topline. After the success of its youth brand Fastrack, the watches turned lifestyle company now wants to enter newer businesses. It also has plans to focus on the children brand of Zoop and bring in more products under this brand aimed at children. All this would entail substantial initial investments as well as promotional expenses which may affect profitability in future. In the jewelry segment too, entry of newer players will increase competition. At the current price of Rs 275, the stock is trading at a high multiple of 36 times its trailing twelve month earnings. We thus maintain our Sell view on the stock.

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