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Titan: Festive season led growth - Views on News from Equitymaster
 
 
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  • Feb 5, 2002

    Titan: Festive season led growth

    Titan Industries, the market leader in the organised watch sector, reported a better than expected results for the third quarter ended December 31, 2001. The sharp rise in sales could be attributed to the festive demand in the third quarter. Margins, in contrary to the past few quarters, have also increased.

    (Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
    Net sales 1,474 1,925 30.6% 4,079 4,078 0.0%
    Other Income 3 3 -12.1% 9 17 81.7%
    Expenditure 1,276 1,659 29.9% 3,522 3,568 1.3%
    Operating Profit (EBDIT) 197 267 35.1% 556 510 -8.4%
    Operating Profit Margin (%) 13.4% 13.8%   13.6% 12.5%  
    Interest 127 114 -10.3% 361 361 0.1%
    Depreciation 48 56 15.8% 158 164 3.9%
    Profit before Tax 26 100 286.5% 47 1 -97.6%
    Extraordinary items - -   97 -  
    Tax 2 30   12 (4)  
    Profit after Tax/(Loss) 24 70 195.4% 132 5 -96.0%
    Net profit margin (%) 1.6% 3.6%   3.2% 0.1%  
    No. of Shares (m) 42.3 42.3   42.3 42.3  
    Diluted Earnings per share* 2.2 6.6   4.1 0.2  
    P/E Ratio (x)   5.7     231.7  

    This year, the festive season commenced well into the third quarter, almost one month later than in the previous year. Consequently sales and profits in the current year are skewed more than normally in 3QFY02. But if we were to look at the first nine months performance, topline has remained stagnant. While demand in the domestic markets has remained subdued, competition has also increased multifold both from multinationals as well as from the huge presence of the unorganised segment. Relaxing import restrictions also did not augur well for the company. Besides, Titan's conscious effort to increase exports also seems to have hit a dampener in the form of weaker demand in European countries, where it has made significant inroads.

    The rise in operating margins by 40 basis points in 3QFY02 was a surprise as price realisations have been on the decline due to stiff competition. But when one considers the nine months performance, margins are in line with our expectations. The sharp rise in net profit in 3QFY02 was also led by lower interest costs. Depreciation has increased on account of continued expansion of dealer outlets both in the domestic as well as the international markets.

    The company is expected to report a net loss of around Rs 27 m for FY02. But after considering the balance amount to be received from sale of RDI Publishing (Rs 30 m), Titan is expected to close with a marginal profit. The pressure on margins would continue to affect profitability. We expect Titan's operating margins to decline to around 10% in FY02 as against 12% in FY01. Though exports is a promising segment, the company's venture into organised jewellery is a cause of concern. The stock currently trades at Rs 38 implying a P/E multiple of 5.7x 3QFY02 annualised earnings.

     

     

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