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Titan: A sparkling performance - Views on News from Equitymaster

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Titan: A sparkling performance

Feb 18, 2011

Titan Industries has yet again exceeded all expectations and reported a 47% YoY growth in sales in 3QFY11, while net profit has risen 82% YoY. Here is our analysis of the result.

Performance summary
  • Net sales grow by 47% YoY during 3QFY11, 41% YoY during the year till date (9 months).
  • Operating margins improved to 10% during the quarter, from 8% in 3QFY10
  • Led by good sales growth, stronger operating margins, and higher other income, net profit surges by 82% YoY during the quarter and 74% YoY during the year till date (9 months).

Financial performance snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 13,338 19,548 46.6% 33,636 47,437 41.0%
Expenditure 12,264 17,596 43.5% 30,686 42,635 38.9%
Operating profit (EBDITA)  1,075  1,952 81.7%  2,951  4,802 62.7%
EBDITA margin (%) 8.1% 10.0%   8.8% 10.1%  
Other income 28 153 439.2% 68 313 360.9%
Interest 29 20 -30.0% 155 69 -55.3%
Depreciation & amortisation 91 86 -5.9% 270 254 -6.0%
Profit before tax 983  1,999 103.4%  2,594  4,792 84.8%
Tax 229 623 172.6% 603  1,326 119.9%
Profit after tax 754  1,376 82.4%  1,991  3,466 74.1%
Net profit margin (%) 5.7% 7.0%   5.9% 7.3%  
No. of shares (m) 44.4 44.4   44.4 44.4  
Diluted earnings per share (Rs)*         89.6  
P/E (x)         36.5  

What has driven performance in 3QFY11?
  • Titan's jewellery segment grew by 50% % YoY during the quarter, and formed 80% of the company's total sales. This aided the company in recording a strong 47% YoY growth in its net sales during the quarter. The company's growing focus on stone studded jewellery and luxury segment has resulted in this outstanding performance. The mass market Goldplus brand has also been doing well.

  • The company's second major business segment of watches grew by 34% YoY during the quarter. The Management strategy of positioning watches as personal accessories instead of just time pieces seems to have worked in its favour. With its new launch of Sonata Super Fibre watches, Titan has entered into the largely unchartered segment of sub Rs 500 watches. The company intends to expand its third line of business which includes products like eye wear, clocks, and precision engineering components, grew at a robust pace of 37% YoY during the quarter.

    Segmental break-up
      3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Watches            
    Revenue (Rs m) 2,409 3,251 34.9% 7,450 9,375 25.8%
    % of total revenues 18.0% 16.5%   22.1% 19.6%  
    EBIT margin 14.7% 18.0%   17.4% 19.3%  
    Jewellery            
    Revenue (Rs m) 10,545 15,788 49.7% 25,127 36,539 45.4%
    % of total revenues 78.9% 80.1%   74.6% 76.5%  
    EBIT margin 7.0% 9.0%   7.5% 8.1%  
    Others            
    Revenue (Rs m) 412 661 60.6% 1,127 1,836 62.9%
    % of total revenues 3.1% 3.4%   3.3% 3.8%  
    EBIT margin -14.7% -7.8%   -28.4% -2.7%  

  • PBIT margin (profit before interest and taxes) of the watches business improved to 18%, from 15% in the corresponding previous quarter. Despite high inflation, the company has been able to keep the raw material prices low. The management has indicated that the company will be able to sustain margins at the current levels owing to the strength of its brands. The PBIT margin of the jewellery segment improved from 7% in 3QFY10 to 9% in 3QFY11.

  • Titan grew its net profits at a robust rate of 82% YoY during the quarter. This was helped by the strong growth in net sales as also the increase in other income. Reduced depreciation charges (-6%) and interest costs (-30%) have helped the company in posting huge profits.

What to expect?
At the current price of Rs 3,274, the stock is trading at a multiple of 37 times its trailing 12-months earnings and 30 times our estimated FY13 earnings. Titan has posted very good results exceeding all expectations over last 3 quarters and we are likely to revise our full year FY11 estimates. But, we believe the stock does not present a profit potential even from a 2-3 years perspective. As such, we have a cautious view on the same. ResearchPro subscribers can watch out this space for the update.

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