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Titan: Unimpressive growth - Views on News from Equitymaster
 
 
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  • Apr 9, 2001

    Titan: Unimpressive growth

    Titan Industries has reported a 12% rise in watch sales for the year FY01. Though the company has managed to increase its market share both in the economy as well as the premium segment with the launch of its ‘Raga’ collections, results are not all that encouraging.

    Aggregate watch sales have increased from 5.9 m watches in the previous year to 6.6 m watches. Sales turnover for the watch division grew marginally by 2.2% to Rs 4,535 m. Volume growth of the watch division has declined from 15% in FY00 to 12% in the current year (19% in FY99). Average realisation per watch in FY00 was Rs 753. As sales growth is just 2.2% against the volume growth of 12%, realisation has fallen significantly in the current year, which is not encouraging. Our analysis reveals that realisation has declined by atleast 7% in FY01 for the watches division.

    Similarly, though the jewellery division has reported a volume growth of 33% to 402,041 units, growth has halved in the current year (79% in FY00). Turnover increased from Rs 1,532 m to Rs 2,019 m, an increase of almost 32%, which is lower than our expectation of 50%. We were expecting higher growth given the export thrust of the company. However, aggregate exports of the company have crossed US$ 10 m in FY01. Going forward, exports would the key driver for the company as the domestic market is characterised by a huge unorganised sector presence, be it in watches, jewellery or table clocks.

    The company has recorded a sales turnover (inclusive of after sales service and other income) of Rs 7,000 m. Other income for the first nine months of the current year had gone up by 350% from Rs 25 m to Rs 106 m primarily on account of profits from sale of equity shares of RDI Printing & Publishing Ltd. (Rs 97 m). Excluding this extraordinary income, net profit had actually declined by almost 50% for the first nine months. For FY01, watches and jewellery division has contributed to 65% and 28% respectively of total revenues, which means that the company has clocked higher revenues through after sales services.

    Besides, operating margins have been on the decline for the company from 20% in FY99 to 14% in FY00. The trend has continued in the current year also. For the first nine months of the current year, operating margins have declined by 330 basis points to 12.4%. Apart from the drastic reduction in average realisations for its watches division, higher raw material costs for the jewellery division could have suppressed margins. Going forward, with the removal of quantitative restrictions (i.e. after April 2001), cheaper imports could depress margins further.

    The scrip is trading at Rs 44, at a P/E multiple of 10.6x the annualised nine months earnings. On the turnover of Rs 7,000, market capitalisation to sales works out to 0.2 times (market capitalisation is Rs 1,860 m).

     

     

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