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Titan: Jewellery loses glitter - Views on News from Equitymaster
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Titan: Jewellery loses glitter
Apr 25, 2008

Performance summary
  • Topline grows by 42% YoY in FY08 on account of growth across product offerings. Watch segment grew by 17% YoY, while jewellery segment grew by 57% YoY.

  • Costs outpace topline growth resulting in subdued growth in operating profits.

  • Net profits grow by 27% YoY, excluding the exceptional items in FY07 (provision made for doubtful loans and advances). Including the same, the profits have grown by almost 60% YoY.

Financial performance snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net sales 6,058 8,359 38.0% 21,365 30,411 42.3%
Expenditure 5,365 7,521 40.2% 19,380 27,907 44.0%
Operating profit (EBDITA) 693 838 20.9% 1,984 2,504 26.2%
EBDITA margin (%) 11.4% 10.0%   9.3% 8.2%  
Other income 4 4 -7.3% 32 18 -45.0%
Interest 66 63 -4.4% 204 201 -1.4%
Depreciation & amortisation 72 79 10.9% 256 297 16.2%
Profit before tax 560 700 25.0% 1,557 2,023 30.0%
Exceptional item (172) -   (240) -  
Tax 87 175 102.3% 375 520 38.7%
Profit after tax 301 525 74.1% 941 1,503 59.6%
Net profit margin (%) 5.0% 6.3%   4.4% 4.9%  
No. of shares (m)       44 44  
Diluted earnings per share (Rs)*         33.9  
P/E (x)         35.0  
(*trailing twelve month earnings)

The company has not declared the fourth quarter numbers. However we have calculated the same by taking the difference between the full year results and nine-month performance of the company.

What has driven performance in FY08?
  • Titan continued to sustain its growth momentum clocking 42% YoY growth in revenues on the back of 17% YoY growth in time products segment and 57% YoY growth in the jewellery segment in FY08. While the jewellery division, as earlier, continued to outpace the time products division in terms of growth rates, the same has, however, been at a relatively muted pace in FY08 (63% in FY07). The same may be attributed to the fact the commodity prices have been quite volatile and were moving in northward direction. During the 4QFY08, the jewellery segment sales grew by 36% YoY, while the time products witnessed 11% YoY growth.

  • The new eyewear business now has 10 stores and Gold Plus, the mass-market brand for jewellery crossed the Rs 2 bn mark in sales during the year. Further, the new introductions in both jewellery and watches segments such as Octane series in gents category, the Raga Crystal for ladies and the Jodha-Akbar collection (Tanishq jewellery) witnessed positive response. Thus, the new initiatives seem to have worked in the company’s favour.

    Segmental break-up…
    (Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
    Revenues - Time products 2,478 2,778 12.1% 7,838 9,187 17.2%
    PBIT margin 18.7% 21.6%   13.7% 14.7%  
    Revenues - Jewellery 3,403 5,313 56.1% 12,920 20,280 57.0%
    PBIT margin 5.3% 5.1%   6.6% 5.4%  
    Other businesses* 181 272 49.9% 627 960 53.1%
    PBIT margin -20.2% -29.9%   -17.9% -14.9%  
    (*includes precision engineering, licensed products and accessories)

  • As the jewellery division performance was not so impressive (which contributes over 60% to the topline) the overall performance has tempered down and has resulted in 1.4% contraction in overall EBITDA margins. The high cost and volatile prices of the yellow commodity seems to have pressurised the jewellery division’s margins. While in case of time products, the contribution of premium products with improved product mix led to margin expansion. The performance of the other businesses is still gloomy, as the division comprises of new initiatives, which are yet to turn profitable.

  • The jewellery segment contributes over 45% to the earnings before interest tax. While the subdued performance of this division has not impacted the overall net margins of the company on account of impact of extraordinary item (provision made for doubtful loans and advances in FY07). Excluding the same, the net margins, which seem to have expanded by 0.5%, have actually contracted by 0.6% in FY08.

What to expect?
Going forward, new initiatives are expected to augur well and give a further fillip to the topline growth. Having said that, volatility in raw material prices, intensifying competition coupled with huge expansion plan outlined by the company may continue to pressurise margins, till the new initiatives break-even.

At the current price of Rs 1,185, the stock is trading at 35 times its trailing 12-month earnings. While we are enthused by the company’s diversified business model, at current price the stock is trading at rich valuations.

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